It
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended February 28, 2021
Commission File Number: 1-9852
CHASE CORPORATION
(Exact name of registrant as specified in its charter)
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Massachusetts |
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11-1797126 |
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(State or other jurisdiction of incorporation
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(I.R.S. Employer Identification No.) |
295 University Avenue, Westwood, Massachusetts 02090
(Address of Principal Executive Offices) (Zip Code)
(781) 332-0700
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Common stock, $.10 par value |
Trading Symbol(s) CCF |
Name of each exchange on which registered NYSE American |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES ⌧ NO ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ⌧ NO ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ◻ |
Accelerated filer ⌧ |
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Non-accelerated filer ◻ |
Smaller reporting company ☐ |
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Emerging growth company ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ⌧
The number of shares of Common Stock outstanding as of March 31, 2021 was 9,448,371.
CHASE CORPORATION
INDEX TO FORM 10-Q
For the Quarter Ended February 28, 2021
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Part I - FINANCIAL INFORMATION |
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Item 1 – Unaudited Condensed Consolidated Financial Statements |
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Condensed Consolidated Balance Sheets as of February 28, 2021 (unaudited) and August 31, 2020 |
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4 |
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5 |
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6 |
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7 |
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9 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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32 |
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Item 3 – Quantitative and Qualitative Disclosures About Market Risk |
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43 |
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44 |
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45 |
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45 |
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45 |
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46 |
2
Cautionary Note Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q 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 Quarterly Report that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements include, without limitation, statements as to Chase Corporation’s future operating results; seasonality expectations; plans for the development, utilization or disposal of manufacturing facilities; future economic conditions; its expectations as to legal proceedings; the effect of its market and product development efforts; expectations relating to the renewal of its credit facility; and expectations or plans relating to the implementation or realization of its strategic goals and future growth, including through potential future acquisitions and divestitures. 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. 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 the Company operates, and the beliefs and assumptions made by management. Because forward-looking statements relate to the future, they are subject to inherent risks, uncertainties and changes in circumstances that are difficult to predict. Accordingly, the Company’s actual results may differ materially from those contemplated by the forward-looking statements. Investors, therefore, are cautioned against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Readers should refer to the discussions under “Risk Factors” contained in our Annual Report on Form 10-K for the fiscal year ended August 31, 2020 concerning certain factors that could cause our actual results to differ materially from the results anticipated in such forward-looking statements. These Risk Factors are hereby incorporated by reference into this Quarterly Report.
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Item 1 — Unaudited Condensed Consolidated Financial Statements
CHASE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
In thousands, except share and per share amounts
See accompanying notes to the condensed consolidated financial statements
4
CHASE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
In thousands, except share and per share amounts
See accompanying notes to the condensed consolidated financial statements
5
CHASE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
In thousands, except share and per share amounts
See accompanying notes to the condensed consolidated financial statements
6
CHASE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
THREE MONTHS ENDED FEBRUARY 28, 2021 AND FEBRUARY 29, 2020
(UNAUDITED)
In thousands, except share and per share amounts
See accompanying notes to the condensed consolidated financial statements
7
CHASE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
SIX MONTHS ENDED FEBRUARY 28, 2021 AND FEBRUARY 29, 2020
(UNAUDITED)
In thousands, except share and per share amounts
See accompanying notes to the condensed consolidated financial statements
8
CHASE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
In thousands
See accompanying notes to the condensed consolidated financial statements
9
CHASE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In thousands, except share and per share amounts
Note 1 — Basis of Financial Statement Presentation
Description of Business
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. The Company’s strategy is to maximize the performance of its core businesses and brands while seeking future opportunities through strategic acquisitions. Through investments in facilities, systems and organizational consolidation, the Company seeks to improve performance and gain economies of scale.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States of America generally accepted accounting principles (“U.S. GAAP”) for interim financial reporting, and instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Therefore, they do not include all information and footnote disclosures necessary for a complete presentation of Chase Corporation’s financial position, results of operations and cash flows in conformity with generally accepted accounting principles. The year-end condensed balance sheet was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. Chase Corporation filed audited consolidated financial statements which included all information and notes necessary for such a complete presentation for the three years ended August 31, 2020 in conjunction with its 2020 Annual Report on Form 10-K. Certain immaterial reclassifications have been made to the prior year amounts to conform to the current year’s presentation.
The results of operations for the interim period ended February 28, 2021 are not necessarily indicative of the results to be expected for any future period or the entire fiscal year. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended August 31, 2020 which are contained in the Company’s 2020 Annual Report on Form 10-K.
The accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring items) that are, in the opinion of management, necessary for a fair statement of the Company’s financial position as of February 28, 2021, and the results of its operations, comprehensive income, changes in equity and cash flows for the interim periods ended February 28, 2021 and February 29, 2020.
The financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The Company uses the U.S. dollar as the reporting currency for financial reporting. The financial position and results of operations of the Company’s U.K.-based operations are measured using the British pound as the functional currency. The financial position and results of operations of the Company’s operations based in France (including ABchimie acquired September 1, 2020) are measured using the euro as the functional currency. The financial position and results of the Company’s HumiSeal India Private Limited business are measured using the Indian rupee as the functional currency. The functional currency for all Chase Corporation’s other operations is the U.S. dollar. Foreign currency translation gains and losses are determined using current exchange rates for monetary items and historical exchange rates for other balance sheet items and are recorded as a change in other comprehensive income. Transaction gains and losses generated from the remeasurement of assets and liabilities denominated in currencies other than the functional currency of each applicable operation are included in other income (expense) on the condensed consolidated statements of operations, and were ($341) and ($437) for the three- and six-month periods ended February 28, 2021, respectively, and ($105) and ($606) for the three- and six-month periods ended February 29, 2020, respectively.
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Other Business Developments
On February 5, 2021, the Company acquired certain assets of Emerging Technologies, Inc. (“ETi”), a superabsorbent polymers solutions provider, located in Greensboro, NC. The business was acquired for a purchase price of $9,997, comprising $8,997 paid on February 5, 2021 and an accrual of $1,000 to be paid out up to eighteen months after purchase, pending any final working capital adjustments, and excluding acquisition-related costs. As part of this transaction, Chase acquired substantially all working capital and fixed assets of the business and entered a multi-year lease at ETi’s existing location. The Company expensed $128 of acquisition-related costs during the three-month period ended February 28, 2021 associated with this acquisition. The purchase was funded with available cash on hand. ETi is a solutions provider and formulator of absorbent polymers for use in the packaging, recreational, consumer, and sanitation markets. The acquisition broadens the Company’s superabsorbent polymers product offerings and formulation capabilities while expanding its market reach. The Company is currently in the process of finalizing purchase accounting, regarding a final allocation of the purchase price to tangible and identifiable intangible assets assumed and anticipates completion within fiscal 2021. Since the effective date of the acquisition, the financial results of ETi’s acquired operations have been included in the Company’s financial statements within the functional additives product line, contained within the Adhesives, Sealants and Additives operating segment. See Note 17 to the condensed consolidated financial statements for additional information on the acquisition of the assets and operations of ETi.
During the second quarter of fiscal 2021, Chase began moving the sealant systems operations, part of the Adhesive, 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 will terminate in the current fiscal year. The Company recognized $98 in expense related to the move in both the three-month and six-month periods ended February 28, 2021.
On September 1, 2020 (the first day of fiscal 2021), the Company acquired all the capital stock of ABchimie for €18,654 (approximately $22,241 at the time of the transaction) net of cash acquired, subsequent to final working capital adjustment, excluding acquisition-related costs totaling $274 recognized in fiscal 2020 (with $133 recognized in the second quarter of fiscal 2020) and with a potential earn out based on performance potentially worth an additional €7,000 (approximately $8,330 at the time of the transaction). ABchimie is a Corbelin, France headquartered solutions provider for the cleaning and the protection of electronic assemblies, with further formulation, production, and research and development capabilities. The transaction was funded with cash on hand. The financial results of the business were included in the Company's fiscal 2021 financial statements within the Adhesives, Sealants and Additives operating segment in the electronic and industrial coatings product line. The Company is currently in the process of finalizing purchase accounting, regarding a final allocation of the purchase price to tangible and identifiable intangible assets assumed, including finalizing the recording of deferred taxes, and anticipates completion within fiscal 2021. See Note 17 to the condensed consolidated financial statements for additional information on the acquisition of the assets and operations of ABchimie.
The Company’s second quarter of fiscal 2020 (prior year) saw the beginning of the global spread of the coronavirus pandemic (COVID-19), which subsequently grew to create significant volatility, uncertainty, and global economic disruption. While the Company remains profitable with sufficient cash on hand to continue to meet its short- and long-term strategic objectives, COVID-19 continues to impact nearly all geographies served by the Company. Given the magnitude of the uncertainty that COVID-19 has broadly placed on global markets, the pandemic’s long-term effects on the Company’s results and the Company’s ability to maintain service levels cannot currently be estimated. The Company will continue to assess the situation and take the appropriate actions to ensure it is in the strongest position possible.
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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 is currently reviewing the data and recommendations provided by the study and may further utilize third-party engineering, IT and other professional services firms in the future for similar work, as well as work around the facilities rationalization and consolidation initiative. The Company recognized $150 in expense related to these services in the first half of fiscal 2020, with nothing recognized in the first half of fiscal 2021. Given the ongoing nature of the review, an estimate of future costs, including those that may be capitalized, cannot currently be determined.
