CHASE CORP - Annual Report: 2022 (Form 10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED

AUGUST 31, 2022

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

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Commission File Number: 1-9852

CHASE CORPORATION

(Exact name of registrant as specified in its charter)

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375 University Avenue, Westwood, Massachusetts 02090

(Address of Principal Executive Offices) (Zip Code)

(781) 332-0700

(Registrant’s Telephone Number, Including Area Code)

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

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Securities registered pursuant to section 12(g) of the Act: None

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ◻  NO ⌧

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. YES ◻ NO ⌧

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ⌧ NO ◻

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

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

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

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

The aggregate market value of the common stock held by non-affiliates of the registrant, computed by reference to the closing price as of the last business day of the registrant’s most recently completed second fiscal quarter, February 28, 2022, was approximately $507,783,000.

As of October 31, 2022, the Company had outstanding 9,493,914 shares of common stock, $0.10 par value, which is its only class of common stock.

Documents Incorporated By Reference:

Portions of the registrant’s definitive proxy statement for the Annual Meeting of Shareholders, which is expected to be filed within 120 days after the registrant’s fiscal year ended August 31, 2022, are incorporated by reference into Part III hereof.

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CHASE CORPORATION

INDEX TO ANNUAL REPORT ON FORM 10-K

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For the Year Ended August 31, 2022

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Cautionary Note Concerning Forward-Looking Statements

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

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PART I

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Item 1 – Business

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Primary Operating Divisions and Facilities and Industry Segments

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

We are organized into three reportable operating segments: an Adhesives, Sealants and Additives segment, an Industrial Tapes segment and a Corrosion Protection and Waterproofing segment. The segments are distinguished by the nature of the products manufactured and how they are delivered to their respective markets.

The Adhesives, Sealants and Additives segment offers innovative and specialized product offerings consisting of both end-use products and intermediates that are generally 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 cleaners, and customized sealant and adhesive systems for electronics, polymeric microspheres, polyurethane dispersions and superabsorbent polymers. Beginning September 1, 2020 (the first day of our fiscal year 2021), the Adhesives, Sealants and Additives segment includes the acquired operations of ABchimie, within the electronic and industrial coatings product line and beginning February 5, 2021, the acquired operations of Emerging Technologies, Inc (“ETi”), within the functional additives product line. Beginning September 1, 2022 (the first day of our fiscal year 2023), this segment will include the acquired operations of NuCera Solutions within the functional additives product line.

The Industrial Tapes segment features wire and cable materials, specialty tapes and other laminated and coated products. The segment derives its competitive advantage through its proven chemistries, its 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 Tapes 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, 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 and cover tapes essential to delivering semiconductor components via tape-and-reel packaging.

The Corrosion Protection and Waterproofing segment is principally composed of project-oriented product offerings that are primarily sold and used as “Chase” branded products. End markets include new and existing infrastructure projects on oil, gas, water and wastewater pipelines, highways and bridge decks, water and wastewater containment systems, and commercial buildings. The segment’s products include protective coatings for pipeline applications, coating and lining systems for waterproofing and liquid storage applications, adhesives and sealants used in architectural and building envelope waterproofing applications, high-performance polymeric asphalt additives, and expansion joint systems for waterproofing applications in transportation and architectural markets. With sales generally dependent on outdoor project work, the segment experiences highly seasonal sales patterns.

Our manufacturing facilities are distinct to their respective segments apart from our O’Hara Township, PA, Blawnox, PA and Hickory, NC facilities, which produce products related to a combination of operating segments.

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A summary of our operating structure as of August 31, 2022 is as follows:

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Other Business Developments

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On September 1, 2022 (the first day of fiscal 2023), the Company completed its acquisition of NuCera Solutions, a recognized global leader in the production and development of highly differentiated specialty polymers and polymerization technologies serving demanding applications, offering products critical to enabling end-product functionality, performance and reliability. The Company acquired all of the capital stock of NuCera for a purchase price of $250,000,000, net of debt, accrued income taxes and cash at closing, and pending any working capital adjustments. Chase will continue to market under the NuCera brands and the business will be integrated into Chase’s Adhesives, Sealants and Additives reporting unit. See Note 23 to the consolidated financial statements for additional information related to our subsequent event.

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The Company completed the relocation of its corporate headquarters to another location within Westwood, MA during the fiscal year ending August 31, 2022. The move, part of the Company’s ongoing consolidation and optimization initiative, capitalizes on the hybrid work model utilized by many of Chase’s corporate and administrative employees and is expected to provide future operational cost savings. The new facility also consolidates and houses research and

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development operations previously conducted at the previous Westwood, MA and Woburn, MA locations. Operations optimization costs related to the Westwood move of $232,000 were expensed in fiscal 2022. No future costs related to the move are anticipated.

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During the third quarter of fiscal 2021, Chase announced to the employees at its Woburn, MA location that its adhesives systems operations, part of the Adhesives, Sealants and Additives segment’s electronic and industrial coatings product line, would be consolidating into the Company’s existing O'Hara Township, PA location. This rationalization and consolidation initiative aligns with the announcement in the second quarter of fiscal 2021 of the Company’s plan to move its sealant systems production from Newark, CA to Hickory, NC, described in more detail below. Chase Corporation obtained both the adhesive and sealants systems as part of its fiscal 2017 acquisition of the operations of Resin Designs. The Company expensed $463,000 and $0 in fiscal 2022 and 2021, related to the move, and future costs related to this move are not anticipated to be significant to the consolidated financial statements.

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During the second quarter of fiscal 2021, Chase began moving the sealant systems operations, part of the Adhesives, Sealants and Additives segment’s electronic and industrial coatings product line, from its Newark, CA 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. The sealant systems operations and Newark, CA location came to Chase Corporation as part of the fiscal 2017 acquisition of the operations of Resin Designs, and the Company’s lease there terminated in fiscal 2021. The Company recognized $147,000 in expense related to the move during fiscal year ended August 31, 2022 and $977,000 in the fiscal year ended August 31, 2021. The project is now substantially completed and any future costs related to this move are not anticipated to be significant to the consolidated financial statements.

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Products and Markets

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Our principal products are specialty tapes, laminates, adhesives, sealants, coatings and chemical intermediates which are sold by our salespeople, manufacturers' representatives and distributors. 

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In our Adhesives, Sealants and Additives segment, these products consist of: 

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In our Industrial Tapes segment, these products consist of: 

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

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

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Human Capital Management

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Chase Corporation’s success derives from its dedicated employees worldwide, who are responsible for the operations, innovation and ethics core to our business and its future. In fiscal 2022, our employees continued to navigate the challenges of COVID-19, and, with an overarching commitment to health and safety, maintained a commitment to our customers, including providing products to critical industries such as healthcare, utilities, infrastructure and telecommunications.

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As of August 31, 2022, we employed approximately 683 people (including union employees). Of these, 80% were U.S. based and 20% international. 26% of our employees worked in administrative, selling and research and development functions, while 74% worked in the manufacture of our products at our facilities. Given macrotrends faced worldwide, Chase currently operates in an increasingly competitive landscape in hiring and retaining a manufacturing labor force. We consider our employee relations to be good. In the U.S., we offer our employees a wide array of company-paid benefits, which we believe are competitive relative to others in our industry. In our operations outside the U.S., we offer benefits that may vary from those offered to our U.S. employees due to customary local practices and statutory requirements.

