It
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended November 30, 20172019
Commission File Number: 1-9852
CHASE CORPORATION
(Exact name of registrant as specified in its charter)
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Massachusetts |
| 11-1797126 |
(State or other jurisdiction of incorporation |
| (I.R.S. Employer Identification No.) |
295 University Avenue, Westwood, Massachusetts 02090
(Address of Principal Executive Offices, Including ZipOffices) (Zip Code)
(781) 332-0700
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Common stock, $.10 par value | Trading Symbol(s) CCF | Name of each exchange on which registered NYSE American |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth 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.
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Large accelerated filer ☐ | Accelerated filer ☒ |
Non-accelerated filer ☐ | Smaller reporting company ☐ |
Emerging growth company ☐ |
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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 7(a)(2)(B)13(a) of the SecuritiesExchange Act. ☐
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
The number of shares of Common Stock outstanding as of December 31, 20172019 was 9,374,8409,423,946
CHASE CORPORATION
For the Quarter Ended November 30, 20172019
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Part I - FINANCIAL INFORMATION |
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Item 1 – Unaudited Condensed Consolidated Financial Statements |
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Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3 – Quantitative and Qualitative Disclosures About Market Risk |
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2
Cautionary Note Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q contains "forward -looking"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 Quarterly 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 “Risk Factors” contained in our Annual Report on Form 10-K for the fiscal year ended August 31, 20172019 concerning certain factors that could cause our actual results to differ materially from the results anticipated in such forward-looking statements. These Risk Factors are hereby incorporated by reference into this Quarterly Report.
3
Item 1 — Unaudited Condensed Consolidated Financial Statements
CHASE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
In thousands, except share and per share amounts
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| November 30, |
| August 31, |
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| November 30, |
| August 31, |
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| 2017 |
| 2017 |
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| 2019 |
| 2019 |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
| $ | 54,262 |
| $ | 47,354 |
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| $ | 66,056 |
| $ | 47,771 |
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Accounts receivable, less allowance for doubtful accounts of $333 and $456 |
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| 34,976 |
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| 38,051 |
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Accounts receivable, less allowance for doubtful accounts of $789 and $739 |
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| 37,274 |
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| 39,324 |
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Inventory |
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| 27,331 |
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| 25,618 |
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| 39,019 |
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| 42,354 |
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Prepaid expenses and other current assets |
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| 3,847 |
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| 3,098 |
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| 2,970 |
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| 2,418 |
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Due from sale of business |
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| 400 |
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Assets held for sale |
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| 14 |
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| 14 |
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| 1,064 |
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| 1,064 |
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Prepaid income taxes |
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| 641 |
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| — |
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| 1,451 |
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Total current assets |
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| 121,471 |
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| 114,135 |
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| 146,383 |
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| 134,382 |
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Property, plant and equipment, less accumulated depreciation of $45,614 and $44,277 |
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| 34,430 |
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| 34,760 |
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Property, plant and equipment, less accumulated depreciation of $50,926 and $49,730 |
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| 28,110 |
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| 29,326 |
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Other Assets |
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Goodwill |
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| 50,911 |
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| 50,784 |
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| 82,194 |
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| 81,986 |
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Intangible assets, less accumulated amortization of $44,817 and $42,206 |
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| 44,607 |
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| 46,846 |
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Cash surrender value of life insurance, less current portion |
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| 4,530 |
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| 4,530 |
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Intangible assets, less accumulated amortization of $69,301 and $65,862 |
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| 49,847 |
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| 52,704 |
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Cash surrender value of life insurance |
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| 4,450 |
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| 4,450 |
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Restricted investments |
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| 1,057 |
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| 964 |
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| 1,365 |
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| 1,260 |
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Funded pension plan |
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| 549 |
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| 566 |
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Deferred income taxes |
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| 1,570 |
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| 1,614 |
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| 3,870 |
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| 3,804 |
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Operating lease right-of-use asset (Note 8) |
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| 9,776 |
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Other assets |
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| 129 |
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| 539 |
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| 46 |
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| 56 |
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Total assets |
| $ | 259,254 |
| $ | 254,738 |
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| $ | 326,041 |
| $ | 307,968 |
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LIABILITIES AND EQUITY |
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Current Liabilities |
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Accounts payable |
| $ | 13,114 |
| $ | 14,455 |
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| $ | 13,091 |
| $ | 12,105 |
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Accrued payroll and other compensation |
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| 4,404 |
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| 6,500 |
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| 4,524 |
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| 6,300 |
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Accrued expenses |
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| 3,826 |
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| 4,052 |
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| 5,628 |
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| 4,035 |
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Dividend payable |
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| 7,498 |
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| 7,539 |
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Accrued income taxes |
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| 2,333 |
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| 776 |
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Total current liabilities |
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| 28,842 |
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| 27,340 |
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| 31,558 |
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| 22,440 |
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Operating lease long-term liabilities (Note 8) |
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| 7,144 |
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Deferred compensation |
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| 1,071 |
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| 979 |
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| 1,380 |
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| 1,275 |
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Accumulated pension obligation |
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| 12,368 |
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| 12,666 |
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| 10,182 |
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| 10,485 |
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Other liabilities |
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| 1,612 |
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| 1,567 |
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| 217 |
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Accrued income taxes |
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| 1,257 |
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| 1,257 |
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| 2,304 |
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| 2,324 |
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Commitments and Contingencies (Note 10) |
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Equity |
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First Serial Preferred Stock, $1.00 par value: Authorized 100,000 shares; none issued |
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| — |
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Common stock, $.10 par value: Authorized 20,000,000 shares; 9,374,840 shares at November 30, 2017 and 9,354,136 shares at August 31, 2017 issued and outstanding |
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| 937 |
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| 935 |
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Common stock, $.10 par value: Authorized 20,000,000 shares; 9,423,946 shares at November 30, 2019 and 9,400,748 shares at August 31, 2019 issued and outstanding |
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| 942 |
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| 940 |
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Additional paid-in capital |
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| 14,734 |
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| 14,060 |
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| 15,063 |
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| 14,351 |
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Accumulated other comprehensive loss |
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| (11,788) |
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| (13,469) |
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| (14,003) |
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| (14,324) |
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Retained earnings |
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| 210,221 |
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| 209,403 |
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| 271,471 |
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| 270,260 |
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Total equity |
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| 214,104 |
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| 210,929 |
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| 273,473 |
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| 271,227 |
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Total liabilities and equity |
| $ | 259,254 |
| $ | 254,738 |
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| $ | 326,041 |
| $ | 307,968 |
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See accompanying notes to the condensed consolidated financial statements
4
CHASE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
In thousands, except share and per share amounts
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| Three Months Ended November 30, |
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| Three Months Ended November 30, |
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| 2017 |
| 2016 |
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| 2019 |
| 2018 |
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Revenue |
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Sales |
| $ | 60,577 |
| $ | 60,269 |
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| $ | 65,757 |
| $ | 71,364 |
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Royalties and commissions |
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| 1,340 |
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| 1,088 |
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| 1,045 |
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| 1,139 |
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| 61,917 |
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| 61,357 |
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| 66,802 |
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| 72,503 |
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Costs and Expenses |
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Cost of products and services sold |
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| 36,895 |
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| 35,289 |
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| 41,783 |
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| 46,575 |
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Selling, general and administrative expenses |
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| 12,059 |
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| 11,752 |
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| 13,640 |
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| 13,362 |
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Acquisition-related costs (Note 14) |
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| 584 |
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Exit costs related to idle facility (Note 15) |
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| — |
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| 27 |
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Operations optimization costs (Note 15) |
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| 649 |
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| 260 |
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Operating income |
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| 12,963 |
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| 13,705 |
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| 10,730 |
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| 12,306 |
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Interest expense |
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| (45) |
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| (246) |
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| (55) |
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| (204) |
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Gain on sale of real estate (Note 9) |
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| 792 |
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Other income (expense) |
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| (319) |
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| 399 |
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| (604) |
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| (294) |
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Income before income taxes |
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| 12,599 |
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| 14,650 |
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| 10,071 |
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| 11,808 |
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Income taxes |
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| 4,284 |
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| 4,287 |
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Income taxes (Note 17) |
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| 2,709 |
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| 2,985 |
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Net income |
| $ | 8,315 |
| $ | 10,363 |
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| $ | 7,362 |
| $ | 8,823 |
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Net income available to common shareholders, per common and common equivalent share (Note 4) |
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Basic |
| $ | 0.89 |
| $ | 1.11 |
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| $ | 0.78 |
| $ | 0.94 |
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Diluted |
| $ | 0.88 |
| $ | 1.10 |
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| $ | 0.77 |
| $ | 0.93 |
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Weighted average shares outstanding |
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Basic |
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| 9,281,877 |
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| 9,228,338 |
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| 9,352,148 |
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| 9,329,570 |
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Diluted |
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| 9,384,426 |
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| 9,321,002 |
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| 9,434,218 |
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| 9,381,303 |
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Annual cash dividends declared per share |
| $ | 0.80 |
| $ | 0.70 |
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| 0.80 |
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| 0.80 |
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See accompanying notes to the condensed consolidated financial statements
5
CHASE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
In thousands, except share and per share amounts
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| Three Months Ended November 30, |
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| Three Months Ended November 30, |
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| 2017 |
| 2016 |
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| 2019 |
| 2018 |
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Net income |
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| $ | 8,315 |
| $ | 10,363 |
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| $ | 7,362 |
| $ | 8,823 |
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Other comprehensive income: |
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Other comprehensive (loss) income: |
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Net unrealized gain (loss) on restricted investments, net of tax |
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| 31 |
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| 13 |
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| 41 |
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| (21) |
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Change in funded status of pension plans, net of tax |
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| 80 |
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| 147 |
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| 131 |
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| 236 |
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Foreign currency translation adjustment |
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| 1,570 |
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| (2,098) |
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| 1,537 |
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| (606) |
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Total other comprehensive income (loss) |
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| 1,681 |
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| (1,938) |
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Total other comprehensive (loss) income |
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| 1,709 |
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| (391) |
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Comprehensive income |
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| $ | 9,996 |
| $ | 8,425 |