During the third quarter of fiscal 2019, Chase began moving the pulling and detection operations from 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 $60 and $559 in expense related to the move in the three-month and six-month periods ended February 29, 2020, having recognized $526 in expense during the second half of fiscal 2019. No costs were recognized in the six months ended February 28, 2021, and future costs related to this move are not anticipated to be significant to the condensed consolidated financial statements.
Significant Accounting Policies
The Company’s significant accounting policies are detailed in Note 1 — “Summary of Significant Accounting Policies” within Item 8 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2020. Significant changes to these accounting policies as a result of adopting Accounting Standards Update ("ASU") No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” during the first quarter of fiscal 2021 are discussed within Note 2 — “Recent Accounting Standards” within this Current Quarterly Report on Form 10-Q.
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Note 2 — Recent Accounting Standards
Recently Adopted Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. The ASU applies to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by the ASU do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The ASU is effective for all entities as of March 12, 2020 through December 31, 2022. ASU 2020-04 has not had, and the Company does not expect it to have in future periods, a material impact on the Company's condensed consolidated financial statements and disclosures.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which modifies the measurement approach for credit losses on financial assets measured on an amortized cost basis from an 'incurred loss' method to an 'expected loss' method. In November 2019, the FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses.” ASU 2019-11 is an accounting pronouncement that amends ASU 2016-13. This amendment provides clarity and improves the codification to ASU 2016-13. The pronouncements are concurrently effective for fiscal years beginning after December 15, 2019 and interim periods therein. The Company adopted ASU 2016-13 on September 1, 2020, using the modified retrospective transition method which resulted in no material impact on the condensed consolidated financial statements.
As a result of the adoption of ASU 2016-13, the Company has updated its critical accounting policy related to trade account receivables and allowances for credit losses effective September 1, 2020 from the critical accounting policies previously disclosed in our audited financial statements for the year ended August 31, 2020 as follows:
All trade account receivables are reported net of allowances for credit losses. The allowances for credit losses represent management’s best estimate of the credit losses expected from our trade account receivables over the life of the underlying assets. Assets with similar risk characteristics are pooled together for determination of their current expected credit losses. The Company regularly performs detailed reviews of our pooled assets to evaluate the collectability of receivables based on a combination of past, current, and future financial and qualitative factors that may affect customers’ ability to pay. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations, a specific reserve is recorded against amounts due to reduce the recognized receivable to the amount reasonably expected to be collected.
Note 3 — Inventory
Inventory consisted of the following as of February 28, 2021 and August 31, 2020:
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February 28, |
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August 31, |
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2021 |
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2020 |
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Raw materials |
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$ |
20,274 |
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$ |
18,993 |
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Work in process |
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6,026 |
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7,761 |
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Finished goods |
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10,734 |
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12,304 |
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Total Inventory |
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$ |
37,034 |
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$ |
39,058 |
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Note 4 — Net Income Per Share
The Company has unvested share-based payment awards with a right to receive nonforfeitable dividends which are considered participating securities under ASC Topic 260, “Earnings Per Share.” The Company allocates earnings to participating securities and computes earnings per share using the two-class method. The determination of earnings per share under the two-class method is as follows:
Included in the calculation of dilutive common stock equivalents are the unvested portion of restricted stock and stock options. For the three-month and six-month periods ended February 28, 2021, stock options to purchase 68,815 and 80,045 shares of common stock, respectively, were outstanding but were not included in the calculation of diluted income per share because their inclusion would be anti-dilutive. For the three-month and six-month periods ended February 29, 2020, stock options to purchase 8,805 and 8,805 shares of common stock, respectively, were outstanding but were not included in the calculation of diluted income per share because their inclusion would be anti-dilutive.
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Note 5 — Stock-Based Compensation
In August 2019, the Board of Directors of the Company approved the fiscal year 2020 Long Term Incentive Plan (“2020 LTIP”) for the executive officers and other members of management. The 2020 LTIP is an equity-based plan with a grant date of September 1, 2019 and contains (a) a restricted stock grant of 7,386 shares in the aggregate (of which 3,697 included a performance-based vesting component and were subject to adjustment as discussed below), with a vesting date of August 31, 2022, and (b) options to purchase 13,418 shares of common stock in the aggregate with an exercise price of $100.22 per share, vesting in three equal annual installments ending on August 31, 2022.
Based on the fiscal year 2020 financial results, 387 shares of restricted stock already granted under the 2020 LTIP were forfeited following the end of fiscal year 2020 in accordance with the performance measurement criteria. No further performance-based measurements apply to this award. Compensation expense for the 2020 LTIP awards is recognized on a ratable basis over the vesting period.
In August 2019, the Board of Directors of the Company approved equity retention agreements with certain executive officers. The equity-based retention agreements have a grant date of September 1, 2019 and contain the following equity components: (a) time-based restricted stock grant of 15,945 shares in the aggregate, and having a vesting date of August 31, 2022; and (b) options to purchase 53,642 shares of common stock in the aggregate with an exercise price of $100.22 per share. The options will cliff vest on August 31, 2022 and will expire on August 31, 2029. Compensation expense for both the restricted stock and the stock option components of the equity retention agreements is recognized on a ratable basis over the vesting period.
In August 2020, the Board of Directors of the Company approved the fiscal year 2021 Long Term Incentive Plan (“2021 LTIP”) for the executive officers and other members of management. The 2021 LTIP is an equity-based plan with a grant date of September 1, 2020 and initially contained the following equity components:
Restricted Shares — (a) a performance and service-based restricted stock grant of 3,798 shares in the aggregate, subject to adjustment based on fiscal 2021 results, with a vesting date of August 31, 2023. Compensation expense is recognized on a ratable basis over the vesting period based on quarterly probability assessments; and (b) a time-based restricted stock grant of 4,919 shares in the aggregate, with a vesting date of August 31, 2023. Compensation expense is recognized on a ratable basis over the vesting period.
Stock options — options to purchase 14,845 shares of common stock in the aggregate with an exercise price of $97.57 per share. The options will vest in three equal annual installments beginning on August 31, 2021 and ending on August 31, 2023. Of the options granted, 5,391 options will expire on August 31, 2030, and 9,454 options will expire on September 1, 2030. Compensation expense is recognized over the period of the award consistent with the vesting terms.
In the first quarter of 2021, restricted stock in the amount of 952 shares related to the second quarter of fiscal 2020 grant was forfeited in conjunction with the termination of employment of non-executive members of management of the Company.
In December 2020, restricted stock in the amount of 110 shares were granted to certain non-employee members of the board of directors in relation to their service on the board. These shares vested during the second fiscal quarter of 2021.
In January 2021, restricted stock in the amount of 4,409 shares and 18,129 stock options were forfeited in conjunction with the termination without cause of a now former executive of the Company.
In February 2021, a performance and service-based restricted stock grant totaling 521 shares, a time-vesting restricted stock grant in the amount of 261 shares and 749 stock options with an exercise price of $104.04 per share were granted in conjunction with the appointment of a new executive of the Company. The restricted shares and stock options vest on the same terms as those granted under the 2021 LTIP in September 2020. Compensation expense is recognized over the period of the award consistent with the vesting terms.
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In February 2021, as part of their standard compensation for board service, non-employee members of the Board received a total grant of 4,525 shares of restricted stock for service for the period from January 31, 2021 through January 31, 2022. The shares of restricted stock will vest at the conclusion of this service period. Compensation is being recognized on a ratable basis over the twelve-month vesting period.
In February 2021, restricted stock in the amount of 2,306 shares were granted to a consultant of the Company, with a two-year vesting term including continued service requirements. Compensation expense is recognized over the period of the award consistent with the vesting terms.
Note 6 — Segment Data and Foreign Operations
The Company is organized into three reportable operating segments: Adhesives, Sealants and Additives; Industrial Tapes; and Corrosion Protection and Waterproofing. 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 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 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 ETi, within the functional additives product line.
The Industrial Tapes segment features legacy wire and cable materials, specialty tapes and other laminated and coated products. The segment derives its competitive advantage through its proven chemistries, diverse specialty offerings and the reliability its supply chain offers to end customers. These products are generally used in the assembly of other manufacturers’ products, with demand typically dependent upon general economic conditions. The Industrial 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.