We have policies in place designed to provide a safe and healthy workplace and comply with applicable safety and health regulations and our own internal requirements. We work to provide and maintain a safe, healthy and productive workplace, in consultation with our employees, by addressing and remediating identified risks of accidents, injury and health impacts.

We strive to maintain workplace environments that are free from discrimination or harassment on the basis of race, sex, color, national or social origin, ethnicity, religion, age, disability, sexual orientation, gender identification or expression, political opinion, or any other status protected by applicable law. The qualities and characteristics we seek for recruitment, hiring, placement, development, training, compensation, and advancement at the Company are job qualifications, performance, skills, and experience.

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Respect for human rights is a fundamental value of the Company. Chase strives to respect and promote human rights in accordance with the United Nations Guiding Principles on Business and Human Rights in our relationships with our employees, customers, suppliers, and vendors. Our aim is to further advance human rights within the communities in which we operate. The Chase Corporation Human Rights and Supplier Code of Conduct policies and statements on Safety Performance, Environmental Impact and Energy and Resources are available on our website (www.chasecorp.com).

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Backlog, Customers and Competition

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As of August 31, 2022, the backlog of customer orders believed to be firm was approximately $40,600,000.  This compared with a backlog of approximately $30,400,000 as of August 31, 2021. The increase in backlog from the prior year amount was primarily due to raw material supply and logistics challenges broadly seen worldwide increasing the balance for the current year. We continue to work with our customers, vendors and supply chain partners to prioritize the flow of goods. During fiscal 2022 and 2021, no customer accounted for more than 10% of sales. No material portion of our business is subject to renegotiation or termination of profits or contracts at the election of the United States Federal Government.

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There are other companies that manufacture or sell products and services similar to those made and sold by us.  Many of those companies are larger and have greater financial resources than we have. We compete principally on the basis of technical performance, service reliability, quality and price.

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Raw Materials

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We obtain raw materials from a wide variety of suppliers, with alternative sources of most essential materials available within reasonable lead times.

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Patents, Trademarks, Licenses, Franchises and Concessions

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As of August 31, 2022, we owned the following trademarks that we believe were of material importance to our business: Chase Corporation^®, C-Spray (Logo), a trademark used in conjunction with most of the Company’s business segment and product line marketing material and communications; HumiSeal^®, a trademark for moisture protective coatings sold to the electronics industry; Chase & Sons^®, a trademark for barrier and insulating tapes sold to the wire and cable industry; Chase BLH2OCK^®, a trademark for a water-blocking compound sold to the wire and cable industry; Rosphalt50^®, a trademark for an asphalt additive used predominantly on bridge decks for waterproofing protection; PaperTyger^®, a trademark for laminated durable papers sold to the envelope converting and commercial printing industries; DuraDocument^®, a trademark for durable, laminated papers sold to the digital print industry; Defender^® a trademarked RFID protective material sold to the personal accessories and paper industries; Tapecoat^®, a trademark for corrosion preventive surface coatings and primers; Maflowrap^®, a trademark for anti-corrosive tapes incorporating self-adhesive mastic or rubber-backed strips, made of plastic materials; Royston^®, a trademark for a corrosion-inhibiting coating composition for use on pipes; Ceva^®, a trademark for epoxy pastes/gels/mortars and elastomeric concrete used in the construction industry; CIM^® trademarks for fluid-applied coating and lining systems used in the water and wastewater industry; ServiWrap^® trademarks for pipeline protection tapes, coatings and accessories; NEPTCO^®, a trademark used in conjunction with most of NEPTCO’s products marketing material and communications; NEPTAPE^®, a trademark for coated shielding and insulation materials used in the wire and cable industry; Muletape^®, a trademark for pulling and installation tapes sold to the telecommunications industry; Trace-Safe^®, a trademark for detection tapes sold to the telecommunications and water and gas utilities industries; Dualite^®, a trademark for polymeric microspheres utilized for density and weight reduction and sound dampening by various industries; 4EvaSeal^®, a trademark for adhesive-backed tape utilized in various industries; Resin Designs^®, a trademark for adhesives and sealants sold into the microelectronics and semiconductor industries; SlickTape^®, a trademark for a lubricated shielding tape sold to the wire and cable industry; HighDraw^®, a trademark for a highly extensible shielding tape sold to the wire and cable industry; ZapZorb^®, a trademark for environmental solidification products that are designed to meet the specific challenges posed by a wide range of liquid-bearing waste streams; ZapLoc^®, a trademark for medical waste solidifier products packaged in bottles or larger packages; ZapPak^®, a trademark for medical waste solidifier products packaged in dissolvable film; and ABchimie^®, a trademark used in conjunction with most of ABchimie’s products marketing material and communications.

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We do not have any other material trademarks, licenses, franchises, or concessions. While we do hold various patents, as well as other trademarks, we do not believe that they are material to the success of our business.

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Research and Development

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We expensed approximately $4,415,000, $4,056,000 and $4,007,000 for Company-sponsored research and development during fiscal 2022, 2021 and 2020, respectively, which was recorded within Research and Product Development Costs on the Consolidated Statement of Operations. Research and development costs have stayed relatively consistent from fiscal 2020 through fiscal 2022 as the Company continued focused development work on strategic product lines.

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Available Information

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Chase maintains a website at http://www.chasecorp.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934, as well as section 16 reports on Form 3, 4, or 5, are available free of charge on this site as soon as is reasonably practicable after they are filed or furnished with the SEC. Our Code of Conduct and Ethics and the charters for the Audit Committee, the Nominating and Governance Committee and the Compensation and Management Development Committee of our Board of Directors are also available on our internet website. The Code of Conduct and Ethics and charters are also available in print to any shareholder upon request. Requests for such documents should be directed to Shareholder and Investor Relations Department, at 375 University Avenue, Westwood, Massachusetts 02090. Our internet website and the information contained on it or connected to it are not part of nor incorporated by reference into this Form 10-K. Our filings with the SEC are also available on the SEC’s website at http://www.sec.gov.

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Financial Information regarding Segment and Geographic Areas

Please see Notes 11 and 12 to the Company’s Consolidated Financial Statements for financial information about the Company’s operating segments and domestic and foreign operations for each of the last three fiscal years.

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Item 1A – Risk Factors

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The following risk factors should be read carefully in connection with evaluating our business and the forward-looking information contained in this Annual Report on Form 10-K. We feel that any of the following risks could materially adversely affect our business, operations, industry, financial position or our future financial performance. While we believe that we have identified and discussed below the key risk factors affecting our business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect our business, operations, industry, financial position and financial performance in the future.

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Operational and Competitive Risks

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We currently operate in mature markets where increases or decreases in market share could be significant.