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| $ | 9,071 |
| $ | 8,432 |
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See accompanying notes to the condensed consolidated financial statements
6
CHASE CORPORATION
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF EQUITY
THREE MONTHS ENDED NOVEMBER 30, 20172019 AND 2018
(UNAUDITED)
In thousands, except share and per share amounts
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| Additional |
| Accumulated Other |
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| Total |
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| Additional |
| Accumulated Other |
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| Total | ||||||
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| Common Stock |
| Paid-In |
| Comprehensive |
| Retained |
| Stockholders' |
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| Common Stock |
| Paid-In |
| Comprehensive |
| Retained |
| Stockholders' | ||||||||||||||
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| Shares |
| Amount |
| Capital |
| Income (Loss) |
| Earnings |
| Equity |
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| Shares |
| Amount |
| Capital |
| Income (Loss) |
| Earnings |
| Equity | ||||||||||
Balance at August 31, 2017 |
| 9,354,136 |
| $ | 935 |
| $ | 14,060 |
| $ | (13,469) |
| $ | 209,403 |
| $ | 210,929 |
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Balance at August 31, 2018 |
| 9,396,947 |
| $ | 939 |
| $ | 13,104 |
| $ | (12,336) |
| $ | 245,049 |
| $ | 246,756 | ||||||||||||||||||
Restricted stock grants, net of forfeitures |
| 4,709 |
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| 1 |
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Amortization of restricted stock grants |
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| 380 |
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|
|
| 380 | ||||||||||||||||||
Amortization of stock option grants |
|
|
|
|
|
|
| 125 |
|
|
|
|
|
|
|
| 125 | ||||||||||||||||||
Exercise of stock options |
| 2,004 |
|
| — |
|
| 120 |
|
|
|
|
|
|
|
| 120 | ||||||||||||||||||
Common stock received for payment of stock option exercises |
| (954) |
|
| — |
|
| (120) |
|
|
|
|
|
|
|
| (120) | ||||||||||||||||||
Common stock retained to pay statutory minimum withholding taxes on common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - | ||||||||||||||||||
Cash dividend accrued, $0.80 per share |
|
|
|
|
|
|
|
|
|
|
|
|
| (7,522) |
|
| (7,522) | ||||||||||||||||||
Change in funded status of pension plans, net of tax $83 |
|
|
|
|
|
|
|
|
|
| 236 |
|
|
|
|
| 236 | ||||||||||||||||||
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
| (606) |
|
|
|
|
| (606) | ||||||||||||||||||
Net unrealized gain (loss) on restricted investments, net of tax ($7) |
|
|
|
|
|
|
|
|
|
| (21) |
|
|
|
|
| (21) | ||||||||||||||||||
Adoption of ASC 606 (Note 9) |
|
|
|
|
|
|
|
|
|
|
|
|
| 22 |
|
| 22 | ||||||||||||||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
| 8,823 |
|
| 8,823 | ||||||||||||||||||
Balance at November 30, 2018 |
| 9,402,706 |
| $ | 940 |
| $ | 13,608 |
| $ | (12,727) |
| $ | 246,372 |
| $ | 248,193 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Balance at August 31, 2019 |
| 9,400,748 |
| $ | 940 |
| $ | 14,351 |
| $ | (14,324) |
| $ | 270,260 |
| $ | 271,227 | ||||||||||||||||||
Restricted stock grants, net of forfeitures |
| 13,121 |
|
| 1 |
|
| (1) |
|
|
|
|
|
|
|
| — |
|
| 20,637 |
|
| 2 |
|
| (2) |
|
|
|
|
|
|
|
| — |
Amortization of restricted stock grants |
|
|
|
|
|
|
| 421 |
|
|
|
|
|
|
|
| 421 |
|
|
|
|
|
|
|
| 486 |
|
|
|
|
|
|
|
| 486 |
Amortization of stock option grants |
|
|
|
|
|
|
| 112 |
|
|
|
|
|
|
|
| 112 |
|
|
|
|
|
|
|
| 228 |
|
|
|
|
|
|
|
| 228 |
Exercise of stock options |
| 10,859 |
|
| 1 |
|
| 448 |
|
|
|
|
|
|
|
| 449 |
|
| 3,618 |
|
| — |
|
| 123 |
|
|
|
|
|
|
|
| 123 |
Common stock received for payment of stock option exercises |
| (3,276) |
|
|
|
|
| (306) |
|
|
|
|
|
|
|
| (306) |
|
| (1,057) |
|
| — |
|
| (123) |
|
|
|
|
|
|
|
| (123) |
Cash dividend accrued, $0.80 per share |
|
|
|
|
|
|
|
|
|
|
|
|
| (7,497) |
|
| (7,497) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (7,539) |
|
| (7,539) |
Change in funded status of pension plan, net of tax $41 |
|
|
|
|
|
|
|
|
|
| 80 |
|
|
|
|
| 80 |
| |||||||||||||||||
Change in funded status of pension plans, net of tax $44 |
|
|
|
|
|
|
|
|
|
| 131 |
|
|
|
|
| 131 | ||||||||||||||||||
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
| 1,570 |
|
|
|
|
| 1,570 |
|
|
|
|
|
|
|
|
|
|
| 1,537 |
|
|
|
|
| 1,537 |
Net unrealized gain on restricted investments, net of tax $15 |
|
|
|
|
|
|
|
|
|
| 31 |
|
|
|
|
| 31 |
| |||||||||||||||||
Net unrealized gain (loss) on restricted investments, net of tax $14 |
|
|
|
|
|
|
|
|
|
| 41 |
|
|
|
|
| 41 | ||||||||||||||||||
Adoption of ASU 2018-02 (Note 2) |
|
|
|
|
|
|
|
|
|
| (1,388) |
|
| 1,388 |
|
| — | ||||||||||||||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
| 8,315 |
|
| 8,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 7,362 |
|
| 7,362 |
Balance at November 30, 2017 |
| 9,374,840 |
| $ | 937 |
| $ | 14,734 |
| $ | (11,788) |
| $ | 210,221 |
| $ | 214,104 |
| |||||||||||||||||
Balance at November 30, 2019 |
| 9,423,946 |
| $ | 942 |
| $ | 15,063 |
| $ | (14,003) |
| $ | 271,471 |
| $ | 273,473 |
See accompanying notes to the condensed consolidated financial statements
7
CHASE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
In thousands except share and per share amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
| Three Months Ended November 30, |
|
|
|
| Three Months Ended November 30, |
|
| ||||||||
|
|
| 2017 |
| 2016 |
|
|
|
| 2019 |
| 2018 |
|
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net income |
|
| $ | 8,315 |
| $ | 10,363 |
|
|
|
| $ | 7,362 |
| $ | 8,823 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of real estate |
|
|
| — |
|
| (792) |
|
| |||||||||
Depreciation |
|
|
| 1,254 |
|
| 1,335 |
|
|
|
|
| 1,053 |
|
| 1,238 |
|
|
Amortization |
|
|
| 2,314 |
|
| 2,176 |
|
|
|
|
| 2,914 |
|
| 3,113 |
|
|
Cost of sale of inventory step-up |
|
|
| — |
|
| 190 |
|
| |||||||||
Recovery of allowance for doubtful accounts |
|
|
| (126) |
|
| (5) |
|
| |||||||||
Provision for allowance for doubtful accounts |
|
|
| 48 |
|
| 30 |
|
| |||||||||
Stock-based compensation |
|
|
| 533 |
|
| 528 |
|
|
|
|
| 714 |
|
| 505 |
|
|
Realized gain on restricted investments |
|
|
| (1) |
|
| (3) |
|
| |||||||||
Realized (loss) gain on restricted investments |
|
|
| (5) |
|
| 17 |
|
| |||||||||
Pension curtailment and settlement loss |
|
|
| — |
|
| 200 |
|
| |||||||||
Deferred taxes |
|
|
| — |
|
| 10 |
|
|
|
|
| — |
|
| 28 |
|
|
Increase (decrease) from changes in assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
| 3,329 |
|
| 5 |
|
|
|
|
| 2,193 |
|
| 1,523 |
|
|
Inventory |
|
|
| (1,593) |
|
| (1,397) |
|
|
|
|
| 3,524 |
|
| (3,692) |
|
|
Prepaid expenses and other assets |
|
|
| (725) |
|
| (535) |
|
|
|
|
| (520) |
|
| (1,102) |
|
|
Accounts payable |
|
|
| (1,348) |
|
| (12) |
|
|
|
|
| 968 |
|
| 131 |
|
|
Accrued compensation and other expenses |
|
|
| (2,397) |
|
| (2,755) |
|
|
|
|
| (2,266) |
|
| (1,875) |
|
|
Accrued income taxes |
|
|
| (3,001) |
|
| (771) |
|
|
|
|
| 2,168 |
|
| 2,638 |
|
|
Net cash provided by operating activities |
|
|
| 6,554 |
|
| 8,337 |
|
|
|
|
| 18,153 |
|
| 11,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Purchases of property, plant and equipment |
|
|
| (851) |
|
| (652) |
|
|
|
|
| (699) |
|
| (639) |
|
|
Cost to acquire intangible assets |
|
|
| (1) |
|
| (14) |
|
|
|
|
| — |
|
| (18) |
|
|
Payments for acquisitions |
|
|
| — |
|
| (30,435) |
|
| |||||||||
Proceeds from sale of real estate |
|
|
| — |
|
| 1,382 |
|
| |||||||||
Net proceeds from sale of businesses |
|
|
| — |
|
| 229 |
|
| |||||||||
Increase in restricted investments |
|
|
| (46) |
|
| (47) |
|
| |||||||||
Proceeds from settlement of life insurance policies |
|
|
| — |
|
| 1,504 |
|
| |||||||||
Proceeds from sale of businesses |
|
|
| — |
|
| 400 |
|
| |||||||||
Changes in restricted investments |
|
|
| (45) |
|
| (38) |
|
| |||||||||
Net cash used in investing activities |
|
|
| (898) |
|
| (28,033) |
|
|
|
|
| (744) |
|
| (295) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Payments of principal on debt |
|
|
| — |
|
| (2,100) |
|
|
|
|
| — |
|
| (10,000) |
|
|
Proceeds from exercise of common stock options |
|
|
| 143 |
|
| 33 |
|
| |||||||||
Payments of taxes on stock options and restricted stock |
|
|
| — |
|
| (993) |
|
| |||||||||
Net cash provided by (used in) financing activities |
|
|
| 143 |
|
| (3,060) |
|
| |||||||||
Net cash used in financing activities |
|
|
| — |
|
| (10,000) |
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS |
|
|
| 5,799 |
|
| (22,756) |
| ||||||||||
INCREASE IN CASH & CASH EQUIVALENTS |
|
|
| 17,409 |
|
| 1,282 |
| ||||||||||
Effect of foreign exchange rates on cash |
|
|
| 1,109 |
|
| (1,331) |
|
|
|
| 876 |
|
| (590) |
| ||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
|
| 47,354 |
|
| 73,411 |
|
|
|
| 47,771 |
|
| 34,828 |
| ||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
| $ | 54,262 |
| $ | 49,324 |
|
|
|
| $ | 66,056 |
| $ | 35,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash Investing and Financing Activities |
|
|
|
|
|
|
|
|
| |||||||||
Common stock received for payment of stock option exercises |
|
| $ | 306 |
| $ | 846 |
|
| |||||||||
Property, plant and equipment additions included in accounts payable |
|
| $ | 176 |
| $ | 47 |
| ||||||||||
Annual cash dividend declared |
|
| $ | 7,497 |
| $ | 6,532 |
|
|
See accompanying notes to the condensed consolidated financial statements
8
Note 1 — Basis of Financial Statement Presentation
Chase Corporation (the “Company,” “Chase,” “we,” or “us”), a global specialty chemicals company founded in 1946, is a leading manufacturer of protective materials for high-reliability applications.applications across diverse market sectors. Our strategy is to maximize the performance of our core businesses and brands while seeking future opportunities through strategic acquisitions. Through investments in facilities, systems and organizational consolidation we seek to improve performance and gain economies of scale.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States of America generally accepted accounting principles (“USU.S. GAAP”) for interim financial reporting, and instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Therefore, they do not include all information and footnote disclosures necessary for a complete presentation of Chase Corporation’s financial position, results of operations and cash flows in conformity with generally accepted accounting principles. The year-end condensed balance sheet was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. Chase Corporation filed audited consolidated financial statements which included all information and notes necessary for such a complete presentation for the three years ended August 31, 2017,2019 in conjunction with its 20172019 Annual Report on Form 10-K. Certain immaterial reclassifications have been made to the prior year amounts to conform to the current year’s presentation.
The results of operations for the interim period ended November 30, 20172019 are not necessarily indicative of the results to be expected for any future period or the entire fiscal year. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended August 31, 2017,2019 which are contained in the Company’s 20172019 Annual Report on Form 10-K.
The accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring items) that are, in the opinion of management, necessary for a fair statement of the Company’s financial position as of November 30, 2017,2019, and the results of its operations, comprehensive income, changes in equity and cash flows for the interim periods ended November 30, 20172019 and 2016, and changes in equity for the interim period ended November 30, 2017.2018.
The financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The Company uses the U.S. dollar as the reporting currency for financial reporting. The financial position and results of operations of the Company’s U.K.-based operations are measured using the British Pound Sterlingpound as the functional currency. The financial position and results of operations of the Company’s operations based in France are measured using the euro as the functional currency. The financial position and results of the Company’s HumiSeal India Private Limited business are measured using the Indian rupee as the functional currency. The functional currency for all our other operations is the U.S. dollar. 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. Transaction gains and losses generated from the remeasurement of assets and liabilities denominated in currencies other than the functional currency of each applicable operation are included in other income (expense) on the condensed consolidated statements of operations, and were ($353)501) and $399$52 for the three-month periods ended November 30, 20172019 and 2016,2018, respectively.
Other Business Developments
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. InDuring the most recently completedfirst quarter of fiscal year, SSA, LLC, and its recently acquired ZappaTec business (collectively “Zappa Stewart”), had combined revenue in excess of $24,000. Chase expects this acquisition to be immediately accretive to its earnings. The business was acquired for a purchase price of $71,382, net of cash acquired, pending any working capital adjustments and excluding acquisition-related costs. As part of this transaction, Chase acquired all assets2020, third-party-led studies regarding the potential upgrading of the business,Company’s current worldwide ERP system were conducted. Chase is currently reviewing the data and entered multiyear leases at both locations.recommendations provided by the study and may further utilize third-party engineering, IT and other professional services firms in the future for similar work, as well as work around our facilities rationalization and consolidation initiative. The purchase was funded from a combinationCompany recognized $150 in expense related to these services in the first quarter of Chase’s existing revolving credit facilityand available cash on hand.Zappa Stewart’s protective materials technology is complementary to Chase’s current specialty chemical offerings. This acquisition is aligned withfiscal 2020. Given the Company’s core strategies and extends its reach into growing medical, environmental andongoing nature of the review, an estimate of future costs, including those that may be capitalized, cannot currently be determined.
9
consumer applications.The Company is currently in the process of finalizing purchase accounting, and anticipates completion during fiscal 2018. Following the effective date of the acquisition (which occurred subsequent to November 30, 2017), the financial results of Zappa Stewart operations will be included in the Company’s financial statements within the specialty chemical intermediates product line, contained within the Industrial Materials operating segment. See Note 19 to the Condensed Consolidated Financial Statements for additional information on the acquisition of Zappa Stewart.
On April 3, 2017, Chase executed an agreement with an unrelated third 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 inDuring the third quarter of fiscal 2017 as gain2019, Chase began moving the pulling and detection operations housed in its Granite Falls, NC location to its Hickory, NC facility. This is in line with the Company’s ongoing initiative to consolidate its manufacturing plants and streamline its existing processes. Currently, the pulling and detection operations are the only Chase-owned production operations in Granite Falls, NC, with the remaining portions of the building being either utilized for research and development or leased to a third party. The process of moving has continued subsequent to the end of fiscal 2019 and is anticipated to be completed during the first half of fiscal 2020. The Company recognized $499 in expense related to the move in the three-month period ended November 30, 2019, having recognized $1,260 in expense during the second half of fiscal 2019. Future costs related to this move are currently anticipated to be approximately $200, and the Company plans to disclose these amounts separately on sale of businesses within the condensed consolidated statement of operations. Further,operations in future periods.
On June 25, 2018, the purchaser entered a multiyear lease for a portionCompany announced to its employees the planned closing of theits Pawtucket, RI manufacturing space atfacility effective August 31, 2018. This is in line with the Company’s Granite Falls,ongoing efforts to consolidate its manufacturing plants and streamline its existing processes. The manufacture of products previously produced in the Pawtucket, RI facility was substantially moved to Company facilities in Oxford, MA and Lenoir, NC facility. Chase will provide ongoing manufacturing and administrative supportduring a two-month transition period. In the fourth quarter of fiscal 2018, the Company expensed $1,272 related to the purchaser for whichclosure. The Company also recognized $260 in expense related to the Company will receivemove in the three-month period ended November 30, 2018, with no 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.See Note 8expense recognized in fiscal 2019. Future costs related to this move are not anticipated to be significant to the condensed consolidated financial statements for additional information on the salestatements.
Significant Accounting Policies
The Company’s significant accounting policies are detailed in Note 1— “Summary of Significant Accounting Policies” within Item 8 of the fiber optic cable components product line.
On September 30, 2016,Company’s Annual Report on Form 10-K for the Company acquired certain assetsyear ended August 31, 2019. Significant changes to these accounting policies as a result 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 associated with this acquisitionadopting ASU No. 2016-02, “Leases (Topic 842)” during the first quarter of fiscal 2017. The purchase was funded entirely with available cash2020 are discussed within Note 2 — “Recent Accounting Standards” and Note 8 — “Leases” within this Current Quarterly Report 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. See Note 14 to the condensed consolidated financial statements for additional information on the acquisition of the assets and operations of Resin Designs.Form 10-Q.
10
Note 2 — Recent Accounting Standards
Recently IssuedAdopted Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which will replace most of the existing revenue recognition guidance under U.S. GAAP. The core principle of the ASU is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. In March, April and May 2016, the FASB issued ASU 2016-08 “Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” ASU 2016-10 “Identifying Performance Obligations and Licensing,” and ASU 2016-12, “Revenue from Contracts with Customers (Topic 606), Narrow-Scope Improvements and Practical Expedients” all of which provide further clarification to be considered when implementing ASU 2014-09. The ASU will be effective for the Company beginning September 1, 2018 (fiscal 2019), including interim periods in its fiscal year 2019, and allows for either retrospective or modified retrospective methods of adoption. The Company expects to utilize the modified retrospective method of adoption. From a timing of revenue recognition standpoint (point in time versus over time), it is anticipated that certain specialized products will be more affected than other products sold. The Company continues to assess the full impact the adoption will have on its consolidated financial statements and disclosures thereto.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (a) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (b) a right-of-use asset, which represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Changes were made to align lessor accounting withIn July 2018, the lessee accounting model andFASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.2018-11, “Leases (Topic 842) Targeted Improvements.” The ASU will be effectiveupdated guidance provides an optional transition method, which allows for the Company beginningapplication of the standard as of the adoption date with no restatement of prior period amounts. We adopted the standard on September 1, 2019 (fiscal(start of fiscal 2020). Early application is permitted. Lessees must under the optional transition method described above. Consequently, historical financial information was not updated, and the disclosures required under the new standard are not provided for dates and periods prior to September 1, 2019.
The new standard provides several optional practical expedients in transition. The Company has elected to apply the “package of practical expedients” which allow us to not reassess i) whether existing or expired arrangements contain a modified retrospective transition approachlease, ii) the lease classification of existing or expired leases, or iii) whether previous initial direct costs would qualify for leases existing at, or entered into after,capitalization under the beginningnew lease standard. In preparation for adoption of the earliest comparative period presented instandard, the Company enhanced its internal controls to enable the preparation of financial statements. The Company is currently evaluatinginformation including the assessment of the impact of the applicationstandard. The initial adoption of thisthe ASU resulted in the recognition of additional lease liabilities of $9,644 ($2,071 short-term and $7,573 long-term) and right-of-use assets of $10,200 as of September 1, 2019 on ourthe condensed consolidated financial statements and disclosures thereto.balance sheet as it relates to the Company’s operating leases. The new standard did not have a material impact on the Company’s consolidated statement of operations or cash flows.
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.
In March 2017, the FASB issued ASU No. 2017-07, “Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” This ASU applies to all employers that offer to their employees defined benefit pension plans, other postretirement benefit plans, or other types of benefits accounted for under Topic 715, Compensation — Retirement Benefits. The ASU requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed. The ASU also allows only the service cost component to be eligible for capitalization when applicable (e.g., as a cost of internally
1110
manufactured inventory or a self-constructed asset). The required effective date for adoption of this guidance for the Company will be our fiscal year beginning September 1, 2018 (fiscal 2019), including interim periods within that annual period. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. The Company is currently evaluating the effect that ASU No. 2017-07 will have on its financial statements and related disclosures.