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The following tables summarize information about the Company’s reportable segments:
| (a) | Includes $733 in loss on the upward adjustment of the performance-based earn out contingent consideration associated with the September 2020 acquisition of ABchimie and $98 in exit costs related to the movement of the sealants system business out of the Newark, CA location and into the Hickory, NC location during the second quarter of fiscal 2021 |
| (b) | Includes $128 in acquisition-related expense attributable to the February 2021 acquisition of the operations of ETi |
| (c) | Includes $60 in exit costs related to the movement of the pulling and detection business out of the Granite Falls, NC location and into the Hickory, NC location during the second quarter of fiscal 2020 |
| (d) | Includes $133 in acquisition-related expense attributable to the September 2020 acquisition of the operations of ABchimie |
| (e) | Includes $559 in exit costs related to the movement of the pulling and detection business out of the Granite Falls, NC location and into the Hickory, NC location during the first half of fiscal 2020 |
| (f) | Includes $150 of expense related to exploratory IT work performed to assess potential future upgrades to our companywide ERP system and $133 in acquisition-related expense attributable to the September 2020 acquisition of the operations of ABchimie |
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Total assets for the Company’s reportable segments as of February 28, 2021 and August 31, 2020 were:
The Company’s products are sold worldwide. Revenue for the three- and six-month periods ended February 28, 2021 and February 29, 2020 was attributed to operations located in the following countries:
| (1) | Comprises sales originated from the Company’s French locations (including ABchimie for fiscal 2021), royalty revenue attributable to its licensed manufacturer in Asia, and Chase foreign manufacturing operations. |
As of February 28, 2021 and August 31, 2020 the Company had long-lived assets (defined as tangible assets providing the Company with a future economic benefit beyond the current year or operating period, including buildings, equipment and leasehold improvements) and goodwill and intangible assets, less accumulated amortization, in the following countries:
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Note 7 — Goodwill and Other Intangibles
The changes in the carrying value of goodwill were as follows:
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Adhesives, Sealants and Additives |
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Industrial Tapes |
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Corrosion Protection and Waterproofing |
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Consolidated |
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Balance at August 31, 2020 |
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$ |
50,487 |
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$ |
21,215 |
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$ |
10,700 |
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$ |
82,402 |
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Acquisition of ABchimie |
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13,055 |
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— |
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— |
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13,055 |
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Acquisition of Emerging Technologies, Inc. |
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2,451 |
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— |
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— |
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2,451 |
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Foreign currency translation adjustment |
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327 |
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— |
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9 |
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336 |
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Balance at February 28, 2021 |
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$ |
66,320 |
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$ |
21,215 |
|
$ |
10,709 |
|
$ |
98,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s goodwill is allocated to each reporting unit based on the nature of the products manufactured by the respective business combinations that originally created the goodwill. The Company has identified a total of three reporting units, corresponding to its three operating segments, that are used to evaluate the possible impairment of goodwill. Goodwill impairment exists when the carrying value of goodwill exceeds its fair value. Assessments of possible impairment of goodwill are made when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable through future operations. Additionally, testing for possible impairment of recorded goodwill and certain intangible asset balances is required annually. The amount and timing of any impairment charges based on these assessments require the estimation of future cash flows and the fair market value of the related assets based on management’s best estimates of certain key factors, including future selling prices and volumes; operating, raw material and energy costs; and various other projected operating and economic factors, including the anticipated future impact of the coronavirus disease 2019 (COVID-19) pandemic. When testing, fair values of the reporting units and the related implied fair values of their respective goodwill are established using discounted cash flows. The Company evaluates the possible impairment of goodwill annually during the fourth quarter, and whenever events or circumstances indicate the carrying value of goodwill may not be recoverable.
The Company has adopted ASU No. 2017-04 “Intangibles - Goodwill and Other Topics (Topic 350): Simplifying the Test for Goodwill Impairment.” The Company assesses goodwill for impairment by comparing the fair value of the reporting unit to its carrying amount. If the fair value of a reporting unit is less than its carrying value, an impairment loss, limited to the amount of goodwill allocated to that reporting unit, is recorded.
Intangible assets subject to amortization consisted of the following as of February 28, 2021 and August 31, 2020:
19
Aggregate amortization expense related to intangible assets for the six months ended February 28, 2021 and February 29, 2020 was $6,190 and $5,826 respectively. Estimated amortization expense for the remainder of fiscal year 2021 and for the next five years is as follows:
|
|
|
|
|
|
|
Years ending August 31, |
|
|
|
|
|
2021 (remaining 6 months) |
|
$ |
6,507 |
|
|
2022 |
|
|
12,002 |
|
|
2023 |
|
|
8,734 |
|
|
2024 |
|
|
7,527 |
|
|
2025 |
|
|
5,927 |
|
|
2026 |
|
|
5,132 |
|
Note 8 — Leases
Effective September 1, 2019 (the start of fiscal 2020), the Company adopted ASU 2016-02, Leases (Topic 842), using the modified retrospective approach and utilizing the effective date as its date of initial application. The Company has elected to apply the ‘package of practical expedients’ which allows it to not reassess i) whether existing or expired arrangements contain a lease, ii) the lease classification of existing or expired leases, or iii) whether previous initial direct costs would qualify for capitalization under the new lease standard.
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use (ROU) assets and short-term and long-term lease liabilities, as applicable. The Company does not have any financing leases that are material in nature.
Operating lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Company believes it could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment.
The Company has elected not to recognize leases with an original term of one year or less on the balance sheet. The Company typically only includes an initial lease term in its assessment of a lease arrangement. Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will renew.
The following table presents the right-of-use asset and short-term and long-term lease liabilities amounts recorded on the condensed consolidated balance sheet as of February 28, 2021 and August 31, 2020:
20
Lease cost
The components of lease costs for the three and six months ended February 28, 2021 and 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
||||||||
|
|
|
February 28, 2021 |
|
February 29, 2020 |
|
February 28, 2021 |
|
February 29, 2020 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost (a) |
|
$ |
971 |
|
$ |
919 |
|
$ |
1,922 |
|
$ |
1,850 |
| (a) | Includes short-term leases and variable lease costs (e.g. common area maintenance), which are immaterial. |
Maturity of lease liability
The maturity of the Company's lease liabilities at February 28, 2021 was as follows:
The weighted average remaining lease term and discount rates are as follows:
21
Other Information
Supplemental cash flow information related to leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
||||
|
|
|
February 28, 2021 |
|
February 29, 2020 |
||
|
|
|
|
|
|
|
|
|
Operating cash outflows from operating leases |
|
$ |
1,328 |
|
$ |
1,217 |
|
Total cash paid for amounts included in the measurement of lease liabilities |
|
$ |
1,328 |
|
$ |
1,217 |
Note 9 — Revenue from Contracts with Customers
The Company accounts for revenue in accordance with ASC 606, “Revenue from Contracts with Customers.” This revenue is generated from the manufacture of specialty chemical products including coatings, linings, adhesives, sealants, specialty tapes, polymers and laminates. Certain of these manufactured products can incorporate customer-owned materials. The Company also recognizes, to a lesser extent, revenue through royalties and commissions from licensed manufacturers and from providing custom manufacturing-related services. The Company’s revenue recognition policies require the Company to make significant judgments and estimates. In applying the Company’s revenue recognition policy, determinations must be made as to when control of products passes to the Company’s customers, which can be either at a point in time or over time based on contractual terms with customers. Revenue is generally recognized at a point in time when control passes upon either shipment to or receipt by the customer of the Company’s products, while revenue is generally recognized over time when control of the Company’s products transfers to customers during the manufacturing process. The Company analyzes several factors, including but not limited to, the nature of the products being sold and contractual terms and conditions in contracts with customers to help the Company make such judgments about revenue recognition.
22
Contract Balances
The Company’s contract assets primarily relate to unbilled revenue for products currently in production at the Company’s facilities and which incorporate customer-owned material. Revenue is recognized in advance of billing to the customer in these specific circumstances, whereas billing is typically performed at the time of shipment to or receipt by the customer.
Contract assets are included in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheet. The following table presents contract assets by reportable operating segment as of February 28, 2021 and August 31, 2020:
The Company did not have any contract liabilities as of February 28, 2021 and August 31, 2020.
23
Disaggregated Revenue
The Company disaggregates revenue from customers by geographic region, as it believes this disclosure best depicts how the nature, amount, timing and uncertainty of the Company's revenue and cash flows are affected by economic factors. Disaggregated revenue by geographical region for the three and six months ended February 28, 2021 and February 29, 2020 was as follows:
24
Note 10 — Commitments and Contingencies
The Company is involved from time to time in litigation incidental to the conduct of its business. Although the Company does not expect that the outcome in any of these matters, individually or collectively, will have a material adverse effect on its financial condition, results of operations or cash flows, litigation is inherently unpredictable. Therefore, judgments could be rendered, or settlements agreed to that could adversely affect the Company’s operating results or cash flows in a particular period. The Company routinely assesses all its litigation and threatened litigation as to the probability of ultimately incurring a liability and records its best estimate of the ultimate loss in situations where it assesses the likelihood of loss as probable.
Note 11 — Pensions and Other Postretirement Benefits
The components of net periodic benefit cost for the three and six months ended February 28, 2021 and February 29, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
||||||||
|
|
|
February 28, 2021 |
|
February 29, 2020 |
|
|
February 28, 2021 |
|
February 29, 2020 |
|
|
||||
|
Components of net periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
91 |
|
$ |
74 |
|
|
$ |
183 |
|
$ |
147 |
|
|
|
Interest cost |
|
|
85 |
|
|
113 |
|
|
|
170 |
|
|
226 |
|
|
|
Expected return on plan assets |
|
|
(98) |
|
|
(98) |
|
|
|
(196) |
|
|
(196) |
|
|
|
Amortization of prior service cost |
|
|
1 |
|
|
1 |
|
|
|
2 |
|
|
2 |
|
|
|
Amortization of accumulated loss |
|
|
164 |
|
|
174 |
|
|
|
328 |
|
|
348 |
|
|
|
Net periodic benefit cost |
|
$ |
243 |
|
$ |
264 |
|
|
$ |
487 |
|
$ |
527 |
|
|
When funding is required, the Company’s policy is to contribute amounts that are deductible for federal income tax purposes. The Company has made contributions of $783 in the six months ended February 28, 2021 to fund its obligations under its pension plans, and plans to make the necessary contributions over the remainder of fiscal 2021 to ensure the qualified plan continues to be adequately funded given the current market conditions, including conditions related to the coronavirus disease 2019 (COVID-19) pandemic. The Company made contributions of $785 in the six months ended February 29, 2020.
25
Note 12 — Fair Value Measurements
The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date. The Company uses a three-tier fair value hierarchy, which classifies the inputs used in measuring fair values. These tiers are: Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists , therefore requiring an entity to develop its own assumptions.