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Our sales and net income are largely dependent on sales from a consistent and well-established customer base. We have used and will continue to use strategic acquisitions as a means to build and grow the business. In this business environment, increases or decreases in market share could have a material effect on our business condition or results of operation. We face intense competition from a diverse range of competitors, including operating divisions of companies much larger and with far greater resources than we have. If we are unable to maintain our market share, our business could suffer.

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Fluctuations in the supply and prices of raw materials may negatively impact our financial results.

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We obtain raw materials needed to manufacture our products from a number of suppliers. Many of these raw materials are petroleum-based derivatives. Under normal market conditions, these materials are generally available on the open market and from a variety of producers. From time to time, however, the prices and availability of these raw materials fluctuate (as was experienced in the second half of fiscal 2021 and in the fiscal 2022 period), which could impair our ability to procure necessary materials, or increase the cost of manufacturing our products. If the prices of raw materials increase, and we are unable to pass these increases on to our customers, we could experience reduced profit margins.

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If our products fail to perform as expected, or if we experience product recalls, we could incur significant and unexpected costs and lose existing and future business.

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Our products are complex and could have defects or errors presently unknown to us, which may give rise to claims against us, diminish our brands or divert our resources from other purposes. Despite testing, new and existing products could contain defects and errors and may in the future contain manufacturing or design defects, errors or performance problems when first introduced, or even after these products have been used by our customers for a period of time. These problems could result in expensive and time-consuming design modifications or warranty charges, changes to our manufacturing processes, product recalls, significant increases in our maintenance costs, or exposure to liability for damages, any of which may result in substantial and unexpected expenditures, require significant management attention, damage our reputation and customer relationships, and adversely affect our business, our operating results and our cash flow.

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

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The global spread of the coronavirus disease 2019 (COVID-19) pandemic has created significant volatility, uncertainty and economic disruption. The Company experienced lower sales as a result of the economic disruption (most acutely in the second half of fiscal 2020 and the first half of fiscal 2021), and initiated cost-saving measures, including a targeted workforce reduction in 2020, in response to the uncertainties associated with the scope and duration of the pandemic. The extent to which the COVID-19 pandemic impacts the Company’s business, operations and financial results in future periods will depend on numerous evolving factors that it may not be able to accurately predict, including: the duration and scope of the pandemic; future domestic and international waves and variants of COVID-19 and current vaccines’ effectiveness against such variants; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the impact of the pandemic on economic activity and actions taken in response; the

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effect on its customers’ demand for its goods and services and its vendor’s ability to supply it with raw materials; its ability to sell and provide goods and services, including as a result of travel restrictions and people working from home; the ability of its customers to pay for goods and services; and any closures of its customers’ offices and facilities. Customers may also slow down decision-making, delay planned work or seek to terminate existing agreements.

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Further, the effects of the pandemic may also increase the Company’s cost of capital or make additional capital more difficult or available only on terms less favorable to it. A sustained downturn may also result in the carrying value of the Company’s goodwill or other intangible assets exceeding their fair value, which may require it to recognize an impairment to those assets. A sustained downturn in the financial markets and asset values may have the effect of increasing the Company’s pension funding obligations in order to ensure that its qualified pension plan continues to be adequately funded, which may divert cash flow from other uses.

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We may experience difficulties in the redesign and consolidation of our manufacturing facilities which could impact shipments to customers, product quality, and our ability to realize cost savings.

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

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Strategic Risks

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Our business strategy includes the pursuit of strategic acquisitions, which may not be successful if they happen at all.

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From time to time, we engage in discussions with potential target companies concerning potential acquisitions. In executing our acquisition strategy, we may be unable to identify suitable acquisition candidates. In addition, we may face competition from other companies for acquisition candidates, making it more difficult to acquire suitable companies on favorable terms. We have historically financed larger acquisitions with additional borrowings under our bank credit agreements. Our credit agreement places certain restrictions on our ability to acquire other businesses, and imposes certain financial covenants on us that may limit our ability to borrow. If we incur additional indebtedness in order to finance an acquisition, that indebtedness may reduce the availability of our cash flow to fund future working capital, capital expenditures, and other general corporate purposes, may increase our vulnerability to adverse economic conditions, and may expose us to the risk of increased interest rates. If we finance an acquisition through the issuance of equity securities, the ownership interest of our existing shareholders would be proportionately diluted.

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Even if we do identify a suitable acquisition target and are able to negotiate and close a transaction (as we did in fiscal 2021 for both ABchimie and the operations of Emerging Technologies, Inc. (“ETI”), and at the beginning of fiscal 2023 for NuCera), the integration of an acquired business into our operations involves numerous risks, including potential difficulties in integrating an acquired company’s product line with ours; the diversion of our resources and management’s attention from other business concerns; the potential loss of key employees; limitations imposed by antitrust or merger control laws in the United States or other jurisdictions; risks associated with entering a new geographical or product market; and the day-to-day management of a larger and more diverse combined company.

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We may not realize the synergies, operating efficiencies, market position or revenue growth we anticipate from acquisitions, and our failure to effectively manage the above risks could have a material adverse effect on our business, growth prospects and financial performance.

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International Risks

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If we cannot successfully manage the unique challenges presented by international markets, we may not be successful in expanding our international operations.

Our strategy includes expansion of our operations in existing and new international markets by selective acquisitions and strategic alliances. Our ability to successfully execute our strategy in international markets is affected by many of the same operational risks we face in expanding our U.S. operations. In addition, our international expansion may be adversely affected by our ability to identify and gain access to local suppliers as well as by local laws and customs, legal and regulatory constraints, political and economic conditions and currency regulations of the countries or regions in which we currently operate or intend to operate in the future. Risks inherent in our international operations also include, among others, the costs and difficulties of managing international operations, adverse tax consequences, domestic and international tariffs and trade policies and greater difficulty in enforcing intellectual property rights. Additionally, foreign currency exchange rates and fluctuations may have an impact on future costs or on future cash flows from our international operations.

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

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

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Industry Risks

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Our results of operations could be adversely affected by uncertain economic and political conditions and the effects of these conditions on our customers’ businesses and levels of business activity.

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Global economic and political conditions can affect the businesses of our customers and the markets they serve. A severe or prolonged economic downturn or a negative or uncertain political climate could adversely affect, among others, the automotive, housing, construction, pipeline, energy, transportation, infrastructure or electronics industries. This may reduce demand for our products or depress pricing of those products, either of which may have a material adverse effect on our results of operations. Changes in global economic conditions or foreign and domestic trade policy could also shift demand to products for which we do not have competitive advantages, and this could negatively affect the amount of business that we are able to obtain. In addition, if we are unable to successfully anticipate changing economic and political conditions, we may be unable to effectively plan for and respond to those changes and our business could be negatively affected.

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General economic factors, domestically and internationally, may also adversely affect our financial performance through increased raw material costs or other expenses and by making access to capital more difficult.