In May 2017,February 2018, the FASB issued ASU No. 2017-09, "Scope2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220) - Reclassification of Modification Accounting."Certain Tax Effects from Accumulated Other Comprehensive Income.” This ASU provides guidance about which changeswas issued to address a narrow-scope financial reporting issue that arose as a result of the terms or conditionsenactment of the Tax Cuts and Jobs Act (“Tax Reform”) on December 22, 2017. The objective of ASU 2018-02 is to address the tax effects of items within accumulated other comprehensive income (referred to as “stranded tax effects”) that do not reflect the appropriate tax rate enacted in the Tax Reform. As a share-based payment award require an entityresult, the ASU 2018-02 allows a reclassification from accumulated other comprehensive income to apply modification accounting in Topic 718.retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate. The amount of the reclassification would be the difference between the historical corporate income tax rate of 35 percent and the current enacted corporate income tax rate of 21 percent. ASU 2017-092018-02 is effective for fiscal years beginning after December 15, 2017 (our fiscal year 2019),2018, with early adoption permitted, including adoption in an interim periods within that reporting period. The Company is currentlyamendments in this ASU may be applied retrospectively to each period in which the effect of the change in the processU.S. Federal corporate income tax rate in the Tax Reform is recognized. Therefore, the Company has adopted ASU 2018-02 in the first quarter of evaluating the impactyear ending August 31, 2020, and has elected to reclassify the income tax effects related to its pension funding of ASU 2017-09 on our financial position and result of operations.the Tax Reform from accumulated other comprehensive loss to retained earnings.
Note 3 — Inventory
Inventory consisted of the following as of November 30, 20172019 and August 31, 2017:2019:
|
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|
|
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|
|
|
|
|
|
| November 30, |
| August 31, |
|
| November 30, |
| August 31, | ||||
|
|
| 2017 |
| 2017 |
|
| 2019 |
| 2019 | ||||
Raw materials |
|
| $ | 12,874 |
| $ | 11,636 |
|
| $ | 19,679 |
| $ | 20,325 |
Work in process |
|
|
| 6,897 |
|
| 6,877 |
|
|
| 7,547 |
|
| 8,748 |
Finished goods |
|
|
| 7,560 |
|
| 7,105 |
|
|
| 11,793 |
|
| 13,281 |
Total Inventory |
|
| $ | 27,331 |
| $ | 25,618 |
|
| $ | 39,019 |
| $ | 42,354 |
1211
Note 4 — 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.” The Company allocates earnings to participating securities and computes earnings per share using the two-class method. The determination of earnings per share under the two-class method is as follows:
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| ||||
|
| Three Months Ended November 30, |
|
| Three Months Ended November 30, |
| ||||||||
|
| 2017 |
| 2016 |
|
| 2019 |
| 2018 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 8,315 |
| $ | 10,363 |
|
| $ | 7,362 |
| $ | 8,823 |
|
Less: Allocated to participating securities |
|
| 79 |
|
| 113 |
|
|
| 54 |
|
| 69 |
|
Net income available to common shareholders |
| $ | 8,236 |
| $ | 10,250 |
|
| $ | 7,308 |
| $ | 8,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
| 9,281,877 |
|
| 9,228,338 |
|
|
| 9,352,148 |
|
| 9,329,570 |
|
Net income per share - Basic |
| $ | 0.89 |
| $ | 1.11 |
|
| $ | 0.78 |
| $ | 0.94 |
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 8,315 |
| $ | 10,363 |
|
| $ | 7,362 |
| $ | 8,823 |
|
Less: Allocated to participating securities |
|
| 79 |
|
| 113 |
|
|
| 54 |
|
| 69 |
|
Net income available to common shareholders |
| $ | 8,236 |
| $ | 10,250 |
|
| $ | 7,308 |
| $ | 8,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
| 9,281,877 |
|
| 9,228,338 |
|
|
| 9,352,148 |
|
| 9,329,570 |
|
Additional dilutive common stock equivalents |
|
| 102,549 |
|
| 92,664 |
|
|
| 82,070 |
|
| 51,733 |
|
Diluted weighted average shares outstanding |
|
| 9,384,426 |
|
| 9,321,002 |
|
|
| 9,434,218 |
|
| 9,381,303 |
|
Net income per share - Diluted |
| $ | 0.88 |
| $ | 1.10 |
|
| $ | 0.77 |
| $ | 0.93 |
|
For the three monthsthree-month periods ended November 30, 20172019 and 2016,2018, stock options to purchase 9,6228,805 and 38,59112,418 shares, respectively, of common stock were outstanding but were not included in the calculation of diluted income per share because their inclusion would be anti-dilutive. Included in the calculation of dilutive common stock equivalents are the unvested portion of restricted stock and stock options.
1312
Note 5 — Stock-Based Compensation
In August 2016,2018, the Board of Directors of the Company approved the fiscal year 20172019 Long Term Incentive Plan (“20172019 LTIP”) for the executive officers and other members of management. The 20172019 LTIP is an equity-based plan with a grant date of September 1, 20162018 and contains a performance and service-based restricted stock grant of 5,3996,609 shares in the aggregate, subject to adjustment (as discussed below), with a vesting date of August 31, 2019. 2021.
During the fourth quarter of fiscal 2019, an additional grant of restricted stock was made related to the 2019 LTIP grant in conjunction with an amendment to the equity compensation program for a promoted employee. The additional grant contains the following restricted stock components: (a) a performance and service-based restricted stock grant of 211 shares in the aggregate, subject to adjustment based on fiscal 2019 results, with a vesting date of August 31, 2021, 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 132 shares in the aggregate, with a vesting date of August 31, 2021, for which compensation expense is recognized on a ratable basis over the vesting period.
In August 2019, restricted stock in the amount of 833 shares related to the 2019 LTIP grant was forfeited in conjunction with an amendment in the equity compensation agreement of an employee.
Based on the fiscal year 20172019 financial results, 5,399 additional2,694 shares of restricted stock (total of 10,798 shares) were earned andalready granted was forfeited subsequent to the end of fiscal year 20172019 in accordance with the performance measurement criteria. No further performance-based measurements apply to this award. Compensation expense is being recognized on a ratable basis over the vesting period.
In August 2017,2019, the Board of Directors of the Company approved the fiscal year 20182020 Long Term Incentive Plan (“20182020 LTIP”) for the executive officers and other members of management. The 20182020 LTIP is an equity-based plan with a grant date of September 1, 20172019 and contains the following equity components:
Restricted Shares — (a) a performance and service-based restricted stock grant of 4,2493,697 shares in the aggregate, subject to adjustment based on fiscal 20182020 results, with a vesting date of August 31, 2020.2022. 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 3,4733,689 shares in the aggregate, with a vesting date of August 31, 2020.2022. Compensation expense is recognized on a ratable basis over the vesting period.
Stock options — options to purchase 9,62213,418 shares of common stock in the aggregate with an exercise price of $93.50$100.22 per share. The options will vest in three equal annual installments beginning on August 31, 20182020 and ending on August 31, 2020.2022. Of the options granted, 4,5916,218 options will expire on August 31, 2027,2029, and 5,0317,200 options will expire on September 1, 2027.2029. Compensation expense is recognized over the period of the award consistent with the vesting terms.
In August 2019, 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, 2019 and contain the following equity components: (a) time-based restricted stock grant of 15,945 shares in the aggregate, and having a vesting date of August 31, 2022; and (b) options to purchase 53,642 shares of common stock in the aggregate with an exercise price of $100.22 per share (the options will cliff vest on August 31, 2022 and will expire on August 31, 2029). Compensation expense for both the restricted stock and the stock option components of the equity retention agreements is recognized on a ratable basis over the vesting period.
13
Note 6 — Segment Data and Foreign Operations
The Company is organized into twothree reportable operating segments, ansegments: Adhesives, Sealants and Additives; Industrial Materials segmentTapes; and a Construction Materials segment.Corrosion Protection and Waterproofing. The segments are distinguished by the nature of the products manufactured and how they are delivered to their respective markets.In the fourth quarter of our fiscal year 2019, we reorganized from two into three reportable operating segments; prior year quarter amounts have been recast to reflect this change.
The Industrial MaterialsAdhesives, Sealants and Additives segment includes specifiedoffers innovative and specialized product offerings consisting of both end-use products and intermediates that are used in, or integrated into, another company’s product. Demand for the segment’s product offerings is typically dependent upon general economic conditions. The Adhesives, Sealants and Additives segment leverages the core specialty chemical competencies of the Company, and serves diverse markets and applications. The segment sells predominantly into the transportation, appliances, medical, general industrial and environmental market verticals. The segment’s products include moisture protective coatings and customized sealant and adhesive systems for electronics, polymeric microspheres, polyurethane dispersions and superabsorbent polymers.
The Industrial Tapes segment features legacy wire and cable materials, specialty tapes and other laminated and coated products. The segment derives its competitive advantage through its proven chemistries, diverse specialty offerings and the reliability its supply chain offers to end customers. These products are generally used in the assembly of other manufacturers’ products, with demand typically dependent upon general economic conditions. The Industrial Materials productsTapes segment sells mostly to established markets, with some exposure to growth opportunities through further development of existing products. Markets served include cable manufacturing, utilities and telecommunications, and electronics packaging. The segment’s offerings include insulating and conducting materials for wire and cable manufacturers, moisture protective coatings for electronics, laminated durable papers, laminates for the packaging and industrial laminate markets, custom manufacturing services, pulling and detection tapes used in the installation, measurement and location of fiber optic cables and water and natural gas lines, cover tapes essential to delivering semiconductor components via tapetape-and-reel packaging, and reel packaging, composite materials and elements, polymeric microspheres and polyurethane dispersions. Beginning September 30, 2016, the Industrial Materials segment includes the acquired operations of Resin Designs, LLC, which was obtained through acquisition and is included in the Company’s electronic and industrial coatings product line. Prior to the April 3, 2017 sale of the business, the segment’s products also included glass-based strength elements, designed to allow fiber optic cables to withstand mechanical and environmental strain and stress.elements.
The Construction MaterialsCorrosion Protection and Waterproofing segment is principally composed of project-oriented product offerings that are primarily sold and used as “Chase” branded products. Construction MaterialsEnd markets include new and existing infrastructure projects on oil, gas, water and wastewater pipelines, highways and bridge decks, water and wastewater containment systems, and commercial buildings. The segment’s products include protective coatings for pipeline applications, coating and lining systems for use inwaterproofing and 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 usewaterproofing applications in the transportation and architectural markets.
With sales generally dependent on outdoor project work, the segment experiences highly seasonal sales patterns.
14
The following tables summarize information about the Company’s reportable segments:
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|
|
|
|
| Three Months Ended November 30, |
|
|
|
| Three Months Ended November 30, |
|
|
| ||||||||||
|
| 2017 |
|
| 2016 |
|
|
|
| 2019 |
|
| 2018 |
|
|
| ||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Materials |
| $ | 49,985 |
|
| $ | 49,024 |
|
|
| ||||||||||
Construction Materials |
|
| 11,932 |
|
|
| 12,333 |
|
|
| ||||||||||
Adhesives, Sealants and Additives |
| $ | 25,822 |
|
| $ | 26,698 |
|
|
| ||||||||||
Industrial Tapes |
|
| 30,124 |
|
|
| 33,462 |
|
|
| ||||||||||
Corrosion Protection and Waterproofing |
|
| 10,856 |
|
|
| 12,343 |
|
|
| ||||||||||
Total |
| $ | 61,917 |
|
| $ | 61,357 |
|
|
|
| $ | 66,802 |
|
| $ | 72,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes |
|
|
|
|
|
|
|
|
|
| ||||||||||
Industrial Materials |
| $ | 15,365 |
|
| $ | 16,415 | (a) |
|
| ||||||||||
Construction Materials |
|
| 4,246 |
|
|
| 5,150 |
|
|
| ||||||||||
Income before income taxes |
|
|
|
|
|
|
|
|
|
| ||||||||||
Adhesives, Sealants and Additives |
| $ | 7,482 |
|
| $ | 8,265 |
|
|
| ||||||||||
Industrial Tapes |
|
| 6,637 | (a) |
|
| 6,538 | (c) |
|
| ||||||||||
Corrosion Protection and Waterproofing |
|
| 3,964 |
|
|
| 4,466 |
|
|
| ||||||||||
Total for reportable segments |
|
| 19,611 |
|
|
| 21,565 |
|
|
|
|
| 18,083 |
|
|
| 19,269 |
|
|
|
Corporate and common costs |
|
| (7,012) |
|
|
| (6,915) | (b) |
|
|
|
| (8,012) | (b) |
|
| (7,461) | (d) |
|
|
Total |
| $ | 12,599 |
|
| $ | 14,650 |
|
|
|
| $ | 10,071 |
|
| $ | 11,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Includes the following costs by segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Materials |
|
|
|
|
|
|
|
|
|
| ||||||||||
Adhesives, Sealants and Additives |
|
|
|
|
|
|
|
|
|
| ||||||||||
Interest |
| $ | 36 |
|
| $ | 184 |
|
|
|
| $ | 21 |
|
| $ | 79 |
|
|
|
Depreciation |
|
| 800 |
|
|
| 1,062 |
|
|
|
|
| 314 |
|
|
| 383 |
|
|
|
Amortization |
|
| 1,987 |
|
|
| 1,862 |
|
|
|
|
| 2,337 |
|
|
| 2,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction Materials |
|
|
|
|
|
|
|
|
|
| ||||||||||
Industrial Tapes |
|
|
|
|
|
|
|
|
|
| ||||||||||
Interest |
| $ | 9 |
|
| $ | 62 |
|
|
|
| $ | 25 |
|
| $ | 84 |
|
|
|
Depreciation |
|
| 190 |
|
|
| 158 |
|
|
|
|
| 401 |
|
|
| 456 |
|
|
|
Amortization |
|
| 327 |
|
|
| 314 |
|
|
|
|
| 450 |
|
|
| 450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Corrosion Protection and Waterproofing |
|
|
|
|
|
|
|
|
|
| ||||||||||
Interest |
| $ | 9 |
|
| $ | 41 |
|
|
| ||||||||||
Depreciation |
|
| 154 |
|
|
| 175 |
|
|
| ||||||||||
Amortization |
|
| 127 |
|
|
| 323 |
|
|
|
(b) | Includes |
(c) | Includes $260 of |
(d) | Includes $200 of pension-related settlement costs due to the |
15
Total assets for the Company’s reportable segments as of November 30, 20172019 and August 31, 20172019 were:
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|
|
|
|
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|
|
|
|
|
|
| ||
|
| November 30, |
| August 31, |
|
| November 30, |
| August 31, |
| ||||||
|
| 2017 |
| 2017 |
|
| 2019 |
| 2019 |
| ||||||
Total Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Industrial Materials |
| $ | 156,903 |
| $ | 156,263 |
|
| ||||||||
Construction Materials |
|
| 34,274 |
|
| 38,162 |
|
| ||||||||
Adhesives, Sealants and Additives |
| $ | 144,015 |
| $ | 135,583 |
|
| ||||||||
Industrial Tapes |
|
| 70,327 |
|
| 77,085 |
|
| ||||||||
Corrosion Protection and Waterproofing |
|
| 31,221 |
|
| 32,478 |
|
| ||||||||
Total for reportable segments |
|
| 191,177 |
|
| 194,425 |
|
|
|
| 245,563 |
|
| 245,146 |
|
|
Corporate and common assets |
|
| 68,077 |
|
| 60,313 |
|
|
|
| 80,478 |
|
| 62,822 |
|
|
Total |
| $ | 259,254 |
| $ | 254,738 |
|
|
| $ | 326,041 |
| $ | 307,968 |
|
|
The Company’s products are sold worldwide. Revenue for the three-month periods ended November 30, 20172019 and 2016 are2018 were attributed to operations located in the following countries:
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|
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|
|
|
|
|
|
| Three Months Ended November 30, |
|
|
|
| Three Months Ended November 30, |
|
|
| ||||||||||
|
| 2017 |
|
| 2016 |
|
|
|
| 2019 |
|
| 2018 |
|
|
| ||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
| $ | 52,477 |
|
| $ | 51,808 |
|
|
|
| $ | 58,361 |
|
| $ | 64,351 |
|
|
|
United Kingdom |
|
| 4,397 |
|
|
| 4,759 |
|
|
|
|
| 4,631 |
|
|
| 4,016 |
|
|
|
All other foreign (1) |
|
| 5,043 |
|
|
| 4,790 |
|
|
|
|
| 3,810 |
|
|
| 4,136 |
|
|
|
Total |
| $ | 61,917 |
|
| $ | 61,357 |
|
|
|
| $ | 66,802 |
|
| $ | 72,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Comprises sales originated from our Paris, France location, royalty revenue attributable to our licensed manufacturer in Asia, and Chase foreign manufacturing operations. |
As of November 30, 20172019 and August 31, 2017,2019 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| November 30, |
| August 31, |
|
|
| November 30, |
| August 31, |
|
| ||||
|
| 2017 |
| 2017 |
|
|
| 2019 |
| 2019 |
|
| ||||
Long-lived Assets |
|
|
|
|
|
|
| |||||||||
Long-Lived Assets |
|
|
|
|
|
|
| |||||||||
United States |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
| $ | 29,855 |
| $ | 30,253 |
|
|
| $ | 24,660 |
| $ | 24,993 |
|
|
Goodwill and Intangible assets, less accumulated amortization |
|
| 88,484 |
|
| 90,673 |
|
|
|
| 126,261 |
|
| 129,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
| 3,253 |
|
| 3,184 |
|
|
|
| 2,539 |
|
| 2,493 |
|
|
Goodwill and Intangible assets, less accumulated amortization |
|
| 5,770 |
|
| 5,685 |
|
|
|
| 4,594 |
|
| 4,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other foreign |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
| 1,322 |
|
| 1,323 |
|
|
|
| 911 |
|
| 1,840 |
|
|
Goodwill and Intangible assets, less accumulated amortization |
|
| 1,264 |
|
| 1,272 |
|
|
|
| 1,186 |
|
| 1,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
| $ | 34,430 |
| $ | 34,760 |
|
|
| $ | 28,110 |
| $ | 29,326 |
|
|
Goodwill and Intangible assets, less accumulated amortization |
| $ | 95,518 |
| $ | 97,630 |
|
|
| $ | 132,041 |
| $ | 134,690 |
|
|
16
Note 7 — Goodwill and Other Intangibles
The changes in the carrying value of goodwill arewere as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| Industrial |
| Construction Materials |
| Consolidated |
| |||
Balance at August 31, 2017 |
| $ | 40,091 |
| $ | 10,693 |
| $ | 50,784 |
|
Foreign currency translation adjustment |
|
| 119 |
|
| 8 |
|
| 127 |
|
Balance at November 30, 2017 |
| $ | 40,210 |
| $ | 10,701 |
| $ | 50,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Adhesives, Sealants and Additives |
| Industrial Tapes |
| Corrosion Protection and Waterproofing |
| Consolidated |
| ||||
Balance at August 31, 2019 |
| $ | 50,090 |
| $ | 21,215 |
| $ | 10,681 |
| $ | 81,986 |
|
Foreign currency translation adjustment |
|
| 196 |
|
| — |
|
| 12 |
|
| 208 |
|
Balance at November 30, 2019 |
| $ | 50,286 |
| $ | 21,215 |
| $ | 10,693 |
| $ | 82,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 elevena total of three reporting units within its twothree operating segments that are used to evaluate the possible impairment of goodwill. Goodwill impairment exists when the carrying value 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 evaluates the possible impairment of goodwill annually during the 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.