The Company utilizes the best available information in measuring fair value. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The financial assets classified as Level 1 and Level 2 as of February 28, 2021 and August 31, 2020 represent investments that are restricted for use in nonqualified retirement savings plans for certain key employees and directors.
The following table sets forth the Company’s financial assets that were accounted for at fair value on a recurring basis as of February 28, 2021 and August 31, 2020:
The following table presents the fair value of the Company’s liabilities that are accounted for at fair value on a recurring basis as of February 28, 2021 and August 31, 2020:
The long-term debt (including any current portion of long-term debt) had no outstanding balance as of February 28, 2021 and August 31, 2020. The carrying value of the long-term debt approximates its fair value, as the interest rate is set based on the movement of the underlying market rates. See Note 16 to the condensed consolidated financial statements for additional information on long-term debt.
In connection with accounting for the ABchimie acquisition on September 1, 2020, the Company recorded a contingent consideration liability included within Other liabilities on the condensed consolidated balance sheet of €780 (approximately $928) on the acquisition date, representing the fair value of contingent consideration payable upon the achievement of a performance-based target. The contingent consideration liability was valued using a Monte Carlo simulation model in an option pricing framework based on key inputs that are not all observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The Company assesses the fair value of the contingent consideration liability at each reporting period. Any subsequent changes in the estimated fair value of the liability are reflected in Loss (gain) on contingent consideration on the condensed consolidated statement of operations until the liability is settled. As of February 28, 2021, the liability increased to $1,666 predominantly due to changes in non-market
26
data assumptions as well as a shorter period to the payment date. See Note 17 to the condensed consolidated financial statements for additional information on the acquisition of ABchimie.
Note 13 — Accumulated Other Comprehensive Income
The changes in accumulated other comprehensive income (loss), net of tax, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Funded |
|
Foreign Currency |
|
|
|
|
||
|
|
|
Restricted |
|
Status of |
|
Translation |
|
|
|
|
|||
|
|
|
Investments |
|
Pension Plans |
|
Adjustment |
|
Total |
|
||||
|
Balance at August 31, 2019 |
|
$ |
154 |
|
$ |
(6,271) |
|
$ |
(8,207) |
|
$ |
(14,324) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive gains (losses) before reclassifications (1) |
|
|
19 |
|
|
— |
|
|
1,395 |
|
|
1,414 |
|
|
Reclassifications to net income of previously deferred (gains) losses (2) |
|
|
(21) |
|
|
259 |
|
|
— |
|
|
238 |
|
|
Other comprehensive income (loss) |
|
|
(2) |
|
|
259 |
|
|
1,395 |
|
|
1,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of ASU 2018-02 |
|
|
— |
|
|
(1,388) |
|
|
— |
|
|
(1,388) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 29, 2020 |
|
$ |
152 |
|
$ |
(7,400) |
|
$ |
(6,812) |
|
$ |
(14,060) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at August 31, 2020 |
|
$ |
269 |
|
$ |
(8,317) |
|
$ |
(5,044) |
|
$ |
(13,092) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive gains (losses) before reclassifications (3) |
|
|
154 |
|
|
— |
|
|
1,887 |
|
|
2,041 |
|
|
Reclassifications to net income of previously deferred (gains) losses (4) |
|
|
(36) |
|
|
247 |
|
|
— |
|
|
211 |
|
|
Other comprehensive income (loss) |
|
|
118 |
|
|
247 |
|
|
1,887 |
|
|
2,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 28, 2021 |
|
$ |
387 |
|
$ |
(8,070) |
|
$ |
(3,157) |
|
$ |
(10,840) |
|
| (1) | Net of tax benefit of $7, $0 and $0, respectively. |
| (2) | Net of tax expense of $8, tax benefit of $91 and $0, respectively. |
| (3) | Net of tax benefit of $52, $0 and $0, respectively. |
| (4) | Net of tax expense of $13, tax benefit of $83 and $0, respectively. |
27
The following table summarizes the reclassifications from accumulated other comprehensive income (loss) to the unaudited condensed consolidated statements of income:
28
Note 14 — Income Taxes
For the three and six months ended February 28, 2021, the Company’s recognized effective tax rate was 28.7% and 25.5%, respectively. For the three and six months ended February 29, 2020, the Company’s recognized and effective tax rate was 27.1% and 27.0%, respectively.
The Company has applied the U.S. statutory Federal rate of 21%, enacted as part of the Tax Cuts and Jobs Act (the “Tax Act”) in December 2017, for both the quarters and six-month periods ended February 28, 2021 and February 29, 2020.
During the quarter ended November 30, 2018 (the first quarter of fiscal 2019), the Company began recognizing an additional component of total Federal tax expense, the tax on Global Intangible Low-Taxed Income (“GILTI”) provision of the Tax Act, which became applicable to the Company in fiscal 2019. The Company elected to account for GILTI as a period cost, and therefore included GILTI expense in the effective tax rate calculation. This provision did not have a material effect on the effective tax rate for the quarters and six-month periods ended February 28, 2021 and February 29, 2020.
The Company concluded that the Base Erosion and Anti Abuse Tax (“BEAT”) provision of the Tax Act, which also became applicable to the Company in fiscal 2019, had no effect on its effective tax rate for the six-month periods ended February 28, 2021 and February 29, 2020. Additionally, the United States Internal Revenue Service (“IRS”) released final regulations (TD 9901) in July 2020 that ease documentation standards and provide greater flexibility for taxpayers claiming the deduction for foreign-derived intangible income (“FDII”). The Company, which had previously deferred the application of FDII, is evaluating these new regulations and will assess the potential impact on the effective tax rate by the end of the next reporting period.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, included a technical correction to the Tax Act which will allow accelerated deductions for qualified improvement property. The Company is currently evaluating the impact of the CARES Act, but at present does not expect that the qualified improvement property correction or other provisions of the CARES Act will result in a material tax benefit in future periods. The CARES Act had no material effect on the effective tax rate for the first six months of fiscal 2021 or 2020.
Note 15 — Operations Optimization Costs
Relocation of Sealants Systems Manufacturing to Hickory, NC
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 will terminate in the current fiscal year. The Company recognized $98 in expense related to the move in both the three-month and six-month periods ended February 28, 2021.
IT Studies Related to the Upgrade of the Company’s Worldwide ERP System
During the first quarter of fiscal 2020, the Company commissioned third party led studies regarding the potential upgrading of the Company’s current worldwide ERP system. Chase is currently reviewing the data and recommendations provided by the study and may further utilize third-party engineering, IT and other professional services firms in the future for similar work, as well as work around its facilities rationalization and consolidation initiative. The Company recognized $150 in expense related to these services in the first half of fiscal 2020, with nothing recognized in the first half of fiscal 2021. Given the ongoing nature of the review, an estimate of future costs, including those that may be capitalized, cannot currently be determined.
29
Relocation of Pulling and Detection Manufacturing to Hickory, NC
During the third quarter of fiscal 2019, Chase began moving the pulling and detection operations from 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 $60 and $559 in expense related to the move in the three-month and six-month periods ended February 29, 2020, having recognized $526 in expense during the second half of fiscal 2019. No costs were recognized in the six months ended February 28, 2021, and future costs related to this move are not anticipated to be significant to the condensed consolidated financial statements.
Note 16 — Long-Term Debt
On December 15, 2016, the Company entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with Bank of America, acting as administrative agent, and with participation from Citizens Bank and JPMorgan Chase Bank (collectively with Bank of America, the “Lenders”). The Credit Agreement is an all-revolving credit facility with a borrowing capacity of $150,000, which can be increased by an additional $50,000 at the request of the Company and the individual or collective option of any of the Lenders. The facility matures December 15, 2021 (the second quarter of fiscal 2022). The Credit Agreement contains customary affirmative and negative covenants that, among other things, restrict the Company’s ability to incur additional indebtedness and require lender approval for acquisitions by the Company and its subsidiaries over a certain size. It also requires the Company to maintain certain financial ratios, including a consolidated net leverage ratio (as defined in the facility) of no more than 3.25 to 1.00, and a consolidated fixed charge coverage ratio (as defined in the facility) of at least 1.25 to 1.00. The Company was compliant with its debt covenants as of February 28, 2021. The Credit Agreement is guaranteed by all of Chase’s direct and indirect domestic subsidiaries, which collectively had a carrying value of $254,191 at February 28, 2021. The Company entered into the Credit Agreement both to refinance its previously existing term loan and revolving line of credit, and to provide for additional liquidity to finance potential acquisitions, working capital, capital expenditures, and for other general corporate purposes. The Company expects to renew this facility prior to its expiration to maintain its ability to support its strategic initiatives.
The applicable interest rate for the revolver portion of the Credit Agreement (the “Revolving Facility”) and any Term Loan (defined below) is based on the effective London Interbank Offered Rate (LIBOR) plus an additional amount in the range of 1.00% to 1.75%, depending on the consolidated net leverage ratio of Chase and its subsidiaries. At February 28, 2021, there was no outstanding principal balance, and therefore no applicable interest rate. The Credit Agreement has a five-year term with interest payments due at the end of the applicable LIBOR period (but in no event less frequently than the three-month anniversary of the commencement of such LIBOR period) and principal payment due at the expiration of the agreement, December 15, 2021. In addition, the Company may elect a base rate option for all or a portion of the Revolving Facility, in which case interest payments shall be due with respect to such portion of the Revolving Facility on the last business day of each quarter.