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The cumulative effect of higher interest rates, energy costs, inflation, levels of unemployment, healthcare costs, unsettled financial markets, and other economic factors (including changes in foreign currency exchange rates and changes to federal, state, local and international tax laws or the application or enforcement practices of such laws) could adversely affect our financial condition by increasing our manufacturing costs and other expenses at the same time that our customers may be scaling back demand for our products. Prices of certain commodity products, including oil and petroleum-based products, are historically volatile and are subject to fluctuations arising from changes in domestic and international supply and demand, labor costs, competition, weather events and climate change, regional and global public

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health crises, market speculation, government regulations and periodic delays in delivery. Rapid and significant changes in commodity prices may affect our sales and profit margins. These factors can increase our cost of products and services sold and/or selling, general and administrative expenses, and otherwise adversely affect our operating results. Disruptions in the credit markets may limit our ability to access debt capital for use in acquisitions or other purposes on advantageous terms or at all. If we are unable to manage our expenses in response to general economic conditions and margin pressures, or if we are unable to obtain capital for strategic acquisitions or other needs, then our results of operations would be negatively affected.

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Other Risks

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We are dependent on key personnel.

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

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Financial market performance may have a material adverse effect on our pension plan assets and require additional funding requirements.

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Significant and sustained declines in the financial markets may have a material adverse effect on the fair market value of the assets of our qualified pension plan. While these pension plan assets are considered non-financial assets since they are not carried on our balance sheet (i.e. the balance sheet reflects only the net of plan assets and obligations), the fair market valuation of these assets could impact our funding requirements, funded status or net periodic pension cost. Any significant and sustained declines in the fair market value of these pension assets could require us to increase our funding requirements, which would have an impact on our cash flow, and could also lead to additional pension expense.

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

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

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

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Failure or compromise of security with respect to an operating or information system or portable electronic device could adversely affect our results of operations and financial condition or the effectiveness of our internal controls over operations and financial reporting.

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We are highly dependent on automated systems to record and process our daily transactions and certain other components of our financial statements.  Notwithstanding efforts to ensure the integrity of our automated systems, we could experience a failure of one or more of these systems, or a compromise of our security due to technical system flaws, data input or recordkeeping errors, or tampering or manipulation of our systems by employees or unauthorized third parties.  Information security risks also exist with respect to the use of portable electronic devices, such as laptops and smartphones, which are particularly vulnerable to loss and theft.

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We could be subject to disruptions of any of these systems arising from events that are wholly or partially beyond our control (for example, natural disasters, acts of terrorism, epidemics, pandemics, computer viruses, cyber-attacks, malware, ransomware, and electrical/telecommunications outages). All of these risks are also applicable wherever we rely on outside vendors to provide services.  Operating system failures, disruptions, or the compromise of security with respect to operating systems or portable electronic devices (with information technology security threats increasing in frequency and sophistication) could subject us to liability claims, harm our reputation, interrupt our operations, or adversely affect our business, results from operations, financial condition, cash flow or internal control over financial reporting.

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Item 1B – Unresolved Staff Comments

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Not applicable.

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Item 2 – Properties

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The principal properties of the Company as of August 31, 2022 are situated at the following locations and have the following characteristics:

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​

The above facilities vary in age, are in good condition and, in the opinion of management, are adequate and suitable for present operations. We also own equipment and machinery that is in good repair and, in the opinion of management, adequate and suitable for present operations. We believe that we could significantly add to our capacity by increasing shift operations. Availability of machine hours through additional shifts would provide expansion of current production volume without significant additional capital investment.

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Item 3 – Legal Proceedings

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

item 4 – mine safety disclosures

Not applicable.

Item 4a – INFORMATION ABOUT OUR Executive OfficerS

The following table sets forth information concerning our Executive Officers as of October 31, 2022.  Each of our Executive Officers is selected by our Board of Directors and holds office until his successor is elected and qualified.

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PART II

Item 5 – Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on the NYSE American under the symbol CCF.  As of October 31, 2022, there were 247 shareholders of record of our Common Stock and we believe there were approximately 11,064 beneficial owners who held shares through brokers or other nominees. On that date, the closing price of our common stock was $94.21 per share as reported by the NYSE American.

Single annual cash dividend payments were declared and scheduled to be paid subsequent to each year ended August 31, 2022, 2021 and 2020 in the amounts of $1.00, $1.00 and $0.80 per common share, respectively. Our revolving credit facility contains financial covenants which may have the effect of limiting the amount of dividends that we can pay.

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Comparative Stock Performance

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The following line graph compares the yearly percentage change in our cumulative total shareholder return on the Common Stock for the last five fiscal years with the cumulative total return on the Standard & Poor's 500 Stock Index (the “S&P 500 Index”), and a composite old and new peer index that is weighted by market equity capitalization (the “Peer Group Index”).

The Company realigned its composite peer group index in fiscal 2022 to account for acquisitions that occurred for some members of our old peer group and to better align our peer group with our industry and market capitalization. The companies included in the old Peer Group Index are Henkel AG & Co KGaA, H.B. Fuller Company, Intertape Polymer Group, Rogers Corporation and RPM International, Inc. The companies included in our new Peer Group Index are Henkel AG & Co KGaA, H.B. Fuller Company, CSW Industrials, Inc., Element Solutions, Inc., Quaker Chemical Corporation, and RPM International, Inc.

Cumulative total returns are calculated assuming that $100 was invested on August 31, 2017 in each of the Common Stock, the S&P 500 Index and the Peer Group Index, and that all dividends were reinvested.

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​

The information under the caption “Comparative Stock Performance” above is not deemed to be “filed” as part of this Annual Report, and is not subject to the liability provisions of Section 18 of the Securities Exchange Act of 1934. Such information will not be deemed to be incorporated by reference into any filing we make under the Securities Act of 1933 unless we explicitly incorporate it into such a filing at the time.

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Item 6 – Reserved

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Not required.

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Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion provides an analysis of our financial condition and results of operations. This material should be read in conjunction with the Consolidated Financial Statements and notes thereto included in Item 8 of this Annual Report on Form 10-K.

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The discussion of the comparison of our fiscal 2021 and fiscal 2020 results was previously presented in the Management’s Discussion & Analysis in Part II, Item 7 of the Company’s Annual Report on Form 10-K filed with the SEC on November 15, 2021, and has been omitted from this section pursuant to Instruction 1 to Item 303(a) of Regulation S-K.

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Selected Relationships within the Consolidated Statements of Operations

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* denotes less than one percent

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

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Overview

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General

​

The Company’s revenue increased in fiscal 2022, with all three of its reportable operating segments surpassing sales achieved in fiscal 2021. Despite the ongoing challenges of the global operating environment detailed below, the Company improved its gross margin percentage from the first half of fiscal 2022 to the second half, to end the year at 37.8%.

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Despite the Company’s sales growth in fiscal 2022, and continued recovery of our gross margin percentage from the first half of the fiscal year, the Company continued to have a less favorable gross margin percentage in fiscal 2022 compared to the prior year. Higher operating costs seen in the fiscal year resulted in decreased operating income over the prior year. Chase’s relative gross margin in fiscal 2022 was negatively impacted by both: a.) increased input costs caused by continued global raw material inflationary pressures, increased logistics costs and a more competitive labor market; and b.) a less favorable sales mix, with sales price and demand-driven volume increase in its lower margin Industrial Tapes segment outpacing revenue gains seen in its higher margin Adhesives, Sealants and Additives, and Corrosion Protection and Waterproofing segments. Further, the Adhesives, Sealants and Additives segment also experienced a less favorable sales mix within the segment itself due to historically less favorable margin products constituting a comparatively larger part of total segment sales compared to the prior year.