Intangible assets subject to amortization consistconsisted of the following as of November 30, 20172019 and August 31, 2017:2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted Average |
| Gross Carrying |
| Accumulated |
| Net Carrying |
|
| Weighted Average |
| Gross Carrying |
| Accumulated |
| Net Carrying |
| ||||||
|
| Amortization Period |
| Value |
| Amortization |
| Value |
|
| Amortization Period |
| Value |
| Amortization |
| Value |
| ||||||
November 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
November 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Patents and agreements |
| 14.4 | years | $ | 1,851 |
| $ | 1,673 |
| $ | 178 |
|
| 14.6 | years | $ | 1,760 |
| $ | 1,696 |
| $ | 64 |
|
Formulas and technology |
| 7.8 | years |
| 9,353 |
|
| 5,721 |
|
| 3,632 |
|
| 7.8 | years |
| 10,217 |
|
| 8,309 |
|
| 1,908 |
|
Trade names |
| 6.0 | years |
| 7,738 |
|
| 6,103 |
|
| 1,635 |
|
| 5.8 | years |
| 8,548 |
|
| 7,418 |
|
| 1,130 |
|
Customer lists and relationships |
| 9.6 | years |
| 70,482 |
|
| 31,320 |
|
| 39,162 |
|
| 9.1 | years |
| 98,623 |
|
| 51,878 |
|
| 46,745 |
|
|
|
|
| $ | 89,424 |
| $ | 44,817 |
| $ | 44,607 |
|
|
|
| $ | 119,148 |
| $ | 69,301 |
| $ | 49,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
August 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Patents and agreements |
| 14.4 | years | $ | 1,845 |
| $ | 1,671 |
| $ | 174 |
|
| 14.6 | years | $ | 1,760 |
| $ | 1,693 |
| $ | 67 |
|
Formulas and technology |
| 7.8 | years |
| 9,318 |
|
| 5,387 |
|
| 3,931 |
|
| 7.8 | years |
| 10,164 |
|
| 7,969 |
|
| 2,195 |
|
Trade names |
| 6.0 | years |
| 7,709 |
|
| 5,813 |
|
| 1,896 |
|
| 5.8 | years |
| 8,503 |
|
| 7,261 |
|
| 1,242 |
|
Customer lists and relationships |
| 9.6 | years |
| 70,180 |
|
| 29,335 |
|
| 40,845 |
|
| 9.1 | years |
| 98,139 |
|
| 48,939 |
|
| 49,200 |
|
|
|
|
| $ | 89,052 |
| $ | 42,206 |
| $ | 46,846 |
|
|
|
| $ | 118,566 |
| $ | 65,862 |
| $ | 52,704 |
|
17
Aggregate amortization expense related to intangible assets for the three months ended November 30, 20172019 and 20162018 was $2,314$2,914 and $2,176,$3,113 respectively. Estimated amortization expense for the remainder of fiscal year 20182020 and for the next five years is as follows:
|
|
|
|
|
|
|
|
|
Years ending August 31, |
|
|
|
|
|
|
|
|
2018 (remaining 9 months) |
| $ | 6,818 |
| ||||
2019 |
|
| 8,462 |
| ||||
2020 |
|
| 7,594 |
| ||||
2020 (remaining 9 months) |
| $ | 8,667 |
| ||||
2021 |
|
| 7,064 |
|
|
| 11,051 |
|
2022 |
|
| 6,171 |
|
|
| 10,031 |
|
2023 |
|
| 2,971 |
|
|
| 6,768 |
|
2024 |
|
| 5,659 |
| ||||
2025 |
|
| 5,552 |
|
Note 8 — Leases
Effective September 1, 2019 (the start of fiscal 2020), the Company adopted ASU 2016-02, Leases (Topic 842), using the modified retrospective approach and utilizing the effective date as its date of initial application. As a result, prior periods are presented in accordance with the previous guidance in ASC 840, Leases (“ASC 840”). The Company has elected to apply the ‘package of practical expedients’ which allow us to not reassess i) whether existing or expired arrangements contain a lease, ii) the lease classification of existing or expired leases, or iii) whether previous initial direct costs would qualify for capitalization under the new lease standard.
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use (ROU) assets and short-term and long-term lease liabilities, as applicable. The Company does not have any financing leases that are material.
Operating lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Company believes it could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment.
The Company has elected not to recognize leases with an original term of one year or less on the balance sheet. The Company typically only includes an initial lease term in its assessment of a lease arrangement. Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will renew.
1718
|
|
|
|
|
| November 30, 2019 | |
Assets |
|
|
|
Operating lease right-of-use asset |
| $ | 9,776 |
|
|
|
|
Liabilities |
|
|
|
Current (accrued expense) |
| $ | 2,075 |
Operating lease long-term liabilities |
|
| 7,144 |
Total lease liability |
| $ | 9,219 |
|
|
|
|
Lease cost
The components of lease costs for the three months ended November 30, 2019 are as follows:
|
|
|
|
|
| Three Months Ended | |
|
| November 30, 2019 | |
|
|
|
|
Operating lease cost (a) |
| $ | 931 |
(a) | Includes short-term leases and variable lease costs (e.g. common area maintenance), which are immaterial. |
Maturity of lease liability
The maturity of the Company's lease liabilities at November 30, 2019 were as follows:
|
|
|
|
|
| Future Operating | |
Year ending August 31, |
| Lease Payments | |
2020 (remaining 9 months) |
| $ | 1,838 |
2021 |
|
| 1,923 |
2022 |
|
| 1,279 |
2023 |
|
| 1,124 |
2024 |
|
| 1,138 |
2025 and thereafter |
|
| 2,830 |
Less: Interest |
|
| (913) |
Present value of lease liabilities |
| $ | 9,219 |
The weighted average remaining lease term and discount rates are as follows:
November 30, 2019 | ||||
Lease Term and Discount Rate | ||||
Weighted average remaining lease term (years) | ||||
Operating leases | 5.9 | |||
Weighted average discount rate (percentage) | ||||
Operating leases | 3.1 | % |
19
Other Information
Supplemental cash flow information related to leases is as follows:
|
|
|
|
|
| Three Months Ended | |
|
| November 30, 2019 | |
|
|
|
|
Operating cash outflows from operating leases |
| $ | 607 |
Total cash paid for amounts included in the measurement of lease liabilities |
| $ | 607 |
Minimum lease payments under operating leases prior to adoption of ASU 2016-02 were as follows:
|
|
|
|
|
|
| Future Operating |
| |
Year ending August 31, |
| Lease Payments |
| |
2020 |
| $ | 2,468 |
|
2021 |
|
| 2,059 |
|
2022 |
|
| 1,371 |
|
2023 |
|
| 1,187 |
|
2024 |
|
| 1,200 |
|
2025 and thereafter |
|
| 2,608 |
|
Total future minimum lease payments |
| $ | 10,893 |
|
Note 9 — Revenue from Contracts with Customers
The Company accounts for revenue in accordance with ASC 606, “Revenue from Contracts with Customers.” This revenue is generated from the manufacture of specialty chemical products including coatings, linings, adhesives, sealants, specialty tapes, polymers and laminates. Certain of these manufactured products can incorporate customer-owned materials. The Company also recognizes, to a lesser extent, revenue through royalties and commissions from licensed manufacturers and from providing custom manufacturing-related services. The Company’s revenue recognition policies require the Company to make significant judgments and estimates. In applying the Company’s revenue recognition policy, determinations must be made as to when control of products passes to the Company’s customers, which can be either at a point in time or over time based on contractual terms with customers. Revenue is generally recognized at a point in time when control passes upon either shipment to or receipt by the customer of the Company’s products, while revenue is generally recognized over time when control of the Company’s products transfers to customers during the manufacturing process.The Company analyzes several factors, including but not limited to, the nature of the products being sold and contractual terms and conditions in contracts with customers to help the Company make such judgments about revenue recognition.
20
Note 8 — Sale of BusinessContract Balances
SaleThe Company’s contract assets primarily relate to unbilled revenue for products currently in production at the Company’s facilities and which incorporate customer-owned material. Revenue is recognized in advance ofFiber Optic Cable Components Product Line billing to the customer in these specific circumstances, whereas billing is typically performed at the time of shipment to or receipt by the customer.
On April 3, 2017, Chase executed an agreement with an unrelated party to sell all inventory, machineryContract assets are included in prepaid expenses and equipment and intangibleother current assets ofon the Company’s fiber optic cable components product line for proceeds of $3,858, net of transaction costs and following certain working capital adjustments. Given its low-growth and low-margin prospects, and a customer, supplier and equipment base separate from our other businesses, the fiber optic cable components product line, which was formerly part of the Company’s Industrial Materials segment, was determined to not be part of Chase’s long-term strategy. The divestiture was accounted for underASC 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 the third quarter of fiscal 2017as gain on sale of businesses within the condensed 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 otherbalance sheets. The following table presents contract assets as of August 31, 2017 and as a current asset (Due from sale of business)by reportable operating segment as of November 30, 2017,2019 and is available to resolveAugust 31, 2019:
|
|
|
|
|
|
|
|
| November 30, |
| August 31, | ||
|
| 2019 |
| 2019 | ||
Contract Assets |
|
|
|
|
|
|
Adhesives, Sealants and Additives |
| $ | 19 |
| $ | 42 |
Industrial Tapes |
|
| 102 |
|
| 26 |
Corrosion Protection and Waterproofing |
|
| 123 |
|
| 79 |
Total |
| $ | 244 |
| $ | 147 |
The Company did not have any submitted claims or adjustments up to 18 months from the closing datecontract liabilities as of the sale.November 30, 2019 and August 31, 2019.
Disaggregated Revenue
Subsequent toThe Company disaggregates revenue from customers by geographic region, as it believes this disclosure best depicts how the sale, Chase will provide ongoing manufacturingnature, amount, timing and administrative support touncertainty of the purchaserCompany's revenue and cash flows are affected by economic factors. Disaggregated revenue by geographical region for which the Company will receive additional consideration upon the performance of services; this arrangement is anticipated to last for multiple years. In the quarterthree months ended November 30, 2017, Chase charged the purchaser $470 for manufacturing services, which the Company recognized2019 and 2018 was as revenue within the Industrial Materials segment, and $60 for selling and administrative expenses, which the Company recognized as an offset to selling, general and administrative expenses. Further, the purchaser entered a multiyear lease for a portion of the manufacturing space at the Company’s Granite Falls, NC facility. Chase received $33 in rental income during the first quarter of fiscal 2018 related to this lease, which the Company recognized within other income (expense) on the condensed consolidated statement of operationsfollows:
Note 9 — Sale of Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended November 30, 2019 | ||||||||||||
|
| Adhesives, Sealants |
| Industrial |
|
| Corrosion Protection |
|
| Consolidated | ||||
|
| and Additives |
| Tapes |
|
| and Waterproofing |
|
| Revenue | ||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
| $ | 17,706 |
| $ | 27,013 |
|
| $ | 8,756 |
|
| $ | 53,475 |
Asia |
|
| 4,443 |
|
| 1,691 |
|
|
| 1,090 |
|
|
| 7,224 |
Europe |
|
| 3,579 |
|
| 741 |
|
|
| 951 |
|
|
| 5,271 |
All other foreign |
|
| 94 |
|
| 679 |
|
|
| 59 |
|
|
| 832 |
Total Revenue |
| $ | 25,822 |
| $ | 30,124 |
|
| $ | 10,856 |
|
| $ | 66,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended November 30, 2018 | ||||||||||||
|
| Adhesives, Sealants |
| Industrial |
|
| Corrosion Protection |
|
| Consolidated | ||||
|
| and Additives |
| Tapes |
|
| and Waterproofing |
|
| Revenue | ||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
| $ | 18,547 |
| $ | 30,092 |
|
| $ | 9,685 |
|
| $ | 58,324 |
Asia |
|
| 5,232 |
|
| 2,017 |
|
|
| 1,896 |
|
|
| 9,145 |
Europe |
|
| 2,778 |
|
| 803 |
|
|
| 713 |
|
|
| 4,294 |
All other foreign |
|
| 141 |
|
| 550 |
|
|
| 49 |
|
|
| 740 |
Total Revenue |
| $ | 26,698 |
| $ | 33,462 |
|
| $ | 12,343 |
|
| $ | 72,503 |
Sale
21
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 condensed consolidated statement of operations as a gain on sale of real estate during the fiscal quarter ended November 30, 2016. The Company had previously reclassified the related long-lived assets to assets held for sale after committing to a plan in the second quarter of fiscal 2016 to actively market the property.