Subject to certain conditions set forth in the Credit Agreement, the Company may elect to convert all or a portion of the outstanding Revolving Facility into a term loan (each, a “Term Loan”), which shall be payable quarterly in equal installments sufficient to amortize the original principal amount of such Term Loan on a seven year amortization schedule; provided, however, that the final principal repayment installment shall be repaid on December 15, 2021 and in any event shall be in an amount equal to the aggregate principal amount of all Term Loans outstanding on such date. Prepayment is allowed by the Credit Agreement at any time during the term of the agreement, subject to customary notice requirements.
30
Note 17 – Acquisitions
Acquisition of Emerging Technologies, Inc.
On February 5, 2021, the Company acquired certain assets of Emerging Technologies, Inc. (“ETi”), a superabsorbent polymers solutions provider, located in Greensboro, NC. The business was acquired for a purchase price of $9,997, comprising $8,997 paid on February 5, 2021 and an accrual of $1,000 to be paid out up to eighteen months after the purchase, pending any final working capital adjustments, and excluding acquisition-related costs. As part of this transaction, Chase acquired substantially all working capital and fixed assets of the business and entered a multi-year lease at ETi’s existing location. The Company expensed $128 of acquisition-related costs during the three-month period ended February 28, 2021 associated with this acquisition. The purchase was funded with available cash on hand. ETi is a solutions provider and formulator of absorbent polymers for use in the packaging, recreational, consumer, and sanitation markets. The acquisition broadens the Company’s superabsorbent polymers product offerings and formulation capabilities while expanding its market reach. The Company is currently in the process of finalizing purchase accounting, regarding a final allocation of the purchase price to tangible and identifiable intangible assets assumed, and anticipates completion within fiscal 2021. Since the effective date of the acquisition, the financial results of ETi’s acquired operations have been included in the Company’s financial statements within the functional additives product line, contained within the Adhesives, Sealants and Additives operating segment. The ETi acquisition does not represent a significant business combination so pro forma financial information is not provided.
The excess of the purchase price over the net tangible and intangible assets acquired resulted in goodwill of $2,451 that is largely attributable to the synergies and economies of scale from combining the operations, technologies and research and development capabilities of ETi and Chase, particularly as it pertains to the expansion of the Company's product and service offerings, the established workforce and marketing efforts. This goodwill is deductible for income tax purposes.
Acquisition of ABchimie
On September 1, 2020 (first day of fiscal 2021), the Company acquired all the capital stock of ABchimie for €18,654 (approximately $22,241 at the time of the transaction) net of cash acquired, subsequent to final working capital adjustment, excluding acquisition-related costs totaling $274 recognized in fiscal 2020 (with $133 recognized in the second quarter of fiscal 2020) and with a performance-based earn out potentially worth an additional €7,000 (approximately $8,330 at the time of the transaction). The Company accrued $1,666 at February 28, 2021 within Other liabilities on the condensed consolidated balance sheet related to its current estimate of the earn out. Following its initial recording at the acquisition date, a $733 increase in the performance-based earn out accrual was recorded within Loss (gain) on contingent consideration in the condensed consolidated statement of operations for both the three and six months ended February 28, 2021. ABchimie is a Corbelin, France headquartered solutions provider for the cleaning and the protection of electronic assemblies, with further formulation, production, and research and development capabilities. The transaction was funded with available cash on hand. The financial results of the business are included in the Company's fiscal 2021 financial statements within the Adhesives, Sealants and Additives operating segment in the electronic and industrial coatings product line. The Company is currently in the process of finalizing purchase accounting, regarding a final allocation of the purchase price to tangible and identifiable intangible assets assumed, including finalizing the recording of deferred taxes, and anticipates completion within fiscal 2021. The ABchimie acquisition does not represent a significant business combination so pro forma financial information is not provided.
The excess of the purchase price over the net tangible and intangible assets acquired resulted in goodwill of $13,055 that is largely attributable to the synergies and economies of scale from combining the operations, technologies and research and development capabilities of ABchimie and Chase, particularly as it pertains to the expansion of the Company's product and service offerings, the established workforce and marketing efforts. A portion of this goodwill is deductible in the U.S. for calculation of GILTI period costs but is nondeductible for French income tax purposes.
31
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion provides an analysis of the Company’s financial condition and results of operations and should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with the Company’s Annual Report on Form 10-K filed for the fiscal year ended August 31, 2020.
Overview
Revenue, operating income and net income for the second quarter and first six months of fiscal 2021 all exceeded prior year results, as the Adhesives, Sealants and Additives segment continued to achieve strong organic and inorganic growth, especially with sales into foreign markets, including Asia and Europe. The Company’s results were aided by the February 2021 acquisition of the operations of Emerging Technologies, Inc. (“ETi”) and the September 2020 acquisition of ABchimie, results of which are reported under the Adhesives, Sealants and Additives segment. However, the Industrial Tapes and Corrosion Protection and Waterproofing segments’ sales were down from the prior year periods, as the segments have not recovered as quickly from the global economic disruptions caused by the coronavirus pandemic (COVID-19). Further, both segments have wider exposure in energy markets, which continue to be negatively affected by lower oil and gas prices and related decreases in investment into exploration and transportation activities. The Corrosion Protection and Waterproofing segment was additionally affected by weather events in Houston, TX and the surrounding region during the last month of the quarter. Despite its topline decline, the Industrial Tapes segment was able to improve its relative gross margin on a more favorable sales mix, and operational efficiencies realized over the prior year. Our facilities rationalization and consolidation initiative made further progress in the quarter, as the Company began moving the sealant systems production from Newark, CA to its location in Hickory, NC; this move is anticipated to be completed within fiscal 2021.
On February 5, 2021, the Company acquired certain assets of Emerging Technologies, Inc. (“ETi”), a Greensboro, NC-located solutions provider and formulator of absorbent polymers for use in the packaging, recreational, consumer, and sanitation markets. The acquisition expands Chase Corporation’s market share in the growing superabsorbent polymers vertical, following our fiscal 2018 acquisition of Zappa Stewart. This second quarter acquisition comes following the September 1, 2020 purchase of ABchimie, a Corbelin, France-headquartered solutions provider for the cleaning and the protection of electronic assemblies, with additional formulation, production, and research and development capabilities. Both the fiscal 2021 acquisitions were funded with available cash on hand and broaden our specialty chemical offerings within the Adhesives, Sealants, and Additives reporting segment with high performance, environmentally-friendly technologies that are complementary to our existing product offerings.
While net cash provided by operating activities was lower than in the first six months of the prior year, the Company’s cash position remained healthy, with cash flow from operations offsetting the majority of the costs to acquire ETi and ABchimie during the six-month period. The Company held no outstanding balance on its $150,000,000 revolving credit facility as of February 28, 2021. The revolving credit facility allows for the Company to pay down debt with excess cash, while retaining access to immediate liquidity to fund future accretive activities, including mergers and acquisitions, as they are identified. Our current credit facility is set to mature in December 2021, and the Company expects to renew this facility within the current fiscal year, prior to its expiration, to maintain our ability to support our strategic initiatives.
Revenue from the Adhesives, Sealants and Additives segment increased for the second quarter and year-to-date period versus the prior year. Sales volumes within the electronic and industrial coatings product line increased driven by Asian and European markets showing recovery and the inorganic growth provided by the acquired operations of ABchimie. The Company’s functional additives product line sales, which have a North American concentration, also experienced both organic and inorganic volume growth over both the comparative periods, with the operations of ETi added to the product line following its February 5, 2021 acquisition.
32
Sales decreased in the Industrial Tapes segment for the quarter and six-month period ended February 28, 2021 as compared to the prior year, with the cable materials and specialty products product lines driving the topline remission. The cable materials and specialty products product line both have a North American concentration, with the specialty products sales reductions further impacted in the year-to-date period by the Company’s prior year planned exit from providing low margin transitional toll manufacturing services to the purchaser of the structural composites rod and the fiber optical cable components businesses. The pulling and detection product line, which also has a North American focus, had sales slightly up for the current quarter, but continued to trail the prior year on a year-to-date basis. The Company’s electronic materials product line, which sells nearly exclusively to Asian markets, saw sales volume growth for the quarter, driving year-to-date growth over the prior year.
The Corrosion Protection and Waterproofing segment’s sales decreased compared to both the prior year second quarter and first six months. The pipeline coatings, coating and lining systems, and bridge and highway product lines sales were unfavorable to the second quarter and the first half of the prior year. Building envelope product line sales partially offset these declines for the second quarter but was short of repeating prior year year-to-date sales amounts.
Chase Corporation’s balance sheet remained strong on February 28, 2021, with cash on hand of $86,229,000, a current ratio of 7.2 and no outstanding principal balance owed on the Company’s $150,000,000 revolving credit facility.