The Company continues to work with our customers and suppliers in an effort to counteract margin compression. However, given the delay experienced due to notification period requirements with certain customers and the continuation of upward inflationary pressures on input costs, fiscal 2022 results reflect a lag (in the first half of the year) in the realization of the full benefits of these efforts.

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Revenue by Segment

​

The Company has three reportable operating segments summarized below:

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Revenue from our Adhesives, Sealants and Additives segment increased in fiscal 2022 compared to fiscal 2021 primarily due to sales price increases to counteract margin compression for our North American-focused functional additives product line. Revenue gains also reflect inorganic growth from our Emerging Technologies, Inc. (“ETi”) business acquired in the last month of the second quarter of fiscal 2021. Partially offsetting this increase in revenue was our reduction in sales volume from our worldwide-focused electronic and industrial coatings product line due to reduced demand acutely seen with sales within the automotive industry during the fiscal period.

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Revenue from our Industrial Tapes segment surpassed the COVID-19 impacted prior year due to sales price increase and demand-driven growth in our wire and cable, specialty products, and pulling and detection product lines. Tempering the

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increase in revenue sales was a decrease from our electronic materials product line, due to decreased demand in the Asian-end market.

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Revenue from our Corrosion Protection and Waterproofing segment showed modest increases in fiscal 2022 compared to fiscal 2021, primarily due to sales price increases to counteract margin compression from its coating and lining, building envelope and bridge and highway product lines. Partially offsetting these increases in revenue was a decrease in net sales volume from the pipeline coatings product line, due to COVID-19 overhang delays in products sold into Middle East and Asian markets outpacing North American sales gains in oil and gas pipeline repair and construction markets

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Balance Sheet and Cash Flow

​

Chase Corporation’s balance sheet remained strong as of August 31, 2022, with cash on hand of $315,495,000 (or a net of $135,495,000 when excluding the $180,000,000 cash used to fund the NuCera acquisition on September 1, 2022 (the first day of fiscal 2023) and a current ratio of 12.4. The Company’s cash position remained healthy, as did cash flow from operations. The increase in cash balance (at the end of the fiscal year) was attributed to the $180,000,000 of cash drawn from its revolving credit facility to fund the acquisition of NuCera which closed on September 1, 2022 (the first day of fiscal 2023). See note 23 of the consolidated financial statements relating to this subsequent event.

​

Cash provided by operating activities of $34,859,000 for fiscal year 2022 was impacted by the Company’s strategic inventory build during the fiscal period, undertaken to help ensure our ability to satisfy customers’ demands and to address our elevated backlog caused in part by supply chain challenges. In addition, during the second fiscal quarter Chase Corporation paid out our largest ever annual cash dividend of $9,460,000 on December 9, 2021.

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The Company had a $180,000,000 outstanding balance on its $200,000,000 revolving credit facility as of August 31, 2022 in order to fund the NuCera acquisition as noted above. The revolving credit facility, which was amended and restated in July 2021 (fourth quarter of fiscal 2021) to increase its capacity from $150,000,000 to $200,000,000, allows for the Company to pay down debt with excess cash, while retaining access to immediate liquidity to fund future accretive activities, including mergers and acquisitions, as they are identified. The new facility also gives Chase the ability to request an increase in this amount by an additional $100,000,000 ($300,000,000 in total borrowing capacity) at the individual or collective option of any of the lenders. The facility matures in July 2026.

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Results of Operations

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

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Total Revenue

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Total revenue in fiscal 2022 increased $32,324,000 or 11% to $325,660,000 from $293,336,000 in the prior year.

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Revenue in the Company’s Adhesives, Sealants and Additives segment increased $8,906,000 or 7% to $135,770,000 for the year ended August 31, 2022 compared to $126,864,000 in fiscal 2021. Positively impacting sales for the segment was increased revenue of $11,463,000 from its North American-focused functional additives product line, which includes inorganic growth attributable to the ETi business acquired in the last month of the second quarter of fiscal 2021. Additionally, the increase in revenue from its North American-focused functional additives was primarily attributed to sales price increases to counteract margin compression. Negatively impacting the segment’s sales were volume-driven decreases from its worldwide-focused electronic and industrial coatings line totaling $2,557,000 in fiscal 2022, with logistics and raw material supply constraints affecting demand in automotive verticals.

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Revenue in the Company’s Industrial Tapes segment increased $23,081,000 or 19% to $143,954,000 for the year ended August 31, 2022 compared to $120,873,000 in fiscal 2021. Positively impacting sales for the segment were sales price and volume-driven increases of $23,538,000 due to its wire and cable, specialty products, and pulling and detection product lines, over the COVID-19 impacted prior year period. Negatively impacting the segment’s sales was a decrease in revenue from its electronic materials product line totaling $457,000 in fiscal 2022, due to decreased demand in the Asian end-market.

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Revenue in the Company’s Corrosion Protection and Waterproofing segment increased $337,000 or 1% to $45,936,000 for the year ended August 31, 2022 compared to $45,599,000 for fiscal 2021. Positively impacting the segment sales for the fiscal year were sales price-driven increases to counteract margin compression in the Company’s coatings and lining, building envelope and bridge and highway product lines totaling $1,053,000. Negatively impacting the segment’s sales was a decrease in revenue from its pipeline coatings product line totaling $716,000, due to COVID-19 overhang delays in products sold into Middle East and Asian markets outpacing North American sales gains in oil and gas pipeline repair and construction markets.

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Royalties and commissions in the Adhesive, Sealants and Additives segment totaled $3,198,000 and $3,534,000 for the years ended August 31, 2022 and 2021, respectively. The decrease in royalties and commissions in fiscal 2022 compared to fiscal 2021 was primarily due to decreased sales of electronic and industrial coatings products by our licensed manufacturer in Asia.

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Export sales from domestic operations to unaffiliated third parties was $36,305,000 and $33,439,000 for the years ended August 31, 2022 and 2021, respectively.  The increase in export sales from fiscal 2021 to fiscal 2022 is reflective of the company-wide year-over-year increase in revenue attributed to a combination of sales price and demand-driven increases.

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Cost of Products and Services Sold

​

Cost of products and services sold increased $28,048,000 or 16% to $202,708,000 for the fiscal year ended August 31, 2022 compared to $174,660,000 in fiscal 2021.

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

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Cost of products and services sold in our Adhesives, Sealants and Additives segment was $80,619,000 for the fiscal year ended August 31, 2022 compared to $71,805,000 in fiscal 2021. Cost of products and services sold in the Industrial Tapes segment was $96,132,000 for the fiscal year ended August 31, 2022 compared to $77,013,000 in fiscal 2021. Cost of products sold in the Corrosion Protection and Waterproofing segment was $25,957,000 for the fiscal year ended August 31, 2022 compared to $25,842,000 in fiscal 2021.