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 quarter of fiscal 2017, the sale was finalized for gross cash proceeds in the amount of $740, resulting in a gain on sale of $68.See Note 17 to the condensed consolidated financial statements for additional information on the sale of the Bridgewater, MA location.
Note 10 — 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.
18
Note 11 — Pensions and Other Postretirement Benefits
The components of net periodic benefit cost for the three months ended November 30, 20172019 and 2016 are2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| Three Months Ended November 30, |
|
|
| Three Months Ended November 30, |
|
| |||||||||
|
|
| 2017 |
| 2016 |
|
|
| 2019 |
| 2018 |
|
|
| ||||
Components of net periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Service cost |
|
| $ | 71 |
| $ | 72 |
|
|
| $ | 73 |
| $ | 73 |
|
|
|
Interest cost |
|
|
| 157 |
|
| 170 |
|
|
|
| 113 |
|
| 178 |
|
|
|
Expected return on plan assets |
|
|
| (116) |
|
| (132) |
|
|
|
| (98) |
|
| (112) |
|
|
|
Amortization of prior service cost |
|
|
| 1 |
|
| 1 |
|
|
|
| 1 |
|
| 1 |
|
|
|
Amortization of accumulated loss |
|
|
| 121 |
|
| 224 |
|
|
|
| 174 |
|
| 118 |
|
|
|
Curtailment and settlement loss |
|
| — |
|
| 200 |
|
|
| |||||||||
Net periodic benefit cost |
|
| $ | 234 |
| $ | 335 |
|
|
| $ | 263 |
| $ | 458 |
|
|
|
When funding is required, the Company’s policy is to contribute amounts that are deductible for federal income tax purposes. As of November 30, 2017, theThe Company has made contributions of $389$392 in the current fiscal yearthree months ended November 30, 2019 to fund its obligations under its pension plans, and plans to make the necessary contributions over the remainder of fiscal 20182020 to ensure the qualified plans continue to be adequately funded given the current market conditions. The Company made contributions of $21$389 in the first three months ended November 30, 2018.
22
Note 12 — 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 are: 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.
The Company utilizes the best available information in measuring fair value. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The financial assets classified as Level 1 and Level 2 as of November 30, 20172019 and August 31, 20172019 represent investments that are restricted for use in a nonqualified retirement savings planplans 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 November 30, 20172019 and August 31, 2017:2019:
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| Fair value measurement category |
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| Fair value measurement category |
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| Quoted prices |
| Significant other |
| Significant |
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| Quoted prices |
| Significant other |
| Significant |
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| Fair value |
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| in active markets |
| observable inputs |
| unobservable inputs |
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| Fair value |
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| observable inputs |
| unobservable inputs |
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| measurement date |
| Total |
| (Level 1) |
| (Level 2) |
| (Level 3) |
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| measurement date |
| Total |
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Assets: |
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Restricted investments |
| November 30, 2017 |
| $ | 1,057 |
| $ | 1,006 |
| 51 |
| — |
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| November 30, 2019 |
| $ | 1,365 |
| $ | 1,187 |
| $ | 178 |
| $ | — |
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Restricted investments |
| August 31, 2017 |
| $ | 964 |
| $ | 926 |
| 38 |
| — |
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| August 31, 2019 |
| $ | 1,260 |
| $ | 1,091 |
| $ | 169 |
| $ | — |
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19
The following table presents the fair value of the Company’s long-term debt (including theany current portion of long-term debt) as of November 30, 20172019 and August 31, 2017,2019, which is recorded at its carrying value:
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| Quoted prices |
| Significant other |
| Significant |
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| Fair value |
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| in active markets |
| observable inputs |
| unobservable inputs |
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| measurement date |
| Total |
| (Level 1) |
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Liabilities: |
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Long-term debt |
| November 30, |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
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Long-term debt |
| August 31, |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
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The long-term debt had no outstanding balance at eitheras of November 30, 2017 or2019 and August 31, 2017. Generally, the2019. 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 revolving credit agreement. See Note 1816 to the condensed consolidated financial statements for additional information on the refinancing.long-term debt.
23
Note 13 — Accumulated Other Comprehensive Income
The changes in accumulated other comprehensive income (loss), net of tax, were as follows:
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| Change in Funded |
| Foreign Currency |
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| Foreign Currency |
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| Restricted |
| Status of |
| Translation |
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| Restricted |
| Status of |
| Translation |
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| Investments |
| Pension Plan |
| Adjustment |
| Total |
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| Investments |
| Pension Plans |
| Adjustment |
| Total |
| ||||||||
Balance at August 31, 2016 |
| $ | 54 |
| $ | (7,336) |
| $ | (8,197) |
| $ | (15,479) |
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Balance at August 31, 2018 |
| $ | 126 |
| $ | (5,796) |
| $ | (6,666) |
| $ | (12,336) |
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Other comprehensive gains (losses) before reclassifications (1) |
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| 14 |
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| — |
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| (2,098) |
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| (2,084) |
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| (34) |
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| — |
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| (606) |
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| (640) |
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Reclassifications to net income of previously deferred (gains) losses (2) |
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| (1) |
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| 147 |
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| — |
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| 146 |
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| 13 |
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| 236 |
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| — |
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| 249 |
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Other comprehensive income (loss) |
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| 13 |
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| 147 |
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| (2,098) |
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| (1,938) |
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| (21) |
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| 236 |
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| (606) |
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| (391) |
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Balance at November 30, 2016 |
| $ | 67 |
| $ | (7,189) |
| $ | (10,295) |
| $ | (17,417) |
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Balance at November 30, 2018 |
| $ | 105 |
| $ | (5,560) |
| $ | (7,272) |
| $ | (12,727) |
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Balance at August 31, 2017 |
| $ | 121 |
| $ | (6,181) |
| $ | (7,409) |
| $ | (13,469) |
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Balance at August 31, 2019 |
| $ | 154 |
| $ | (6,271) |
| $ | (8,207) |
| $ | (14,324) |
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Other comprehensive gains (losses) before reclassifications (3) |
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| 31 |
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| — |
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| 1,570 |
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| 1,601 |
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| 45 |
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| — |
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| 1,537 |
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| 1,582 |
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Reclassifications to net income of previously deferred (gains) losses (4) |
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| — |
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| 80 |
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| — |
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| 80 |
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| (4) |
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| 131 |
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| — |
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| 127 |
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Other comprehensive income (loss) |
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| 31 |
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| 80 |
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| 1,570 |
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| 1,681 |
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| 41 |
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| 131 |
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| 1,537 |
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| 1,709 |
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Balance at November 30, 2017 |
| $ | 152 |
| $ | (6,101) |
| $ | (5,839) |
| $ | (11,788) |
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Adoption of ASU 2018-02 (5) |
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| — |
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| (1,388) |
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| — |
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| (1,388) |
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Balance at November 30, 2019 |
| $ | 195 |
| $ | (7,528) |
| $ | (6,670) |
| $ | (14,003) |
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(1) | Net of tax expense of |
(2) | Net of tax |
(3) | Net of tax benefit of |
(4) | Net of tax expense of $1, tax benefit of |
(5) | See Note 2 for further information related to the adoption of ASU 2018-02. |
2024
The following table summarizes the reclassifications from accumulated other comprehensive income (loss) to the unaudited condensed consolidated statements of income:
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| Amount of Gain (Loss) Reclassified from |
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| Amount of Gain (Loss) Reclassified from |
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| Accumulated Other Comprehensive Income |
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| Accumulated Other Comprehensive Income |
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| (Loss) into Income |
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| (Loss) into Income |
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| Three Months Ended November 30, |
| Location of Gain (Loss) Reclassified from Accumulated |
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| Three Months Ended November 30, |
| Location of Gain (Loss) Reclassified from Accumulated |
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| 2017 |
| 2016 |
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| Other Comprehensive Income (Loss) into Income |
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| 2019 |
| 2018 |
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| Other Comprehensive Income (Loss) into Income |
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Gains on Restricted Investments: |
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Realized gain on sale of restricted investments |
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| $ | (1) |
| $ | (2) |
| Selling, general and administrative expenses |
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Realized loss (gain) on sale of restricted investments |
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| $ | (5) |
| $ | 17 |
| Selling, general and administrative expenses |
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Tax expense (benefit) |
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| 1 |
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| 1 |
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| 1 |
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| (4) |
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Gain net of tax |
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| $ | — |
| $ | (1) |
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| $ | (4) |
| $ | 13 |
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Loss on Funded Pension Plan adjustments: |
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Amortization of prior pension service costs and unrecognized losses |
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| $ | 28 |
| $ | 26 |
| Cost of products and services sold |
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| $ | 175 |
| $ | 119 |
| Other income (expense) |
| ||
Amortization of prior pension service costs and unrecognized losses |
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| $ | 94 |
| $ | 199 |
| Selling, general and administrative expenses |
| |||||||||||||
Settlement and curtailment loss |
|
|
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| — |
| 200 |
| Other income (expense) |
| ||||||||||||||
Tax expense (benefit) |
|
|
|
| (42) |
|
| (78) |
|
|
|
|
|
|
| (44) |
|
| (83) |
|
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| ||
Loss net of tax |
|
|
| $ | 80 |
| $ | 147 |
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| $ | 131 |
| $ | 236 |
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Total net loss reclassified for the period |
|
|
| $ | 80 |
| $ | 146 |
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| $ | 127 |
| $ | 249 |
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Note 14 — Acquisitions
Acquisition of Resin Designs, LLC
On September 30, 2016, the Company acquired certain assets of Resin Designs, LLC (“Resin Designs”), an advanced adhesives and sealants manufacturer, with locations in Woburn, MA and Newark, CA. This business was acquired for a purchase price of $30,270, after final working capital adjustments and excluding acquisition-related costs. As part of this transaction, Chase acquired all working capital and fixed assets of the business, and entered into multiyear leases at both locations. Resin Designs is a formulator of customized adhesive and sealant systems used in high-reliability electronic applications. The acquisition broadens the Company’s adhesives and sealants product offering and manufacturing capabilities, and expands its market reach. The purchase was funded entirely with available cash on hand.
Since the effective date for this acquisition, September 30, 2016, the financial results of the acquired business have been included in the Company’s financial statements within the Industrial Materials operating segment, within the electronic and industrial coatings product line. The acquisition was accounted for as a business combination under ASC Topic 805, “Business Combinations.” In accordance with this accounting standard, the Company expensed $584 of acquisition-related costs during the first fiscal quarter of 2017 to acquisition-related costs.
2125
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:
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|
|
Assets & Liabilities |
| Amount |
| |
Accounts receivable |
| $ | 1,877 |
|
Inventory |
|
| 1,300 |
|
Prepaid expenses and other current assets |
|
| 63 |
|
Property, plant & equipment |
|
| 623 |
|
Goodwill |
|
| 7,592 |
|
Intangible assets |
|
| 19,450 |
|
Accounts payable and accrued liabilities |
|
| (635) |
|
Total purchase price |
| $ | 30,270 |
|
The excess of the purchase price over the net tangible and intangible assets acquired resulted in goodwill of $7,592 that is largely attributable to the synergies and economies of scale from combining the operations, technologies and research and development capabilities of Resin Designs and Chase, particularly as it pertains to the expansion of the Company's product and service offerings, the established workforce and marketing efforts. This goodwill is deductible for income tax purposes.
All assets, including goodwill, acquired as part of the Resin Designs acquisition are included in the Industrial Materials operating segment. Identifiable intangible assets purchased with this transaction are as follows:
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|
Intangible Asset |
| Amount |
| Useful life | ||
Customer relationships |
| $ | 17,500 |
| 10 | years |
Technology |
|
| 1,200 |
| 4 | years |
Trade names |
|
| 750 |
| 7 | years |
Total intangible assets |
| $ | 19,450 |
|
|
|
Supplemental Pro Forma Data
The following table presents the pro forma results of the Company for the three-month period ended November 30, 2016 as though the Resin Designs acquisition described above occurred on September 1, 2015 (the first day of fiscal 2016). The actual revenue and expenses for the acquired business are included in the Company’s consolidated results beginning on September 30, 2016. For the three months ended November 30, 2017, revenue and net income for the Resin Designs operations included in the condensed consolidated statement of operations were $3,738 and $348, respectively. 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.
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| Three Months Ended November 30, | |
| 2016 | |
Revenue | $ | 62,942 |
Net income |
| 11,034 |
|
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|
Net income available to common shareholders, per common and common equivalent share |
|
|
Basic earnings per share | $ | 1.18 |
Diluted earnings per share | $ | 1.17 |
22
Note 15 — Exit Costs Related to Idle Facility
In the three-month period ended November 30, 2016, the Company recognized $27 in expenses to raze and exit its Randolph, MA facility, which had been idle regarding production for several years; no expense was recognized in the quarter ended November 30, 2017. The Company began marketing the site for sale and reclassified the net book value of the facility to assets held for sale in the second quarter of fiscal 2016, and recognized a total of $70 and $935 in expenses associated with the project during fiscal 2017 and 2016, respectively. 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 anticipated to not be material. See Note 16 to the condensed consolidated financial statements for additional information on assets held for sale.
Note 1614 — Assets Held for Sale
The Company periodically reviews long-lived assets against its plans to retain or ultimately dispose of these assets. If the Company decides to dispose of an asset and commits to a plan to actively market and sell the asset, it will be moved to assets held for sale. The Company analyzes market conditions each reporting period, and, if applicable, records additional impairments due to declines in market values of like assets. The fair value of the asset is determined by observable inputs such as appraisals and prices of comparable assets in active markets for assets like the Company's. Gains are not recognized until the assets are sold.
Assets held for sale as of November 30, 20172019 and August 31, 20172019 were:
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| |
| November 30, 2019 |
| August 31, 2019 |
| ||
Pawtucket, RI - Property, plant and equipment | $ | 1,050 |
| $ | 1,050 |
|
Randolph, MA - Property |
| 14 |
|
| 14 |
|
Total | $ | 1,064 |
| $ | 1,064 |
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|
|
| November 30, 2017 |
| August 31, 2017 |
| ||
Randolph, MA - Property (1) | $ | 14 |
| $ | 14 |
|
Total | $ | 14 |
| $ | 14 |
|
See Note 15 to the condensed consolidated financial statements for additional information on the Pawtucket, RI location assets held as of November 30, 2019.
|
|
Note 1715 — Related Party AgreementsOperations Optimization Costs
ReimbursementsIT Studies Related to Life Insurance Policiesthe Upgrade of the Company’s Worldwide ERP System
During the fourth quarter of fiscal 2016 and the first quarter of fiscal 2017,2020, third-party-led studies regarding the Edward L. Chase Trust (the “Trust”), ownerspotential upgrading 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 oncurrent worldwide ERP system were conducted. Chase is currently reviewing the policies. In August 2016 (the fourth quarter of fiscal 2016),data and recommendations provided by the study and may further utilize third-party engineering, IT and other professional services firms in the future for similar work, as well as work around our facilities rationalization and consolidation initiative. The Company received $1,238recognized $150 in expense related to these services in the John Hancock (formerly Manufacturers’ Life Insurance Company) policy, the full value of premiums paid to date by the Company. In September 2016 (the first quarter of fiscal 2017),2020. Given the ongoing nature of the review, an estimate of future costs, including those that may be capitalized, cannot currently be determined.