33
Chase Corporation has three reportable operating segments as summarized below:
| (1) | Formerly referred to as the specialty chemical intermediates product line |
34
Results of Operations
Revenue and Income before Income Taxes by Segment were as follows (dollars in thousands):
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% of |
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% of |
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% of |
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% of |
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Three Months Ended |
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Total |
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Three Months Ended |
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Total |
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Six Months Ended |
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Total |
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Six Months Ended |
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Total |
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February 28, 2021 |
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Revenue |
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February 29, 2020 |
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Revenue |
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February 28, 2021 |
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Revenue |
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February 29, 2020 |
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Revenue |
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Revenue |
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Adhesives, Sealants and Additives |
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$ |
31,575 |
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46 |
% |
$ |
24,440 |
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37 |
% |
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$ |
61,646 |
|
45 |
% |
$ |
50,262 |
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38 |
% |
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Industrial Tapes |
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28,345 |
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41 |
% |
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30,055 |
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46 |
% |
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54,836 |
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40 |
% |
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60,179 |
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45 |
% |
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Corrosion Protection and Waterproofing |
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8,527 |
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12 |
% |
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11,087 |
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17 |
% |
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|
19,141 |
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14 |
% |
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21,943 |
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17 |
% |
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Total |
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$ |
68,447 |
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|
$ |
65,582 |
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$ |
135,623 |
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$ |
132,384 |
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% of |
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% of |
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% of |
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% of |
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Three Months Ended |
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Segment |
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Three Months Ended |
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Segment |
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Six Months Ended |
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Segment |
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Six Months Ended |
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Segment |
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February 28, 2021 |
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Revenue |
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February 29, 2020 |
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Revenue |
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|
February 28, 2021 |
|
Revenue |
|
February 29, 2020 |
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Revenue |
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||||
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Income before income taxes |
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Adhesives, Sealants and Additives |
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$ |
10,137 |
(a) |
32 |
% |
$ |
6,750 |
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28 |
% |
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$ |
20,116 |
(a) |
33 |
% |
$ |
14,232 |
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28 |
% |
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Industrial Tapes |
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8,460 |
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30 |
% |
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8,402 |
(c) |
28 |
% |
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16,328 |
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30 |
% |
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15,039 |
(e) |
25 |
% |
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Corrosion Protection and Waterproofing |
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2,415 |
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28 |
% |
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4,127 |
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37 |
% |
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6,501 |
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34 |
% |
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8,091 |
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37 |
% |
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Total for reportable segments |
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21,012 |
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31 |
% |
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19,279 |
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29 |
% |
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|
42,945 |
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32 |
% |
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37,362 |
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28 |
% |
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Corporate and Common Costs |
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(8,147) |
(b) |
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(8,474) |
(d) |
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(16,103) |
(b) |
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(16,486) |
(f) |
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Total |
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$ |
12,865 |
|
19 |
% |
$ |
10,805 |
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16 |
% |
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$ |
26,842 |
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20 |
% |
$ |
20,876 |
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16 |
% |
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Note: Some percentage of revenue amounts may not sum due to rounding
| (a) | Includes $733 in loss on upward adjustment of the performance-based earn out contingent consideration associated with the September 2020 acquisition of ABchimie and $98 in exit costs related to the movement of the sealants system business out of the Newark, CA location and into the Hickory, NC location during the second quarter of fiscal 2021 |
| (b) | Includes $128 in acquisition-related expense attributable to the February 2021 acquisition of the operations of ETi |
| (c) | Includes $60 in exit costs related to the movement of the pulling and detection business out of the Granite Falls, NC location and into the Hickory, NC location during the second quarter of fiscal 2020 |
| (d) | Includes $133 in acquisition-related expense attributable to the September 2020 acquisition of the operations of ABchimie |
| (e) | Includes $559 in exit costs related to the movement of the pulling and detection business out of the Granite Falls, NC location and into the Hickory, NC location during the first half of fiscal 2020 |
| (f) | Includes $150 of expense related to exploratory IT work performed to assess potential future upgrades to our companywide ERP system and $133 in acquisition-related expense attributable to the September 2020 acquisition of the operations of ABchimie |
35
Total Revenue
Total revenue increased $2,865,000 or 4% to $68,447,000 for the quarter ended February 28, 2021, compared to $65,582,000 in the same quarter of the prior year. Total revenue increased $3,239,000 or 2% to $135,623,000 in the fiscal year-to-date period compared to $132,384,000 in the same period in fiscal 2020.
Revenue in the Company’s Adhesives, Sealants and Additives segment increased $7,135,000 or 29% and $11,384,000 or 23% in the current quarter and year-to-date period, respectively. Organic revenue growth accounted for $5,363,000 and $8,151,000 of the segment’s overall second quarter and year-to-date period sales increases, respectively. The increases in revenue from the Adhesives, Sealants and Additives segment in fiscal 2021 for the current quarter and year-to-date period, respectively, were primarily due to the electronic and industrial coatings product line’s $6,100,000 and $10,662,000 organic and inorganic increases. The operations of ABchimie, acquired September 1, 2020, provided the product line accretive topline gains, while strong organic gains were most specifically seen internationally. Also positively impacting the segment’s sales were organic and inorganic increases in revenue from the North American-focused functional additives product line totaling $1,035,000 and $722,000 in the current quarter and year-to-date period. The functional additives product line sales totals included the operations of ETi, following its acquisition on February 5, 2021.
Revenue in the Industrial Tapes segment decreased $1,710,000 or 6% and $5,343,000 or 9% in the current quarter and year-to-date period, respectively. The decreases in revenue for the segment were primarily due to the following for the current quarter and year-to-date period, respectively: (a) a sales volume demand decrease of $2,157,000 and $4,623,000 from the North American-focused cable materials product line, with both COVID-19 and certain exposure to oil and gas markets negatively impacting results; and (b) revenue reductions of $45,000 and $754,000 for the specialty products product line, as the Company ended its arrangement to provide low margin transitional toll manufacturing services in the second quarter of fiscal 2020 (prior year). The pulling and detection tapes product line saw sales growth of $25,000 as compared to the prior year second fiscal quarter, but remained $365,000 behind for the year-to-date period. Positively impacting sales for both the current quarter and year-to-date period were volume-driven sales increases of $466,000 and $398,000, respectively, for the electronic materials product line, which has a nearly exclusive Asian end-market.
Compared to the prior year second quarter and year-to-date period, revenue from the Corrosion Protection and Waterproofing segment decreased $2,560,000 or 23% and $2,802,000 or 13%, respectively. The segment’s sales decreases in the current quarter and year-to-date period were predominantly driven by: (a) the pipeline coatings product line’s $1,218,000 and $1,391,000 declines most acutely seen in the Company’s North American operations and attributable to a net prolonged decrease in worldwide oil and gas prices, with the Rye, U.K.-based facility’s Middle East sales prospects and margin also negatively impacted by energy prices; (b) the coating and lining systems product line sales decreases of $1,486,000 and $889,000, with shipments impacted in the final month of the quarter by weather events impacting the Houston, TX manufacturing facility and the surrounding region; and (c) the bridge and highway product line’s $84,000 and $212,000 sales volume reductions. The building envelope product line’s sales increased $228,000 over the prior year second quarter, but still trailed the prior year-to-date period by $310,000.
36
Cost of Products and Services Sold
Cost of products and services sold increased $249,000 or 1% to $40,915,000 for the quarter ended February 28, 2021, compared to $40,666,000 in the prior year quarter. Cost of products and services sold decreased $1,929,000 or 2% to $80,520,000 in the first six months of fiscal 2021, compared to $82,449,000 in the comparative year-to-date period.
The following table summarizes the cost of products and services sold as a percentage of revenue for each of Chase Corporation’s reportable operating segments:
Cost of products and services sold in the Adhesives, Sealants and Additives segment was $16,998,000 and $33,611,000 in the current quarter and year-to-date period compared to $14,255,000 and $28,787,000 in the comparable periods in the prior year. Cost of products and services sold in the Industrial Tapes segment was $18,693,000 and $35,810,000 in the current quarter and year-to-date period compared to $20,203,000 and $41,522,000 in the same periods in the prior year. Cost of products and services sold in the Corrosion Protection and Waterproofing segment was $5,224,000 and $11,099,000 for the quarter and year-to-date period ended February 28, 2021, compared to $6,208,000 and $12,140,000 in the comparable periods of the prior year.
As a percentage of revenue, cost of products and services sold was reduced for both the Adhesives, Sealants and Additives and Industrial Tapes segments and increased for the Corrosion Protection and Waterproofing segment as compared to the second quarter and first six months of the prior year. These changes in relative gross margin were primarily due to: (a) more favorable sales mixes in the Adhesives, Sealants and Additives and Industrial Tapes segments, as higher margin products and offerings constituted a comparatively higher portion of total sales, and a less favorable sales mix for the Corrosion Protection and Waterproofing segment; and (b) production and operational efficiencies realized in the current quarter and year-to-date period, including those gained in part through the facility rationalization and consolidation initiative.
With the composition of the Company’s finished goods and the markets it serves, 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) directly and indirectly affect both the purchase price of the raw materials and market demand for its product offerings. The Company diligently monitors raw materials and commodities pricing across all its product lines in its efforts to preserve margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $277,000 or 2% to $12,331,000 for the quarter ended February 28, 2021 compared to $12,608,000 in the prior year quarter. Selling, general and administrative expenses decreased $639,000 or 3% to $24,591,000 in the fiscal year-to-date period compared to $25,230,000 in the same period in fiscal 2020. As a percentage of revenue, selling, general and administrative expenses represented 18% for both the current year second quarter and fiscal year-to-date period, compared to 19% for both the comparable periods in the prior year.
Research and Product Development Costs
Research and Product Development Costs decreased $43,000 or 4% to $1,026,000 during the second quarter of fiscal 2021, compared to $1,069,000 in fiscal 2020. Research and Product Development Costs decreased $10,000 or less than one percent to $2,077,000 during the first six months of fiscal 2021, compared to $2,087,000 in the same period of fiscal 2020. Research and development stayed relatively consistent from fiscal 2020 to 2021 as the Company continued focused development work on strategic product lines.
37
Operations Optimization Costs
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 will terminate in the current fiscal year. The Company recognized $98,000 in expense related to the move in both the three-month and six-month periods ended February 28, 2021.