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As a percentage of revenue, cost of products and services increased for the Adhesives, Sealants and Additives and Industrial Tapes segments in fiscal 2022. As a percentage of revenue, cost of products and services sold for the Corrosion Protection and Waterproofing segment remained flat in fiscal 2022. The decrease in the relative gross margin for the Adhesives, Sealants and Additives and Industrial Tapes segments for the most recent fiscal year were due to continued global raw material inflationary pressures, increased logistics and freight costs and a more competitive labor market. Additionally, the Company’s overall relative margin was affected by a less favorable sales mix with sales price increases realized in our lower margin Industrial Tapes segment that outpaced sales price increase realized in our Adhesive, Sealants and Additives and Corrosion Protection and Waterproofing segments. The Adhesives, Sealants and Additives segment also experienced a less favorable sales mix within the segment itself, with historically less favorable margin products constituting a comparatively larger part of total segment sales. The Company has implemented and continues to implement customer price adjustments and continues to work with our customers and suppliers in an effort to counteract margin compression, but with a lag reflected in the first half of the fiscal year results.

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

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Selling, General and Administrative Expenses

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Selling, general and administrative expenses increased $2,338,000 or 5% to $54,438,000 during fiscal 2022 compared to $52,100,000 in fiscal 2021. The increase in activity is attributed to total increased selling and sales activity in the most recent fiscal year. As a percentage of revenue, selling, general and administrative expenses were 17% and 18% of total revenue in fiscal 2022 and 2021, respectively. The Company continues to closely monitor spending with an emphasis on controlling costs and leveraging existing resources.

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Research and Product Development Costs

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Research and Product Development Costs increased $359,000 or 9% to $4,415,000 during fiscal 2022, compared to $4,056,000 in fiscal 2021. Research and development costs increased from fiscal 2021 to 2022 as the Company continued focused development work on strategic product lines.

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Operations Optimization Costs

The Company completed the relocation of its corporate headquarters to another location within Westwood, MA during the year ended August 31, 2022. The move, part of the Company’s ongoing consolidation and optimization initiative, capitalizes on the hybrid work model utilized by many of Chase’s corporate and administrative employees and is expected to provide future operational cost savings. The new facility also consolidates and houses research and development operations previously conducted at the previous Westwood, MA and Woburn, MA locations. Operations optimization costs related to the Westwood move of $232,000 were expensed in the year. No future costs related to the move are anticipated.

During the third quarter of fiscal 2021, Chase announced to the employees at its Woburn, MA location that its adhesives systems operations, part of the Adhesives, Sealants and Additives segment’s electronic and industrial coatings product line, would be consolidating into the Company’s existing O'Hara Township, PA location. This rationalization and consolidation initiative-related announcement aligns with the second quarter announcement of the Company’s plan to move its sealant systems production from Newark, CA to Hickory, NC, described in more detail below. Chase Corporation obtained both the adhesive and sealants systems as part of its fiscal 2017 acquisition of the operations of

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Resin Designs. The Company expensed $463,000 and $0 in fiscal 2022 and 2021, related to the move, and future costs related to its move are not anticipated to be significant to the consolidated financial statements.

During the second quarter of fiscal 2021, Chase began moving the sealant systems operations, part of the Adhesives, Sealants and Additives segment’s electronic and industrial coatings product line, from its Newark, CA 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. The sealant systems operations and Newark, CA location came to Chase Corporation as part of the fiscal 2017 acquisition of the operations of Resin Designs, and the Company’s lease there terminated in the current fiscal year. The Company recognized $147,000 and $977,000 in operations costs related to the move during fiscal 2022 and fiscal 2021, respectively. This project is now substantially completed and any future costs related to this move are not anticipated to be significant to the consolidated financial statements.

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

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During the first quarter of fiscal 2020, the Company commissioned third party led studies regarding the potential upgrading of the Company’s current worldwide ERP system. Chase Corporation reviewed the data and recommendations provided by the study and has made the decision to upgrade (beginning in fiscal 2023) from our current Oracle Legacy ERP System to the Oracle Fusion Cloud Platform. This upgrade will position us with a more advanced system to support business expansion, access to upgrades in functionality and a more modern system for operations, all within the Oracle Ecosystem. Additionally, the upgrade will be a multi-year, phased in approach that will mitigate any disruptions to our business. The Company recognized $150,000 in third party studies in fiscal 2020 and no costs were recognized in fiscal 2022 and 2021.

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

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

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During the fourth quarter of 2018, the Company announced to its employees the planned closing of its Pawtucket, RI manufacturing facility effective August 31, 2018. The manufacture of products previously produced in the Pawtucket, RI facility was substantially moved to Company facilities in Oxford, MA and Lenoir, NC during a two-month transition period. The Company completed the sale of its Pawtucket, RI location to a third-party in April 2020, for net proceeds totaling $1,810,000. This transaction resulted in a gain of $760,000 which was recorded during the third quarter of fiscal 2020. Also, during the third quarter of fiscal 2020, the Company recognized $85,000 in final Pawtucket, RI transition and exit costs, with no further costs related to this initiative anticipated in future periods.

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Acquisition-Related Costs

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In the fourth quarter of fiscal 2022, the Company incurred $4,000,000 of acquisition-related costs related to our acquisition of NuCera Solutions (“NuCera”) on September 1, 2022 (first day of fiscal 2023). See Note 23 to the consolidated financial statements for additional information related to our subsequent event.

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In the second quarter of fiscal 2021, the Company incurred $128,000 of acquisition-related costs related to our acquisition of Emerging Technologies, Inc (“ETi”) on February 5, 2021. This acquisition was accounted for as a business combination in accordance with applicable accounting standards, and all related professional service fees (including legal, accounting and actuarial fees) were expensed as incurred within the second quarter of fiscal 2021.

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

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Gain on Sale of Real Estate

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

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

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Write-down of certain assets under construction

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In the fourth quarter of fiscal 2021, the Company wrote down the value of certain non-operating production assets related to the pipeline coatings product line, within the Corrosion Protection and Waterproofing segment. Given the nature and prospects of the equipment, the Company determined its then carrying value exceeded its fair value and recognized an expense of $100,000 related to the machinery.

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

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Loss on Contingent Consideration

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As a component of the September 1, 2020 acquisition of ABchimie, the Company incurred a performance-based earn out liability potentially worth an additional €7,000,000 (approximately $8,330,000 at the time of the transaction) in consideration. Following its initial recording of an accrual for $928,000 at the acquisition date, $432,000 and $1,664,000 in expense related to upward adjustments to the performance-based earn out accrual were recorded to the consolidated statement of operations for the years ended August 31, 2022 and 2021, respectively.

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Interest Expense

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Interest expense increased $128,000 or 43% to $425,000 in fiscal 2022 compared to $297,000 in fiscal 2021. The increase in interest expense is related primarily to two days of interest expense recorded from long-term debt and unused commitment fee from our new revolving debt facility that commenced in the fourth quarter of fiscal 2021.