Relocation of Pulling and Detection Manufacturing to Hickory, NC
During the third quarter of fiscal 2019, Chase began moving the pulling and detection operations housed in its Granite Falls, NC location to its Hickory, NC facility. This is in line with the Company’s ongoing initiative to consolidate its manufacturing plants and streamline its existing processes. Currently, the pulling and detection operations are the only Chase-owned production operations in Granite Falls, NC, with the remaining portions of the building being either utilized for research and development or leased to a third party. The process of moving has continued subsequent to the end of fiscal 2019 and is anticipated to be completed during the first half of fiscal 2020. The Company received $1,504recognized $499 in expense related to the Metropolitan Life Insurance policy, its then cash surrender value, plus an additional prepaid premiummove in the three-month period ended November 30, 2019, having recognized $1,260 in expense during the second half of fiscal 2019. Future costs related to the policy. Claire E. Chase is the spouse of a former executive ofthis move are currently anticipated to be approximately $200, and the Company Edward L. Chase (deceased), and whoplans to disclose these amounts separately on the condensed consolidated statement of operations 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.future periods.
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
2326
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 Boardongoing efforts to consolidate its manufacturing plants and streamline its existing processes. The manufacture of Directors, including Peter R. Chase (the Executive Chairmanproducts previously produced in the Pawtucket, RI facility was substantially moved to Company facilities in Oxford, MA and Lenoir, NC during a two-month transition period. In the fourth quarter of fiscal 2018, the Company) 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 partiesCompany expensed $1,272 related to the potential buyer, priorclosure. The Company also recognized $260 in expense related to entering the October 2016 agreement. They concluded thatmove in the sale price was appropriate, after considering a recent market appraisal ofthree-month period ended November 30, 2018, with no additional expense recognized in fiscal 2019. Future costs related to this move are not anticipated to be significant to the land and building performed by an independent third-party valuation firm.condensed consolidated financial statements.
Note 1816 — Long-Term Debt
On December 15, 2016, the Company entered into an Amended and Restated Credit Agreement (the “New Credit“Credit Agreement”) with Bank of America, acting as administrative agent, and with participation from Citizens Bank and JPMorgan Chase Bank (collectively with Bank of America, the “Lenders”). The New Credit Agreement is initially an all-revolving credit facility with a borrowing capacity of $150,000, which can be increased by an additional $50,000 at the request of the Company and the individual or collective option of any of the Lenders. The New Credit Agreement contains customary affirmative and negative covenants that, among other things, restrict our ability to incur additional indebtedness and require certain lender approval for acquisitions by the Company and its subsidiaries over a certain size. It also requires us to maintain certain financial ratios on a consolidated basis, including a consolidated net leverage ratio (as defined in the facility) of no more than 3.25 to 1.00, and a consolidated fixed charge coverage ratio (as defined in the facility) of at least 1.25 to 1.00. We were in compliance with our debt covenants as of November 30, 2017.2019. The New Credit Agreement is guaranteed by all of Chase’s direct and indirect domestic subsidiaries, including NEPTCO, which collectively had a carrying value of $162,794$242,578 at November 30, 2017.2019. The NewCompany entered into 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 New Credit Agreement (the “New Revolving“Revolving Facility”) and any New Term Loan (defined below) is based on the effective London Interbank Offered Rate (LIBOR) plus an additional amount in the range of 1.00% to 1.75%, depending on the consolidated net leverage ratio of Chase and its subsidiaries. At November 30, 2017, 2019,there was no outstanding principal balance, and as suchtherefore no applicable interest rate. The New Credit Agreement has a five-year term with interest payments due at the end of the applicable LIBOR period (but in no event less frequently than the three-month anniversary of the commencement of such LIBOR period) and principal payment due at the expiration of the agreement, December 15, 2021. In addition, the Company may elect a base rate option for all or a portion of the New Revolving Facility, in which case interest payments shall be due with respect to such portion of the New Revolving Facility on the last business day of each quarter.
Subject to certain conditions set forth in the New Credit Agreement, the Company may elect to convert all or a portion of the outstanding New Revolving Facility into a term loan (each, a “New Term“Term Loan”), which shall be payable quarterly in equal installments sufficient to amortize the original principal amount of such New Term Loan on a seven year amortization schedule; provided, however, that the final principal repayment installment shall be repaid on December 15, 2021 and in any event shall be in an amount equal to the aggregate principal amount of all Term Loans outstanding on such date. Prepayment is allowed by the New Credit Agreement at any time during the term of the agreement, subject to customary notice requirements.
In connection with entry into the New Credit Agreement, Chase applied proceeds to refinance in full the outstanding principal balance of its preexisting term debt, simultaneously terminating both our previously existing term loan agreement and the previously existing revolving line of credit, which was fully available as of December 15, 2016.
In December 2017 (fiscal 2018), the Company utilized $65,000 of the New Credit Agreement to finance a portionthe majority of the acquisition cost of Stewart Superabsorbents, LLC. See Note 19 toZappa Stewart. The Company paid down $40,000 of the condensed consolidated financial statements foroutstanding balance in fiscal 2018, and made additional information on this acquisition completed duringprincipal payments of $10,000, $9,000 and $6,000 in the first, second and third quarters of fiscal quarter.2019, respectively, resulting in an outstanding balance of $0 at August 31, 2019 and November 30, 2019.
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Note 1917 — Subsequent EventsIncome Taxes
AcquisitionFor the three months ended November 30, 2019 and 2018, the Company recorded income taxes of Zappa Stewart
On December 29, 2017, Chase entered an agreement to acquire Stewart Superabsorbents, LLC (“SSA, LLC”)$2,709 and $2,985 on income before income taxes of $10,071 and $11,808, respectively.The effective tax rate for the three months ended November 30, 2019 and 2018 was 26.9% and 25.3%, 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 ZappaTec business (collectively “Zappa Stewart”), had combined revenue in excess of $24,000. Chase expects this acquisition to be immediately accretive to its earnings. The business was acquired for a purchase price of $71,382, net of cash acquired, pending any 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 from a combination of Chase’s existing revolving credit facility and available cash on hand. Zappa Stewart’s protective materials technology is complementary to Chase’s current specialty chemical offerings. This acquisition is in line with our core strategies and extends our reach into growing medical and consumer applications.
Tax Cuts and Jobs Act of 2017respectively.
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (H.R. 1) (the "Act"“Tax Act”). The Tax Act includes a number of changes in existing U.S. tax law impacting the Company's income taxes including, among other things, permanent reduction inimpacted the U.S. corporate incomestatutory Federal tax rate that the Company will be subject to going forward, reducing it from 35% to 21%. The Company applied this U.S. statutory Federal rate of 21% for both the quarters ended November 30, 2019 and 2018.
During the quarter ended November 30, 2018 (the first quarter of fiscal 2019), repealthe Company began recognizing an additional component of Section 199 domestic manufacturing deduction,total Federal tax expense, the tax on Global Intangible Low-Taxed Income (“GILTI”) provision of the Tax Act, which became applicable to the Company in fiscal 2019. The Company elected to account for GILTI as a period cost, and deemed repatriationtherefore included GILTI expense in the effective tax rate calculation. This provision did not have a material effect on U.S. shareholders’ pro rata share of certain non-U.S. subsidiaries’ earnings not previously taxed by the United States of America.effective tax rate for the quarters ended November 30, 2019 and 2018.
The Company is currently reviewingconcluded that the componentsBase Erosion and Anti Abuse Tax (“BEAT”) provision of the Tax Act, and evaluating its impact, which could be materialalso became applicable to the Company in fiscal 2019, had no effect on our effective tax rate for the Company’sfirst quarters of fiscal year 2018 consolidated financial statements2020 and related disclosures, including a one-time, non-cash expense related to a decrease in the value of the Company’s net deferred tax assets. At this time, the Company’s revaluation of its deferred tax assets has not been estimated, and2019. Additionally, the Company is unable to make a final determinationdeferring the application of the effect on quarterly and annual earningsForeign-Derived Intangible Income (“FDII”) for the current period, ending August 31, 2018. The Company does not assert permanent reinvestmentin anticipation of its undistributed non-U.S. subsidiaries' earningsfurther guidance and has previously recognized a deferred tax liability for the estimated future tax effects attributable to temporary differences due to these undistributed earnings.establishment of industry standards by the U.S. Treasury Department and trade associations.
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Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion provides an analysis of the Company’s financial condition and results of operations and should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with the Company’s Annual Report on Form 10-K filed for the fiscal year ended August 31, 2017.2019.
Overview
InWe experienced a primarily volume-based revenue decline in the three-month periodquarter ended November 30, 2017, the Company had favorable comparative results2019, as compared to the first fiscal quarter of the prior year in revenue, however a less favorable sales mix and certain other unfavorable items (explained below) resulted in lower operating income and net income. Our Industrial Materials segment obtained higher sales volume for the quarter, while our Construction Materials segment’s sales decreased from the comparable period. The current quarter saw reduced margins and earnings, driven by sales mix and increasing raw material prices and a comparatively higher income tax rate. Additionally, we experienced a swing in the effects of foreign currency transactions, moving from a gainyear. Macrotrends observed in the prior year continued, including tightness in Asian markets, contraction in Middle East construction starts and declining domestic bridge work. In the current quarter, we also saw a slowdown in cable materials demand and the planned winding down of the transitional toll manufacturing services we provide to the common purchaser of the structural composites rod and fiber optic cable components businesses. While revenue was down, certain operational improvements over the comparative period were recognized, including an increased relative gross profit margin, as the Company saw the current year benefits of the prior year consolidation of our wire and cable materials manufacturing into our Oxford, MA and Lenoir, NC locations. A favorable sales mix, including the reduction in low-margin tolling services, and price increases put into effect to address rising raw material costs in the prior year both further aided our gross profit margin as a loss inpercentage of revenue.
During the first quarter of fiscal 2018.
First quarter revenue from2020, the Company further progressed its facility consolidation and rationalization initiative, nearly completing the relocation of our Industrial Materials segment surpassed the prior year with high demand for our electronic and industrial coatings, pulling and detection structural composites, specialty products and specialty chemical intermediates product lines. Offsetting these increases in revenue were quarter-over-quarter reductions in sales volumeline production operations from our fiber optic cable componentsGranite Falls, NC facility to our Hickory, NC facility. The pulling and cable materials product lines. Our fiber optic cable components product line, which was divesteddetection relocation effort began in the third quarter of the prior year did not record any revenueand is anticipated to be substantially completed in the coming second fiscal quarter of 2020. Operational efficiency gains continued at our Oxford, MA and Lenoir, NC facilities. Our Industrial Tapes segment is the beneficiary of both these consolidation efforts, and the segment’s improved gross profit margin as a percentage of revenue demonstrated the gains that can be realized by the proper execution of an effective consolidation program. We also began the process of exploring future upgrades to our existing worldwide ERP system as a means to invest in the streamlining of our operations and making us more scalable for future growth whether organic or via potential acquisitions.
Net cash provided by operating activities exceeded the prior year first quarter and the Company’s cash position continued the positive trend seen in the latter half of the prior fiscal year following the full payoff of our outstanding debt. We remain unleveraged, holding no outstanding balance on our revolving credit facility at the close of the current year.period. Our revolving credit facility allows for us to pay down debt when we have excess cash, while retaining access to immediate liquidity to fund future accretive activities, including mergers and acquisitions, as identified.
Revenue for our Construction Materialsfrom the Adhesives, Sealants and Additives segment decreased as our electronic and industrial coatings product line sales volume continued to be affected by slower Asian markets, a trend which began in the second half of the prior year. Our specialty chemical intermediates product line sales increased on volume over the prior year, partially tempering the overall sales decline for the first quartersegment.
Our Industrial Tapes segment’s sales decreased compared to the prior year, most notably related to both our cable materials and specialty products product lines. The reduction in our specialty products product line came largely on less low-margin transitional toll manufacturing services provided to the common purchaser of our structural composites rod and fiber optical cable components businesses as that arrangement neared completion. Our electronic materials product line, which sells into near exclusively Asian end markets, also had reduced sales volume as compared to the same period in the prior year. Our pipeline coatings products experiencedThe segment’s top-line results for the largest netquarter were positively affected by our pulling and detection product line, which had strong sales volume decrease. Middle East water infrastructure projects continued, but at significantly reduced comparative levels, resulting in reduced demand for our Rye, U.K. facility-produced pipeline coatings products. Our domestically-produced pipeline coatings products, which sell into North American oilutility and gas markets,telecommunication markets.
29
Our Corrosion Protection and are primarily for repairs and maintenance, fared better, seeing a quarter-over-quarter increase fromWaterproofing segment’s revenue fell short of the prior year.year for the quarter ended November 30, 2019. Our building envelopebridge and highway, pipeline coatings and coating and lining systems product lines bothall saw quarter-over-quarter decreases in sales volume. Partially offsetting these losses,declines from the prior year first quarter. Our bridge and highway product line sales results in the first quarter were affected by non-repeating, large-scale bridge work in the eastern U.S. which began in fiscal 2018 and completed in fiscal 2019 (prior year). Continued compressed construction in the Middle East affected our U.K.-produced water and wastewater pipeline products, which was the primary driver for the product line’s year-over-year sales volume decline. Our building envelope product line finished ahead of the quarter surpassing prior year for the first quarter.sales results.
During the remainder of the fiscal year, the Company plans to successfully address both foreseen and unforeseen challenges through disciplined operational and financial management. The upcoming second fiscal quarter has historically generated lower quarterly revenue for many of our product lines, especially within the Construction MaterialsCorrosion Protection and Waterproofing segment due to the seasonal effects of winter weather across much of North America. We plan to integrate the operations of Zappa Stewart, which was acquired in the second fiscal quarter of 2018, onto our worldwide ERP computer system. Through employing both market and product development efforts and pursuing opportunities realizable through mergers, acquisitions and divestitures, we will continue the strategic management of our portfolio of product offerings.
Our balance sheet remains strongat November 30, 2019, with cash on hand of $54,262,000 and$66,056,000, a current ratio of 4.2 at November 30, 2017. At the end of our first fiscal quarter, there was4.6 and no outstanding principal balance underowed on our $150,000,000 revolving credit facility. Subsequent to the first quarter, the Company utilized $65,000,000 of the credit facility to finance a portion of the acquisition of Zappa Stewart.