During the first quarter of fiscal 2020 (prior year), the Company commissioned third party led studies regarding the potential upgrading of the Company’s current worldwide ERP system. Chase is currently reviewing the data and recommendations provided by the study and may further utilize third-party engineering, IT and other professional services firms in the future for similar work, as well as work around the Company’s facilities rationalization and consolidation initiative. The Company recognized $150,000 in expense related to these services in the first half of fiscal 2020. Given the ongoing nature of the review, an estimate of future costs, including costs that could be capitalized, cannot currently be determined.
During the third quarter of fiscal 2019, Chase began moving the pulling and detection operations from 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 (prior year). The Company recognized $60,000 and $559,000 in expense related to the move in the three-month and six-month periods ended February 29, 2020, having recognized $526,000 in expense during the second half of fiscal 2019. Future costs related to this move are not anticipated to be significant to the condensed consolidated financial statements.
Acquisition-Related Costs
In the second quarter of fiscal 2021, the Company incurred $128,000 of costs related to our February 5, 2021 acquisition of Emerging Technologies, Inc (“ETi”). 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 fiscal quarter of 2021.
In the second quarter of fiscal 2020, the Company incurred $133,000 of costs related to our September 1, 2020 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 (total of $274,000 in acquisition-related expense recognized during the last three quarters of fiscal 2020). The transaction was consummated at the beginning of fiscal 2021.
Loss (Gain) on Contingent Consideration
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 at the acquisition date, a $733,000 increase in the performance-based earn out accrual was recorded for both the three and six months ended February 28, 2021.
38
Interest Expense
Interest expense increased $11,000 or 20% to $67,000 for the quarter ended February 28, 2021 compared to $56,000 in the prior year first quarter. Interest expense increased $25,000 or 22% to $136,000 for the first six months of fiscal 2021 compared to $111,000 in the prior year period. As the Company had no outstanding balance on its revolving debt facility for both periods, interest expense has remained relatively low.
Other Income (Expense)
Other income (expense) was an expense of $284,000 in the quarter ended February 28, 2021, compared to an expense of $185,000 in the same period in the prior year, an increase of $99,000. Other income (expense) was an expense of $498,000 in the six months ended February 28, 2021, compared to an expense of $789,000 in the comparable period in the prior year, a decrease of $291,000. 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 the Company’s 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 receipts that are not classified as trade, royalties or commissions.
Income Taxes
The effective tax rate for the quarter ended February 28, 2021 was 28.7%, compared to 27.1% for the quarter ended February 29, 2020. The effective tax rate for the six months ended February 28, 2021 was 25.5%, compared to 27.0% for the six months ended February 29, 2020.
The current and prior year effective tax rates were most prominently affected by the passage of the Tax Cuts and Jobs Act (the “Tax Act”) in December 2017. For fiscal 2021 and 2020, the Company is utilizing the 21% Federal tax rate enacted by the Tax Act. Please see Note 14 — “Income Taxes” to the Condensed Consolidated Financial Statements for further discussion of the effects of the Tax Act.
Net Income
Net income increased $1,292,000 or 16% to $9,171,000 in the quarter ended February 28, 2021 compared to $7,879,000 in the prior year second quarter. Net income increased $4,767,000 or 31% to $20,008,000 in the six months ended February 28, 2021 compared to $15,241,000 in the same period in the prior year. The increase in net income in both the second fiscal quarter and year-to-date period was primarily due to higher sales and an improved relative gross margin.
39
Liquidity and Sources of Capital
The Company’s overall cash and cash equivalents balance decreased $12,839,000 to $86,229,000 at February 28, 2021, from $99,068,000 at August 31, 2020. The decreased cash balance is primarily attributable to $22,241,000 utilized to acquire ABchimie on September 1, 2020, $8,997,000 in cash utilized to acquire the operations of Emerging Technologies, Inc. (“ETi”) on February 5, 2021 and the $7,557,000 dividend paid in December 2020, net of cash provided by operations of $26,386,000. Of the above-noted amounts, $25,653,000 and $42,615,000 were held outside the United States by Chase Corporation and its foreign subsidiaries as of February 28, 2021 and August 31, 2020, respectively. Given the Company’s cash position and borrowing capability in the United States and the potential for increased investment and acquisitions in foreign jurisdictions (as evidenced by the recent acquisition of ABchimie in France), prior to the second quarter of fiscal 2018 the Company did not have a history of repatriating a significant portion of its 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 and the first six months of fiscal 2021. Please see Note 14 — “Income Taxes” to the Condensed Consolidated Financial Statements for further discussion of the effects of the Tax Act.
Cash flow provided by operations was $26,386,000 in the first six months of fiscal year 2021 compared to $27,461,000 in the same period in the prior year. Cash provided by operations during the current period was primarily related to operating income. Negatively impacting the cash flow from operations was an increase in accounts receivable, on higher sales in the current year second quarter, partially offset by a decrease in the volume of inventory on hand.
The ratio of current assets to current liabilities was 7.2 as of February 28, 2021 compared to 7.7 as of August 31, 2020. The ratio decreased over the first six months of fiscal 2021 primarily as a result of the net cash decrease, with the acquisitions of ABchimie and ETi, and the payment of the annual dividend netted against cash provided by operations.
Cash flow used in investing activities of $32,288,000 was largely due to the cash on hand purchases of both ABchimie and ETi and cash spent on capital purchases of machinery and equipment in fiscal 2021.
Cash flow used in financing activities of $7,923,000 was related to payments of our annual dividend in December 2020 and taxes on restricted stock vested in fiscal 2021.
On November 12, 2020, Chase Corporation announced a cash dividend of $0.80 per share (totaling $7,557,000). The dividend was paid on December 7, 2020 (the second quarter of fiscal 2021) to shareholders of record on November 27, 2020.
On December 15, 2016, the Company entered an Amended and Restated Credit Agreement (the “Credit Agreement”) with Bank of America, acting as administrative agent, and with participation from Citizens Bank and JPMorgan Chase Bank (collectively with Bank of America, the “Lenders”). The Credit Agreement is an all-revolving credit facility with a borrowing capacity of $150,000,000, which can be increased by an additional $50,000,000 at the request of the Company and the individual or collective option of any of the Lenders. The facility matures December 15, 2021 (second quarter of fiscal 2022). The Credit Agreement contains customary affirmative and negative covenants that, among other things, restrict the ability to incur additional indebtedness and require lender approval for acquisitions by the Company and its subsidiaries over a certain size. It also requires the Company to maintain certain financial ratios, including a consolidated net leverage ratio (as defined in the facility) of no more than 3.25 to 1.00, and a consolidated fixed charge coverage ratio (as defined in the facility) of at least 1.25 to 1.00. The Company was compliant with the debt covenants as of February 28, 2021. The applicable interest rate for the Credit Agreement is based on the effective LIBOR plus an additional amount in the range of 1.00% to 1.75%, depending on the consolidated net leverage ratio or, at the Company’s option, at the bank’s base lending rate. At February 28, 2021, there was no outstanding principal balance, and as such no applicable interest rate. The Company expects to renew this facility prior to its expiration to maintain its ability to support our strategic initiatives.
40
The Company has several ongoing capital projects, as well as its facility rationalization and consolidation initiative, which are important to its long-term strategic goals. Machinery and equipment may be added as needed to increase capacity or enhance operating efficiencies in the Company’s production facilities.
The Company may acquire companies or other assets in future periods which are complementary to the existing 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 includes a $1,000,000 withholding, which is payable by the Company within eighteen months of 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.
To the extent that interest rates increase in future periods, the Company will assess the impact of these higher interest rates on the financial and cash flow projections of its potential acquisitions.
The Company has no significant off-balance sheet arrangements.
41
Contractual Obligations
Please refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2020 for a complete discussion of its contractual obligations.
Recent Accounting Standards
Please see Note 2 — “Recent Accounting Standards” to the Condensed Consolidated Financial Statements for a discussion of the effects of recently issued and recently adopted accounting pronouncements.
Critical Accounting Policies
Chase Corporation’s financial statements are prepared in accordance with accounting principles generally accepted in the United States. To apply these principles, the Company must make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. In many instances, the Company reasonably could have used different accounting estimates and, in other instances, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the Company’s estimates. To the extent that there are material differences between these estimates and actual results, the Company’s financial condition or results of operations will be affected. The Company bases its estimates and judgments on historical experience and other assumptions that it believes to be reasonable at the time and under the circumstances, and it evaluates these estimates and judgments on an ongoing basis. The Company refers to accounting estimates and judgments of this type as critical accounting policies, judgments, and estimates. Other than changes which came as a result of adopting ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which is discussed within Note 2 — “Recent Accounting Standards” of the Condensed Consolidated Financial Statements contained herein, management believes that there have been no material changes during the six months ended February 28, 2021 to the critical accounting policies reported in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2020.
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Item 3 — Quantitative and Qualitative Disclosures about Market Risk
Chase Corporation limits the amount of credit exposure to any one issuer. At February 28, 2021, other than the Company’s restricted investments (which are restricted for use in non-qualified retirement savings plans for certain key employees and members of the Board of Directors), all of its 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.
Chase Corporation’s U.S. operations have limited currency exposure since substantially all transactions are denominated in U.S. dollars. However, the Company’s European and Asian operations are subject to currency exchange fluctuations. The Company continues to review its policies and procedures to control this exposure while maintaining the benefit from these operations and sales not denominated in U.S. dollars. The effect of an immediate hypothetical 10% change in the exchange rate between the British pound and the U.S. dollar would not have a material direct effect on the Company’s overall liquidity. As of February 28, 2021, the Company had cash balances in the following foreign currencies (with USD equivalents, dollars in thousands):
The Company will continue to review its current cash balances denominated in foreign currency considering current tax guidelines, including the impact of the Tax Act to the U.S. Internal Revenue Code, working capital requirements, infrastructure improvements and potential acquisitions.