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Other Income (Expense)

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Other income (expense) was income of $198,000 in fiscal 2022 compared to an expense of $760,000 in fiscal 2021, an increase of $958,000. Other income (expense) primarily includes foreign exchange gains (losses) caused by changes in exchange rates on transactions or balances denominated in currencies other than the functional currency of our subsidiaries, non-service cost components of periodic pension expense (including pension-related settlement costs due to the timing of lump-sum distributions), interest income, rental income and other non-trade/non-royalty/non-commission receipts. The increase in total other income in fiscal 2022 compared to fiscal 2021 was largely due to the recognition of a foreign exchange gain in fiscal 2022 as compared to fiscal 2021.

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Income Taxes

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Our effective tax rate for fiscal 2022 was 23.8% as compared to 23.3% in fiscal 2021. 

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For fiscal 2022 and 2021, the Company utilized the 21% Federal tax rate enacted by the Tax Cuts and Jobs Act (the “Act”) passed in December 2017. Please see Note 7 — “Income Taxes” to the Consolidated Financial Statements for further discussion of the effects of the Tax Act.

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Net Income

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Net income decreased $249,000 or less than 1% to $44,671,000 compared to $44,920,000 in fiscal 2021. The decrease in net income in the fiscal year was primarily due to a.) increased input costs caused by continued global raw material inflationary pressures, increased logistics costs and a more competitive labor market; and b.) a less favorable sales mix, with sales price and volume-driven increases in its lower margin Industrial Tapes segment outpacing sales price revenue gains seen in its higher margin Adhesive, Sealants and Additives and Corrosion Protection and Waterproofing segments.

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Liquidity and Sources of Capital

Our cash balance increased $196,066,000 to $315,495,000 (or to $135,495,000 when excluding the $180,000,000 cash used to fund the NuCera acquisition on September 1, 2022 (the first day of fiscal 2023)) from $119,429,000 at August 31, 2021. The increase in cash balance (at the end of the fiscal year) was attributed to the $180,000,000 of cash drawn from its revolving credit facility to fund the acquisition of NuCera which closed on September 1, 2022 (the first day of fiscal 2023), cash provided by operations of $34,859,000 offset by the $9,460,000 annual dividend in the second quarter of fiscal 2022 and the strategic inventory build in fiscal 2022. Of the above-noted amounts, $28,951,000 and $26,309,000 were held outside the U.S. by Chase Corporation and our foreign subsidiaries as of August 31, 2022 and 2021, respectively. Given our cash position and borrowing capability in the United States and the potential for increased investment and acquisitions in foreign jurisdictions, prior to the second quarter of fiscal 2018, we did not have a history of repatriating a significant portion of our foreign cash. With the passage of the Tax Cuts and Jobs Act (the “Tax Act”) in the second fiscal quarter of 2018, significant changes in the Internal Revenue Code were enacted, changing the U.S. taxable nature of previously unrepatriated foreign earnings. Following the passage of the Tax Act, the Company repatriated $10,499,000 in U.K. foreign earnings in fiscal 2018 and $17,230,000 in fiscal 2019. No additional amounts were repatriated in fiscal year 2020, 2021 or 2022. Please see Note 7 — “Income Taxes” to the Consolidated Financial Statements for further discussion of the effects of the Tax Act.

Cash provided by operations was $34,859,000 for the year ended August 31, 2022 compared to $61,217,000 in fiscal 2021.  Cash provided by operations during the current period was primarily related to operating income. Negatively impacting the cash flow from operations in fiscal 2022 was our continued strategic inventory build, undertaken to help ensure our ability to satisfy our customers’ demands and to address our elevated backlog caused in part by macroeconomic supply chain challenges

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The ratio of current assets to current liabilities was 12.4 (or 7.3 excluding the $180,000,000 cash used to fund the NuCera acquisition) as of August 31, 2022 compared to 6.5 as of August 31, 2021. The increase in our current ratio in fiscal 2022 was primarily attributable to increased cash funding from our revolving credit facility to fund the acquisition of NuCera and increase in inventory. See Note 23 of the consolidated financial statements for additional information related to our subsequent event.

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Cash used in investing activities was $4,427,000 for the year ended August 31, 2022 compared to $33,927,000 in cash used in investing activities in fiscal 2021. During fiscal 2021, cash used in investing activities was largely due to the cash on hand purchases of both ABchimie and ETi and cash spent on capital purchases of machinery and equipment.

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Cash provided in financing activities was $169,845,000 for the year ended August 31, 2022 compared to $8,248,000 of cash used in financing activities in fiscal 2021. Cash provided in financing activities in fiscal 2022 was primarily attributed to an increase of $180,000,000 from our existing credit facility to fund the NuCera acquisition, offset by the annual dividends of $9,460,000. Cash used in financing activities in fiscal 2021 was primarily attributed to our annual dividend payment of $7,557,000.

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On November 10, 2022, Chase announced a cash dividend of $1.00 per share (totaling approximately $9,494,000) to shareholders of record on November 30, 2022 and payable on December 9, 2022.

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On November 15, 2021, Chase announced a cash dividend of $1.00 per share (totaling $9,460,000) to shareholders of record on November 30, 2021 and payable on December 9, 2021.

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On July 27, 2021 (the fourth quarter of fiscal 2021), the Company entered into the Second Amended and Restated Credit Agreement (the “Credit Agreement”) by and among the Company and NEPTCO Incorporated (“NEPTCO”), each as borrowers, the guarantor subsidiaries party thereto, the financial institutions party thereto as Lenders, and Bank of America, N.A., as administrative agent, with participation from Wells Fargo Bank, N.A., PNC Bank, N.A. and JPMorgan Chase Bank, N.A. The Credit Agreement was entered into to amend, restate and extend the Company’s preexisting credit agreement (the “Prior Credit Agreement”), which had a maturity date of December 15, 2021, and to provide for additional liquidity to finance acquisitions, working capital and capital expenditures, and for other general corporate purposes. Under the Credit Agreement, Chase obtained an increased revolving credit loan (the “Revolving Facility”), with borrowing capabilities not to exceed $200,000,000 at any time, with the ability to request an increase in this amount by an additional $100,000,000 at the individual or collective option of any of the Lenders. The applicable interest rate for the Revolving Facility and Term Loan (defined below) is based on the effective London Interbank Offered Rate (LIBOR) plus a range of 1.00% to 1.75%, depending on the consolidated net leverage ratio of Chase and its subsidiaries. As of August 31, 2022, the Company had $180,000,000 in long-term debt attributed to the acquisition of NuCera Solutions that closed on September 1, 2022. The long-term debt has an applicable interest rate of 5.5%.

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The Credit Agreement has a five-year term with interest payments due at the end of the applicable LIBOR period (but in no event less frequently than the three-month anniversary of the commencement of such LIBOR period) and principal payment due at the expiration of the agreement, July 27, 2026. The Credit Agreement contains provisions that may replace LIBOR as the benchmark index under certain circumstances. In addition, the Company may elect a base rate option for all or a portion of the Revolving Facility, in which case interest payments shall be due with respect to such portion of the Revolving Facility on the last business day of each quarter. Subject to certain conditions set forth in the Credit Agreement, the Company may elect to convert all or a portion of the outstanding Revolving Facility into a new term loan twice during the term of the Revolving Facility (each, a “Term Loan”, and collectively with the Revolving Facility, the “Credit Facility”), which Term Loan shall be payable quarterly in equal installments sufficient to amortize the original principal amount of such Term Loan on a ten year amortization schedule.