26
We have twothree reportable operating segments as summarized below:
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| Manufacturing Focus and Products |
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| Protective coatings, |
Industrial Tapes | Cable Materials Specialty Products Pulling and Detection Electronic Materials | Protective tape and coating products and services, including insulating and conducting materials for wire and cable manufacturers; laminated durable papers, packaging and industrial laminate products and custom manufacturing services; pulling and detection tapes used in the installation, measurement and location of fiber optic cables and water and natural gas lines; cover tapes essential to delivering semiconductor components via | ||
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| 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. |
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Results of Operations
Revenue and Operating ProfitIncome before Income Taxes by Segment arewere as follows (dollars in thousands):
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| Three Months Ended |
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| November 30, 2017 |
| Revenue |
| November 30, 2016 |
| Revenue |
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| November 30, 2019 |
| Revenue |
| November 30, 2018 |
| Revenue |
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Revenue |
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Industrial Materials |
| $ | 49,985 |
| 81 | % | $ | 49,024 |
| 80 | % |
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Construction Materials |
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| 11,932 |
| 19 | % |
| 12,333 |
| 20 | % |
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Adhesives, Sealants and Additives |
| $ | 25,822 |
| 39 | % | $ | 26,698 |
| 37 | % |
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Industrial Tapes |
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| 30,124 |
| 45 | % |
| 33,462 |
| 46 | % |
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Corrosion Protection and Waterproofing |
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| 10,856 |
| 16 | % |
| 12,343 |
| 17 | % |
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Total |
| $ | 61,917 |
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| $ | 61,357 |
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| $ | 66,802 |
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| $ | 72,503 |
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| November 30, 2017 |
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| November 30, 2016 |
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Income before income taxes |
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Industrial Materials |
| $ | 15,365 |
| 31 | % | $ | 16,415 | (a) | 33 | % |
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Construction Materials |
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| 4,246 |
| 36 | % |
| 5,150 |
| 42 | % |
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Adhesives, Sealants and Additives |
| $ | 7,482 |
| 29 | % | $ | 8,265 |
| 31 | % |
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Industrial Tapes |
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| 6,637 | (a) | 22 | % |
| 6,538 | (c) | 20 | % |
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Corrosion Protection and Waterproofing |
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| 3,964 |
| 37 | % |
| 4,466 |
| 36 | % |
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Total for reportable segments |
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| 19,611 |
| 32 | % |
| 21,565 |
| 35 | % |
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| 18,083 |
| 27 | % |
| 19,269 |
| 27 | % |
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Corporate and Common Costs |
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Total |
| $ | 12,599 |
| 20 | % | $ | 14,650 |
| 24 | % |
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| $ | 10,071 |
| 15 | % | $ | 11,808 |
| 16 | % |
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(a) | Includes |
(b) | Includes |
(c) | Includes $260 of |
(d) | Includes $200 of pension-related settlement costs due to the |
Total Revenue
Total revenue increased $560,000decreased $5,701,000 or 1%8% to $61,917,000$66,802,000 for the quarter ended November 30, 2017,2019, compared to $61,357,000$72,503,000 in the same quarter of the prior year.
Revenue in our Industrial MaterialsAdhesives, Sealants and Additives segment increased $961,000decreased $876,000 or 2%3% to $25,822,000 for the quarter ended November 30, 2019 compared to $26,698,000 in the current quarter.first quarter of fiscal 2019. The increasedecrease in thisrevenue from our Adhesives, Sealants and Additives segment as compared to the prior year periodin fiscal 2020 was primarily due to: (a) toour electronic and industrial coatings product line’s $1,193,000 sales-volume-driven decrease, with headwinds seen most acutely in Asian markets. Partially offsetting the segment’s sales decline was an increase in revenue from our specialty chemical intermediates product line totaling $317,000, with strong North America sales into the consumer, environmental, industrial and medical markets.
Revenue in our Industrial Tapes segment decreased $3,338,000 or 10% to $30,124,000 for the three months ended November 30, 2019 compared to $33,462,000 in fiscal 2019. The decrease in revenue was primarily due to: (a) a sales volume demand decrease of $1,978,000 from our cable materials product line; (b) a quarter-over-quarter revenue reduction of $1,730,000 for our specialty products product line, as we provided less low-margin transitional toll manufacturing services in the current period; and (c) an entirely volume-driven sales decrease of $270,000 in our electronic materials product line, which included three full months ofhas a near exclusively Asian end-market. Partially offsetting the acquired Resin Designs operations, and had a total increase of $2,458,000, reflecting increased sales volume fromdecline for the automotive and appliance manufacturing industries, along with an increased royalty revenue received from our licensed manufacturer in Asia; (b) sales volume increase of $1,294,000 fromsegment was our pulling and detection products, on increased demand from customers in the utility and telecommunication industries following a severe hurricane season which affected Texas and the U.S. southeast; (c) increased sales into the wind energy market of $791,000 from our structural composite products; (d) revenue increase of $604,000 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 thefiber optic cable components product line; and (e) our specialty chemicals intermediatestapes product line, which hadachieved a sales volume increasevolume- and price-driven revenue growth of $20,000. These net increases were partially offset in$640,000 over the currentfirst quarter by: (a) a $2,291,000 reduction in sales volume for our cable materials products, with the largest decreases in communication cable components as the industry experiences consolidation and product design changes; and (b) a sales volume decrease of $1,915,000 from the prior year in our fiber optic cable components product line, which was divested in fiscal 2017, and had no revenue recorded in the current year. Our electronic materials products sales stayed constant with the prior year.
31
Compared to the prior year first quarter, revenue from our Construction MaterialsCorrosion Protection and Waterproofing segment decreased $401,000$1,487,000 or 3%. The largest decrease in our Construction Materials segment12% to $10,856,000 compared to the prior year period was due to a net decrease in sales of our pipeline coatings products of $645,000. While project work$12,343,000 in the Middle East has continued, delays and sluggishness in the region have continued to reduce demandfirst three months of fiscal 2019. The segment’s sales decrease was predominantly driven by unfavorable results for water and wastewater pipeline coatings products produced at our Rye, U.K. facility. Conversely, sales for our domestically produced pipeline products increased compared to the first quarter of the prior year, but not enough to offset the international decline.Further decreases in this segment as compared to the prior year period were primarily due to the following for the current quarter: (a) our building
28
envelope product line had sales volume decrease by $565,000, as it experienced commercial roofing project delays and consolidation within the industry; and (b) sales volume from our coating and lining systems decreased $86,000. Positively impacting the change in segment revenue for the quarter were sales of our bridge and highway products, which increasedsaw a volume-driven sales decline of $1,090,000 as compared to the elevated results of the bridge work-heavy prior year. Our pipeline coatings and coating and lining systems product lines also saw sales contract from the prior year by $895,000$677,000 and are being utilized$265,000, respectively. In the case of our pipeline coatings products, the reduction was primarily related to the prolonged contraction in multiple projects domestically, especially incertain Middle East credit markets, which has delayed construction starts. Tempering the New York metropolitan area, as well as expanding internationally.overall sales decrease, our building envelope product line finished the first quarter with sales favorable to the prior year by $545,000.
Cost of Products and Services Sold
Cost of products and services sold increased $1,606,000decreased $4,792,000 or 5%10% to $36,895,000$41,783,000 for the quarter ended November 30, 2017,2019, compared to $35,289,000$46,575,000 in the prior year quarter.
The following table summarizes our cost of products and services sold as a percentage of revenue for each of our reportingreportable operating segments:
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| Three Months Ended November 30, |
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Cost of products and services sold |
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| 2017 |
| 2016 |
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Industrial Materials |
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| 61 | % | 58 | % |
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Construction Materials |
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| 54 | % | 55 | % |
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Total |
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| 60 | % | 58 | % |
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| Three Months Ended November 30, |
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Cost of products and services sold |
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| 2019 |
| 2018 |
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Adhesives, Sealants and Additives |
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| 56 | % | 56 | % |
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Industrial Tapes |
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| 71 |
| 74 |
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Corrosion Protection and Waterproofing |
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| 55 |
| 56 |
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Total Company |
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| 63 | % | 64 | % |
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Cost of products and services sold in our Industrial MaterialsAdhesives, Sealants and Additives segment was $30,465,000$14,532,000 in the current quarter compared to $28,492,000$14,992,000 in the comparable period in the prior year. Cost of products and services sold in our Construction MaterialsIndustrial Tapes segment was $6,430,000$21,319,000 in the current quarter compared to $24,618,000 in the comparable period in the prior year. Cost of products and services sold in our Corrosion Protection and Waterproofing segment was $5,932,000 for the quarter ended November 30, 2017,2019, compared to $6,797,000$6,965,000 in the same period of the prior year.
As a percentage of revenue, cost of products and services sold increasedstayed the same for the Adhesives, Sealants and Additives segment, and was reduced for both the Industrial Tapes and Corrosion Protection and Waterproofing segments for the quarter as compared to the same period in the prior year. These relative gross margin improvements were primarily due to: (a) production efficiencies recognized in the quarter over the prior year, most acutely seen at our Oxford, MA and Lenoir, NC locations following the consolidation of our former Pawtucket, RI cable materials plant, and benefiting our Industrial Materials segment and decreased for our Construction Materials segment. The increase forTapes segment; (b) more favorable sales mix, most specifically obtained in our Industrial MaterialsTapes segment, was primarily due to product mix, as our lower margin products within our product lines constituted a comparatively higher portion of total sales, as well as raw material costs on increasing commodity prices. For the Construction Materials segment in the first quarter of 2018, the decrease was primarily due to product mix, as our lower margin products constituted a comparatively lower portion of total sales. Chase’s products are manufactured largely with commodity itemssales; and (c) the full period effects of price increases the Company instituted during fiscal 2019 (prior year) to address inflation in raw material costs.
With the composition of our finished goods and the markets we serve, the costs of certain commodities (including petroleum-based solvents, films, yarns, polymers and nonwovens, aluminum and copper foils, specialty papers, and various resins, adhesives and inks). Price changes in these commodities can both directly and indirectly affect the purchase price of our raw materials and the market demand for our product offerings. The Company diligently monitors raw material and commodities pricing across all its product lines in effortits efforts to preserve margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $307,000$278,000 or 3%2% to $12,059,000$13,640,000 for the quarter ended November 30, 20172019 compared to $11,752,000$13,362,000 in the prior year quarter. As a percentage of revenue, selling, general and administrative expenses stayed consistent at 19% in both periods.represented 20% and 18% for the quarter ended November 30, 2019 and 2018, respectively. The nominal increase for the current fiscal quarter compared to the prior year period was largely attributable to: (a) increased selling and sales commission expenseto an increase of $209,000 because of Resin Designs operating for an additional month in the current year and targeted spending increases in certain other product lines; and (b) increased amortization expense of $138,000 primarily related to intangible assets acquired in our September 30, 2016 acquisition of certain assets of Resin Designs.non-cash stock-based compensation expenses.
Exit Costs Related to Idle Facility
In the three-month period ended November 30, 2016, the Company recognized $27,000 in expenses to raze and exit its Randolph, MA facility, which had been idle regarding production for several years; no expense was recognized in the quarter ended November 30, 2017. The Company began marketing the site for sale and reclassified the net book value of the facility to assets held for sale in the second quarter of fiscal 2016, and recognized a total of $70,000 and $935,000 in expenses associated with the project during fiscal 2017 and 2016, respectively. The decision to raze the site and market the property comes as part of the Company’s facility consolidation and rationalization initiative, and was done in part to make the property more attractive to a potential buyer. Production previously housed in Randolph, MA had been relocated to the Company’s Oxford, MA and Blawnox, PA locations prior to the commencement of demolition work.
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The Company has updated its initial estimate and currently anticipates any future expenses associated with completing the project will not be material, with the sale of the property to follow.
Acquisition-RelatedOperations Optimization Costs
InDuring the first quarter of fiscal 2017,2020, third-party-led studies regarding the potential upgrading of the Company’s current worldwide ERP system were conducted. Chase is currently reviewing the data and recommendations provided by the study and may further utilize third-party engineering, IT and other professional services firms in the future for similar work, as well as work around our facilities rationalization and consolidation initiative. The Company incurred $584,000recognized $150,000 in expense related to these services in the first quarter of fiscal 2020. Given the ongoing nature of the review, an estimate of future costs, including costs that could be capitalized, cannot currently be determined.
During the third quarter of fiscal 2019, Chase began moving the pulling and detection operations housed in its Granite Falls, NC location to its Hickory, NC facility. This is in line with the Company’s ongoing initiative to consolidate its manufacturing plants and streamline its existing processes. Currently, the pulling and detection operations are the only Chase-owned production operations in Granite Falls, NC, with the remaining portions of the building being either utilized for research and development or leased to a third party. The process of moving has continued subsequent to the end of fiscal 2019 and is anticipated to be completed during the first half of fiscal 2020. The Company recognized $499,000 in expense related to the move in the three-month period ended November 30, 2019, having recognized $1,260,000 in expense during the second half of fiscal 2019. Future costs related to our acquisitionthis move are currently anticipated to be approximately $200,000, and the Company plans to disclose these amounts separately on the condensed consolidated statement of certain assetsoperations in future periods.
On June 25, 2018, the Company announced to its employees the planned closing of Resin Designs, LLC.its Pawtucket, RI manufacturing facility effective August 31, 2018. This acquisitionis in line with the Company’s ongoing efforts to consolidate its manufacturing plants and streamline its existing processes. The manufacture of products previously produced in the Pawtucket, RI facility was accounted for assubstantially moved to Company facilities in Oxford, MA and Lenoir, NC during 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 withintwo-month transition period. In the first fiscalfourth quarter of 2017. fiscal 2018, the Company expensed $1,272,000 related to the closure. The Company also recognized $260,000 in expense related to the move in the three-month period ended November 30, 2018, with no additional expense recognized in fiscal 2019. Future costs related to this move are not anticipated to be significant to the condensed consolidated financial statements.
Interest Expense
Interest expense decreased $201,000$149,000 or 82%73% to $45,000$55,000 for the quarter ended November 30, 20172019 compared to $246,000$204,000 in the prior year first quarter. The decrease in interest expense fromin the prior periodcurrent quarter is aprimarily the result of a reduction inthe decreased average outstanding balance of our overall averagerevolving debt balance through principal payments prior tofacility, following the Company’s refinancing$65,000,000 draw on the facility in December 2016, and following the refinancing, elective payments made with cash generated from operations. Interest expense in the first2017 (the second fiscal quarter of 2018 related primarilyfiscal 2018) to commitment fees.substantially fund the Company’s acquisition of Zappa Stewart.
Gain on SaleIn fiscal 2018, subsequent to the December 2017 borrowing, the Company made $40,000,000 in payments against the principal. In the first, second and third quarters of Real Estatefiscal 2019, Chase made additional $10,000,000, $9,000,000 and $6,000,000 principal payments, respectively, paying off the outstanding balance in full as of May 31, 2019 (third quarter of the prior year).
In November 2016, the Company finalized the sale
33
Other Income (Expense)
Other income (expense) was an expense of $319,000$604,000 in the quarter ended November 30, 20172019 compared to an incomeexpense of $399,000$294,000 in the same period in the prior year, a differencean increase of $718,000.$310,000. Other income (expense) primarily includes interest income, rental income, foreign exchange gains (losses) caused by changes in exchange rates on transactions or balances denominated in currencies other than the functional currency of our subsidiaries, non-service cost components of periodic pension expense (including pension-related settlement costs due to the timing of lump-sum distributions), interest income, rental income and other non-trade/non-royalty- and non-commission receipts. Other income (expense) inreceipts that are not classified as trade, royalties or commissions. For the current quarter, the net loss was largely netprimarily caused by foreign exchange losses resulting from sales made from our U.K.-based operations and denominatedof $501,000, as compared to a $52,000 gain seen in U.S. dollars.the comparable period.
Income Taxes
OurThe effective tax rates were 34.0% for the first quarter of fiscalthree-month periods ended November 30, 2019 and 2018 were 26.9% and 29.3% for the prior year’s first quarter. Both the25.3%, respectively.