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The outstanding balance on the Credit Facility is guaranteed by all of Chase’s direct and indirect domestic subsidiaries, which collectively had a carrying value of approximately $314,662,000 at August 31, 2022. The Credit Facility is subject to restrictive covenants under the Credit Agreement, and financial covenants that require Chase and its subsidiaries to maintain certain financial ratios on a consolidated basis, including a consolidated net leverage ratio of 3.25 to 1.00 and a consolidated interest coverage ratio of 3.50 to 1.00 (both defined in the Credit Agreement). Chase Corporation was in compliance with the debt covenants as of August 31, 2022. The Credit Agreement also places certain Lender-approval requirements as to the size of permitted acquisitions which may be entered into by the Company and its subsidiaries, and allows for a temporary step-up in the allowed consolidated leverage ratio for the four fiscal quarters ending after certain designated acquisitions. Prepayment is allowed by the Credit Agreement at any time during the term of the agreement, subject to customary notice requirements and the payment of customary LIBOR breakage fees.

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The Prior Credit Agreement was an all-revolving credit facility with a borrowing capacity of $150,000,000, which could 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, and with an interest rate 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 the Company’s option, at the bank’s base lending rate. It was substantially available at July 27, 2021, the time of its amendment and restatement.

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

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We may acquire companies or other assets in future periods which are complementary to our business. The acquisition of ABchimie included a potential earnout based on performance of up to an additional €7,000,000 (approximately $8,330,000 at the time of the transaction), which the Company expects to pay with cash on hand if the applicable conditions are met. The acquisition of ETi included a $1,000,000 withholding, which was paid out by the Company on August 4, 2022 (eighteen months after the acquisition). The Company believes that its existing resources, including cash on hand and the Credit Agreement, together with cash generated from operations and additional bank borrowings, will be sufficient to fund its 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.

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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.

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We have no material off-balance sheet arrangements.

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Contractual Cash Obligations

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The following table summarizes our contractual cash obligations at August 31, 2022 under operating leases and the effect such obligations are expected to have on our liquidity and cash flow in future periods (dollars in thousands):

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We may be required to make payments related to our unrecognized tax benefits. Due to the uncertainty of the timing of future cash flows associated with these unrecognized tax benefits, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities. The Company’s unrecognized tax benefits was $1,820,000 as of August 31, 2022. See Note 7 — “Income Taxes” to the Consolidated Financial Statements for further information.

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We also expect to make payments as needed to satisfy our funding obligations for our obligations for pension and other post-retirement benefit plans. As of August 31, 2022, we had recognized an accrued benefit plan liability of $8,996,000 representing the unfunded obligations of the pension benefit plans. See Note 9 — “Benefits and Pension Plans” to the Consolidated Financial Statements for further information, including expected pension benefit payments for the next 10 years.

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The Company does not have significant agreements for the purchase of raw materials or other goods specifying minimum quantities or set prices that exceed expected requirements or extend beyond one year.

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Recently Issued Accounting Standards

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

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Critical Accounting Policies, Judgments, and Estimates

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The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the U.S. requires management to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Our significant accounting policies are described in Note 1 — “Summary of Significant Accounting Policies” to the Consolidated Financial Statements included in this Report.

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The U.S. Securities and Exchange Commission (“SEC”) requires companies to provide additional disclosure and commentary on their most critical accounting policies and estimates. The SEC has defined critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and operating results, and require management to make its most significant estimates and judgments in the preparation of its Consolidated Financial Statements. The SEC has defined critical accounting estimates as those estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of a company.

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Judgments, assumptions, and estimates are used for, but not limited to, the allowances for accounts receivable; inventory allowances; business combinations, goodwill, intangible assets, and other long-lived assets; revenue; income tax reserves; deferred income taxes; stock-based compensation; as well as discount and return rates used to calculate pension obligations. The accounting policies described below are significantly affected by critical accounting estimates.

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Business Combinations

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

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Impact of Inflation

The Company’s relative gross margin and sales mix was negatively impacted by continued global raw material inflationary pressures during fiscal 2022. Chase continues to work with our customers and suppliers in an effort to counteract margin compression in the form of sales price increases. In the event of significant inflation over an extended period of time, our continued efforts to recover cost increases could be hampered as a result of the competitive nature of the industries in which we operate. Future volatility of general price inflation or deflation and raw material cost and availability could adversely affect our financial results.

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Item 7a – Quantitative and Qualitative Disclosures about Market Risk

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We limit the amount of credit exposure to any one issuer. At August 31, 2022, other than our restricted investments (which are restricted for use in a 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.

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Our domestic operations have limited currency exposure since substantially all transactions are denominated in U.S. dollars. However, our European and Asian operations are subject to currency exchange fluctuations. We continue to review our policies and procedures to control this exposure while maintaining the benefit from these operations and sales not denominated in U.S. dollars. The effect of an immediate hypothetical 10% change in the exchange rate between the British pound or euro and the U.S. dollar would not have a material effect on the Company’s overall liquidity. As of August 31, 2022, the Company had cash balances in the following foreign currencies (with USD equivalents in thousands):

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The Company will continue to review its current cash balances denominated in foreign currency considering current tax guidelines, including the impact of the Tax Act to the U.S. Internal Revenue Code, working capital requirements, infrastructure improvements and potential acquisitions.

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The Company recognized a foreign currency translation loss for the year ended August 31, 2022 in the amount of $9,582,000 related to our European and Indian operations, which is recorded in accumulated other comprehensive income (loss) within our consolidated statement of equity. The functional currency for all our other operations is the U.S. Dollar. We do not have or utilize any derivative financial instruments.

We pay interest on our outstanding long-term debt at interest rates that fluctuate based upon changes in various base interest rates. There were $180,000,000 and $0 outstanding balances of long-term debt at August 31, 2022 and 2021, respectively. See “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Sources of Capital,” Note 6 — “Long-Term Debt” and Note 16 — “Fair Value Measurements” to the Consolidated Financial Statements for additional information regarding our outstanding long-term debt.  The effect of an immediate hypothetical 10% change in variable interest rates would not have a material effect on our Consolidated Financial Statements.

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Item 8 – Financial Statements and Supplementary Data

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The following Consolidated Financial Statements of Chase Corporation are filed as part of this Annual Report on Form 10-K:

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Index to Consolidated Financial Statements:

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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Board of Directors and Shareholders

Chase Corporation

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Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of Chase Corporation (a Massachusetts corporation) and subsidiaries (the “Company”) as of August 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the three years in the period ended August 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended August 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of August 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated November 10, 2022 expressed an unqualified opinion.

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Basis for opinion

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

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

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Critical audit matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

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/s/ GRANT THORNTON LLP

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We have served as the Company’s auditor since 2019

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Boston, Massachusetts

November 10, 2022

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CHASE CORPORATION

CONSOLIDATED BALANCE SHEETS

In thousands, except share and per share amounts

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See accompanying notes to the Consolidated Financial Statements.

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CHASE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

In thousands, except share and per share amounts