The current year and prior year effective tax rates were calculated followingmost prominently affected by the Company’s adoption of ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting”, during the first quarter of fiscal 2017. During the quarter ended November 30, 2016, the Company recognized an excess tax benefit from stock-based compensation of $794,000, within income tax expense on the condensed consolidated statements of operations (adopted prospectively); but given the nature of equity activity in the current quarter, no benefit was recognized in the quarter ended November 30, 2017. The Company anticipates the potential for increased periodic volatility in future effective tax rates based on the continued application of ASU No. 2016-09.
The passage of the Tax Cuts and Jobs Act of 2017 during our second fiscal quarter is expected to affect the Company’s future results and financial position(the “Tax Act”) in multiple ways.December 2017. For fiscal 2018,2020 and 2019, the Company anticipates incorporating a blended U.S. effectiveis utilizing the new 21% Federal tax rate which will likely cause our overall effective tax rateenacted by the Tax Act. Please see Note 17 — “Income Taxes” to be lower than the 34.0% recognized in the first quarter. The new corporate tax rate in the Internal Revenue Code (the “Code”) will also require us to revalue our U.S. net deferred tax asset positions also at a presumably lower rate, which will result in a charge taken to earnings in the period in which this impact occurs. We will continue to evaluate and quantifyCondensed Consolidated Financial Statements for further discussion of the effects that the revised Code will have on our operations, including the phasing out of the domestic production deduction and the new rules and rates related to the repatriation of foreign cash.Tax Act.
30
Net Income
Net income decreased $2,048,000$1,461,000 or 20%17% to $8,315,000$7,362,000 in the quarter ended November 30, 20172019 compared to $10,363,000$8,823,000 in the prior year first quarter. The decrease in net income in the first fiscal quarter was primarily due to a lower recognized gross margin on decreased gross margins,sales volume, a net foreign exchange loss as compared to a gain in the foreign transaction losses prior yearand no recognition of excess tax benefit from stock-based compensation.
higher operations optimization costs in the current year.
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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 thus provide useful informationevaluate the Company’s performance relative to investors.peer companies and the past performance of the Company itself. EBITDA, Adjusted EBITDA and Free Cash Flow are non-GAAPnon-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 sumlump-sum distributions to participants from our defined benefit plans, operations optimization costs, 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 may 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.
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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):
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| Three Months Ended November 30, |
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| Three Months Ended November 30, |
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| 2017 |
| 2016 |
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|
| 2019 |
| 2018 |
| ||||||
Net income |
|
| $ | 8,315 |
| $ | 10,363 |
|
|
| $ | 7,362 |
| $ | 8,823 |
| ||
Interest expense |
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|
| 45 |
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| 246 |
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| 55 |
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| 204 |
| ||
Income taxes |
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| 4,284 |
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| 4,287 |
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| 2,709 |
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| 2,985 |
| ||
Depreciation expense |
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| 1,254 |
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| 1,335 |
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|
|
| 1,053 |
|
| 1,238 |
| ||
Amortization expense |
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| 2,314 |
|
| 2,176 |
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|
|
| 2,914 |
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| 3,113 |
| ||
EBITDA |
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| $ | 16,212 |
| $ | 18,407 |
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|
| $ | 14,093 |
| $ | 16,363 |
| ||
Exit costs related to idle facility (a) |
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| — |
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| 27 |
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| |||||||||
Gain on sale of real estate (b) |
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| — |
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| (792) |
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Cost of sale of inventory step-up (c) |
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| — |
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| 190 |
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Acquisition-related costs (d) |
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| — |
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| 584 |
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Operations optimization costs (a) |
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| 649 |
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| 260 |
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Pension settlement costs (b) |
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| — |
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| 200 |
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Adjusted EBITDA |
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| $ | 16,212 |
| $ | 18,416 |
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|
| $ | 14,742 |
| $ | 16,823 |
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|
(a) | Represents |
(b) | Represents |
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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):
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| |
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| Three Months Ended November 30, |
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| Three Months Ended November 30, |
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| 2017 |
| 2016 |
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| 2019 |
| 2018 |
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| |||||
Net cash provided by operating activities |
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| $ | 6,554 |
| $ | 8,337 |
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| $ | 18,153 |
| $ | 11,577 |
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| |
Purchases of property, plant and equipment |
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| (851) |
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| (652) |
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|
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| (699) |
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| (639) |
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| |
Free Cash Flow |
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| $ | 5,703 |
| $ | 7,685 |
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| $ | 17,454 |
| $ | 10,938 |
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Liquidity and Sources of Capital
Our overall cash and cash equivalents balance increased $6,908,000$18,285,000 to $54,262,000$66,056,000 at November 30, 2017,2019, from $47,354,000$47,771,000 at August 31, 2017.2019. The increased cash balance is primarily attributable to the $6,554,000 in cash fromprovided by operations partially offset by cash paid for the purchases of machinery and equipment.$18,153,000. Of the above-noted amounts, $34,220,000$18,996,000 and $31,756,000$17,235,000 were held outside the United States by Chase Corporation and our foreign subsidiaries as of November 30, 20172019 and August 31, 20172019, 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 dodid not have a history of repatriating a significant portion of our foreign cash. However, we do not currently takeWith the position that undistributed foreign subsidiaries’ earnings are considered permanently reinvested. Accordingly, we recognize a deferred tax liability forpassage of the estimated future tax effects attributable to temporary differences due to these unremitted earnings. Should circumstances changeTax Cuts and Jobs Act (the “Tax Act”) in the futuresecond fiscal quarter of 2018, significant changes in the Internal Revenue Code were enacted, changing the U.S. taxable nature of previously unrepatriated foreign earnings. Following the passage of the Tax Act, the Company repatriated $10,499,000 in U.K. foreign earnings in fiscal 2018 and we decide$17,230,000 in fiscal 2019. No additional amounts were repatriated in the first fiscal quarter of 2020. Please see Note 17 — “Income Taxes” to repatriate these foreign amounts to fund U.S. operations, we would pay the applicable U.S. taxes on these repatriated foreign amounts, less any tax credit offsets, to satisfy all previously recorded tax liabilities.Condensed Consolidated Financial Statements for further discussion of the effects of the Tax Act.
Cash flow provided by operations was $6,554,000$18,153,000 in the first three months of fiscal year 20182020 compared to $8,337,000$11,577,000 in the same period in the prior year. Cash provided by operations during the current period was primarily related to operating income and a decreaseincome. Positively impacting our cash flow from operations were decreases in accounts receivable that was driven primarily byand inventory balances, as the Company had lower sales in the first quarter of fiscal 2018 as compared to the fourth quarter of fiscal 2017. Negatively impacting our cash flow from operations were both a reversal from accrued to prepaid income taxes based on timing of payments, and a decrease in accrued compensation and other expenses related primarily to the payment of the annual employee incentive plan in November 2017.current year.
The ratio of current assets to current liabilities was consistent at 4.2 at both4.6 as of November 30, 2017 and2019 compared to 6.0 as of August 31, 2017.2019. The ratio stayed consistent baseddecreased over the first three months of fiscal 2020 primarily onas a result of the offsetting effectsdeclaration of (a) cash and cash equivalents and dividends payable increasing, (b) accounts receivable and accrued payroll and other compensation decreasing, and (c) accrued taxes payable reversing to a prepaid position.the dividend payable.
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Cash flow used in investing activities of $898,000$744,000 was primarily due to ourcash spent on capital purchases of machinery and equipment at our manufacturing locations duringin fiscal 2018.2020.
CashThere was no cash flow provided byrelated to financing activities for the first three months of $143,000 was due to proceeds from exercise of common stock options.fiscal 2020.
On October 30, 2017,November 13, 2019, we announced a cash dividend of $0.80 per share (totaling $7,497,000)$7,539,000). The dividend was paid on December 6, 2017 (subsequent to the first4, 2019 (the second quarter of 2018)fiscal 2020) to shareholders of record on November 9, 2017.
In June 2012, in connection with our acquisition of NEPTCO, we borrowed $70,000,000 under a five-year term debt financing arrangement led and arranged by Bank of America, with participation from RBS Citizens (the “2012 CreditFacility”). The applicable interest rate was based on the effective LIBOR plus an additional amount in the range of 1.75% to 2.25%, depending on our consolidated leverage ratio. The 2012 Credit Facility required repayment of the principal amount of the term loan in quarterly installments. Installment payments of $1,400,000 began in September 2012 and continued through June 2014, increased to $1,750,000 per quarter thereafter through June 2015, and increased
33
to $2,100,000 per quarter thereafter, and were scheduled to continue at this amount through March 2017. The 2012 Credit Facility had a scheduled maturity date of June 27, 2017, prior to the refinancing described below.
Under the 2012 Credit Facility, Chase also had a revolving line of credit with Bank of America (the “2012 Revolver”) totaling $15,000,000, which bore interest at LIBOR plus an additional amount in the range of 1.75% to 2.25%, depending on our consolidated leverage ratio, or, at our option, at the bank’s base lending rate. As of December 15, 2016 (the date on which the New Credit Agreement described below was entered into), the entire amount of $15,000,000 was available for use. The 2012 Revolver had a scheduled maturity date of June 27, 2017, prior to its refinancing.
The 2012 Credit Facility with Bank of America contained customary affirmative and negative covenants that, among other things, restricted our ability to incur additional indebtedness. It also required us to maintain a ratio of consolidated indebtedness to consolidated EBITDA (each as defined in the facility) of no more than 3.00 to 1.00, and to maintain a consolidated fixed charge coverage ratio (as calculated in the facility) of at least 1.25 to 1.00. We were in compliance with our debt covenants of the 2012 Credit Facility as of November 30, 2016 (the last measurement date for the 2012 Credit Facility).26, 2019.
On December 15, 2016, we entered an Amended and Restated Credit Agreement (the “New Credit“Credit Agreement”) with Bank of America, acting as administrative agent, and with participation from Citizens Bank and JPMorgan Chase Bank (collectively with Bank of America, the “Lenders”). The New Credit Agreement is initially an all-revolving credit facility with a borrowing capacity of $150,000,000, which can be increased by an additional $50,000,000 at the request of the Company and the individual or collective option of any of the Lenders. The New Credit Agreement contains customary affirmative and negative covenants that, among other things, restrict our ability to incur additional indebtedness and require certain lender approval for acquisitions by us and our subsidiaries over a certain size. It also requires us to maintain certain financial ratios on a consolidated basis, including a consolidated net leverage ratio (as defined in the facility) of no more than 3.25 to 1.00, and a consolidated fixed charge coverage ratio (as defined in the facility) of at least 1.25 to 1.00. We were in compliance with our debt covenants as of November 30, 2017.2019. The applicable interest rate for the New Credit Agreement is based on the effective LIBOR plus an additional amount in the range of 1.00% to 1.75%, depending on our consolidated net leverage ratio or, at our option, at the bank’s base lending rate. At November 30, 2017,2019, there was no outstanding principal balance, and as such no applicable interest rate. The New Credit Agreement was used to refinance our previously existing term loan and revolving line of credit. It also provides for additional liquidity to finance potential acquisitions, working capital, capital expenditures, and other general corporate purposes.
We have several on-goingongoing capital projects, as well as our facility rationalization and consolidation initiative, which are important to our long-term strategic goals. Machinery and equipment may be added as needed to increase capacity or enhance operating efficiencies in our production facilities.
We may acquire companies or other assets in future periods which are complementary to our business. We believe that our existing resources, including cash on hand and the New Credit Agreement, together with cash generated from operations and additional bank borrowings, will be sufficient to fund our cash flow requirements through at least the next twelve months. However, there can be no assurance that additional financing, if needed, will be available on favorable terms, if at all.
To the extent that interest rates increase in future periods, we will assess the impact of these higher interest rates on the financial and cash flow projections of our potential acquisitions.
We have no significant off-balance sheet arrangements.
37
Contractual Obligations
Please refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended August 31, 20172019 for a complete discussion of our contractual obligations.
34
Recent Accounting Standards
Please see Note 2 — “Recent Accounting Standards” to the Condensed Consolidated Financial Statements for a discussion of the effects of recently issued and recently adopted accounting pronouncements.
Critical Accounting Policies
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. To apply these principles, we must make estimates and judgments that affect our reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. In many instances, we reasonably could have used different accounting estimates and, in other instances, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected. We base our estimates and judgments on historical experience and other assumptions that we believe to be reasonable at the time and under the circumstances, and we evaluate these estimates and judgments on an ongoing basis. We refer to accounting estimates and judgments of this type as critical accounting policies, judgments, and estimates. Management believes that there have been no material changes during the three months ended November 30, 20172019 to the critical accounting policies reported in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2017.2019.
3538
Item 3 — Quantitative and Qualitative Disclosures about Market Risk
We limit the amount of credit exposure to any one issuer. At November 30, 2017,2019, other than our restricted investments (which are restricted for use in non-qualified retirement savings plans 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 Poundpound and the U.S. dollar would not have a material direct effect on the Company’s overall liquidity. As of November 30, 2017,2019, the Company had cash balances in the following foreign currencies (with USD equivalents)equivalents, dollars in thousands):
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Currency Code |
| Currency Name |
| USD Equivalent at November 30, 2017 |
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| Currency Name |
| USD Equivalent at November 30, 2019 |
| ||
GBP |
| British Pound |
| $ | 22,884,000 |
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| British Pound |
| $ | 8,606 |
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EUR |
| Euro |
| $ | 3,733,000 |
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| Euro |
| $ | 4,241 |
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CAD |
| Canadian Dollar |
| $ | 1,100 |
| ||||||
CNY |
| Chinese Yuan |
| $ | 334,000 |
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| Chinese Yuan |
| $ | 323 |
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INR |
| Indian Rupee |
| $ | 124,000 |
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| Indian Rupee |
| $ | 348 |
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CAD |
| Canadian Dollar |
| $ | 99,000 |
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We will continue to review our current cash balances denominated in foreign currency considering current tax guidelines, (includingincluding the impact of the recently enacted revisions to the Code),Internal Revenue Code, working capital requirements, infrastructure improvements and potential acquisitions.
We recognized a foreign currency translation gain for the three months ended November 30, 20172019 in the amount of $1,570,000$1,537,000 related to our European and Indian operations, which is recorded in other comprehensive income (loss) within our Statement of Equity and Statement of Comprehensive Income. 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 valueThere was no outstanding balance of our long-term debt was $0 at November 30, 2017.2019 (having been paid in full during the third fiscal quarter of 2019). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Sources of Capital,” together with Note 12 — “Fair Value Measurements” and Note 1816 — “Long-Term Debt” to the Condensed Consolidated Financial Statements for additional information regarding our outstanding long-term debt. An immediate hypothetical 10% change in variable interest rates would not have a material direct effect on our Condensed Consolidated Financial Statements.
3639
Item 4 — Controls and Procedures
Evaluation of disclosure controls and procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our 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.
We carry out a variety of ongoing procedures under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, to evaluate the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report.
Changes in internal control over financial reporting
ThereIn relation to the adoption of ASC 842 Leases, the Company has implemented internal controls such as updated accounting policies and expanded data gathering procedures to comply with the additional disclosure requirements. Otherwise, there have not been any changes in the Company’s internal control over financial reporting during the first quarter of fiscal 20182020 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
40
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.
Please refer to Item 1A in our Annual Report on Form 10-K for the fiscal year ended August 31, 20172019 for a complete discussion of the risk factors which could materially affect our business, financial condition or future results.
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Exhibit |
| Description |
31.1 |
| |
31.2 |
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32.1 |
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32.2 |
| |
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 |
*Furnished, not filed
3842
Pursuant to the requirements 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.
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| Chase Corporation | |
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Dated: January | By: | /s/ Adam P. Chase |
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| Adam P. Chase |
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| President and Chief Executive Officer |
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Dated: January | By: | /s/ |
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3943