The Company recognized a foreign currency translation gain for the six months ended February 28, 2021 in the amount of $1,887,000 related to Chase Corporation’s European and Indian operations, which is recorded in other comprehensive income (loss) within its Statement of Equity and Statement of Comprehensive Income. The Company does not have or utilize any derivative financial instruments.
The Company pays interest on its outstanding long-term debt at interest rates that fluctuate based upon changes in various base interest rates. There was no outstanding balance of long-term debt on February 28, 2021. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Sources of Capital,” together with Note 12 — “Fair Value Measurements” and Note 16 — “Long-Term Debt” to the Condensed Consolidated Financial Statements for additional information regarding the Company’s outstanding long-term debt. An immediate hypothetical 10% change in variable interest rates would not have a material direct effect on the Company’s Condensed Consolidated Financial Statements.
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Item 4 — Controls and Procedures
Evaluation of disclosure controls and procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in Chase Corporation’s reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
The Company carries out a variety of ongoing procedures under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, to evaluate the effectiveness of the design and operation of its disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that its disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report.
Changes in internal control over financial reporting
During the quarter ended February 28, 2021, the Company continued the process of implementing financial internal controls on the operations associated with ABchimie, acquired in September 2020, and began the process of integrating operations of Emerging Technologies, Inc. (ETi), acquired in February 2021.
Effective with its annual shareholders meeting held on February 2, 2021, and as approved by the board at that time, Michael J. Bourque was named Treasurer and Chief Financial Officer of Chase Corporation. The Board had previously named Adam P. Chase, President and Chief Executive Officer, as the interim Treasurer and Chief Financial Officer following the January 15, 2021 departure of the Company’s former Treasurer and Chief Financial Officer.
Other than the foregoing, there have not been any changes in the Company’s internal control over financial reporting during the quarter ended February 28, 2021 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
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Part II — OTHER INFORMATION
Item 1 — Legal Proceedings
The Company is involved from time to time in litigation incidental to the conduct of its business. Although the Company does not expect that the outcome in any of these matters, individually or collectively, will have a material adverse effect on its financial condition, results of operations or cash flows, litigation is inherently unpredictable. Therefore, judgments could be rendered, or settlements agreed to, that could adversely affect the Company’s operating results or cash flows in a particular period. The Company routinely assesses all its litigation and threatened litigation as to the probability of ultimately incurring a liability and records its best estimate of the ultimate loss in situations where it assesses the likelihood of loss as probable.
Item 1A — Risk Factors
Please refer to Item 1A in our Annual Report on Form 10-K for the fiscal year ended August 31, 2020 for a complete discussion of the risk factors which could materially affect our business, financial condition or future results.
Item 5 — Other Matters
Effective December 1, 2020, the Board of Directors of Chase Corporation (the “Company”), in accordance with the Company’s 2013 Equity Incentive Plan (the “Plan”), amended the Plan (the “Amended Plan”). The changes primarily relate to certain compliance requirements under the Chase 2020 Stock Ownership Policy and certain other modernizing and clarifying amendments, none of which represents a material amendment to the Plan.
The foregoing description of the Amended Plan is qualified in its entirety by reference to the Amended Plan, which is furnished as Exhibit 10.8.7 hereto and is incorporated herein by reference.
Item 6 — Exhibits
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Exhibit
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Description |
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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10.7.3 |
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10.8.7 |
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Amended 2013 Equity Incentive Plan of Chase Corporation dated December 1, 2020* |
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101 |
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The following materials from this Quarterly Report on Form 10-Q, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statement of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Unaudited Condensed Consolidated Financial Statements. |
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104 |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
*Furnished, not filed
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Chase Corporation |
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Dated: April 8, 2021 |
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/s/ Adam P. Chase |
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Adam P. Chase |
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President and Chief Executive Officer |
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Dated: April 8, 2021 |
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/s/ Michael J. Bourque |
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Michael J. Bourque |
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Treasurer and Chief Financial Officer |
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Exhibit 10.7.3
SEPARATION AGREEMENT
This Agreement is made as of the dates written below by and between Christian Talma and Chase Corporation and its affiliated entities or divisions (collectively, the “Company”), to establish the terms and conditions of the Mr. Talma’s separation from the Company and to provide for a full and complete release of all claims. Mr. Talma must comply with the terms of the Agreement from receipt until execution, including but not limited to complying with the Non-Disparagement and Non-Disclosure provisions. If Mr. Talma does not execute this Agreement within 21 days, it will be deemed revoked.
NOW, THEREFORE, in consideration for the mutual covenants contained in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties agree as follows:
Mr. Talma’s employment with the Company ended effective January 15, 2021 (“Separation Date”).
1. Payments
Mr. Talma understands that although the Company has no obligation to extend Separation Pay or benefits to him, in exchange for the promises contained in this Agreement and provided he signs, returns and does not revoke this Agreement as set forth in Paragraph 15 the Company agrees to give the employee Separation Pay as follows: Mr. Talma will be eligible to receive up to twelve (12) months of Separation Pay at his current base rate of pay (“Separation Pay”), which amount totals $290,000. Separation Pay is subject to legally required and voluntarily authorized deductions and withholdings. Separation Pay will be paid to Mr. Talma in accordance with the Company’s normal payroll practices and will not begin until the first regularly scheduled payday that is at least eight days after the Separation Date. Nothing herein shall extend Mr. Talma’s rights beyond twelve months following his separation of services from the Company.
2. Vacation Pay and Accrued Wages
Regardless of whether the Employee executes this Agreement, the Company will pay Mr. Talma Employee for all unused vacation time he has accrued as of the Separation Date, minus
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applicable payroll deductions and withholdings. Mr. Talma will also receive payment for all accrued wages as of the Separation Date.
3. COBRA
Regardless of whether Mr. Talma executes this Agreement, he will be eligible to continue his group health, dental and/or vision insurance under COBRA. However, if this Agreement becomes effective, and Mr. Talma timely elects to continue coverage under COBRA, the Company will pay the Employer portion of the COBRA premium (including coverage for eligible dependents, if applicable) (“COBRA Premiums”) through the period (the “COBRA Premium Period”) starting on the Separation Date and ending on the earliest to occur of: (i) the date that is twelve (12) months following the Separation Date; (ii) the date you become eligible for group benefit insurance coverage through a new employer; or (iii) the date you cease to be eligible for COBRA continuation coverage for any reason, including plan termination. In the event you become covered under another employer's group benefit plans or otherwise cease to be eligible for COBRA during the COBRA Premium Period, you must immediately notify the Company in writing of such event. The Company will deduct the employee portion of the COBRA premium from the Separation Pay.
4. Unemployment Benefits
The Company agrees that it will not contest Mr. Talma’s receipt of unemployment compensation benefits after the Separation Date, provided Mr. Talma Employee is otherwise eligible for such benefits.
5. Additional Payments and Benefits
The payments described herein constitute the sole and total amount due and owing to Mr. Talma from the Company and no sums are due from him other than those specifically set forth in this Agreement. Except as described in this Agreement, Mr. Talma will not receive any benefits from the Company after the Separation Date.
6. Stock Options
Mr. Talma and the Company have entered into the following agreements; Stock Option Agreement(s), Restricted Stock Agreement(s) and Stock Retention Agreement (hereinafter referred to as “Stock Agreements”) The Parties agree that for purposes of determining the number of shares of the Company’s common stock that Mr. Talma is entitled to purchase from the Company pursuant to the exercise of outstanding Options contained in the “Stock Agreements”,
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and the number of RSUs that will be settled Mr. Talma upon vesting, Mr. Talma will be considered to have vested only up to the Termination Date (after applying the accelerated vesting clauses contained in the “Stock Agreements”). Except as otherwise provided herein, the exercise of Mr. Talma’s vested Options, and Shares resulting from any such exercises shall continue to be governed by the terms and conditions of the “Stock Agreements” entered into between he and the Company. The settlement of Mr. Talma’s rights under the aforementioned “Stock Agreements” shall continue to be governed by the terms and conditions of the “Stock Agreements”, as applicable. Mr. Talma will have vested in the number of shares subject to his outstanding Options, and the number of RSUs, as is set forth on Exhibit A attached hereto, and no more.
7. Mutual Non-Disparagement
Mr. Talma agrees not to disparage, demean or criticize the Company, or any officer, employee, customer, or board member of the Company at any time for any reason. Without limiting the generality of the foregoing, Mr. Talma will not make any negative, disparaging or critical comments about the Company, its officers, employees, board members, or customers to any of the Company’s past, present or future employees, customers, officers, board members, vendors or contractors. The Company agrees that neither the Company, nor any of its officers or directors or other senior-level employees or agents acting within the scope of their employment or engagement by the Company, shall make any negative, disparaging or critical comments about Mr. Talma, his employment with the Company, or his separation from the Company, that have the purpose or reasonably foreseeable effect of injuring his commercial, professional, or reputational interests.
Without limiting the forgoing, this provision applies to any postings on social media or on-line platforms, even if done anonymously.
8. Cooperation
Mr. Talma agrees to cooperate fully with the Company and/or its attorneys following the Separation Date in responding to, defending or litigating any claims or charges against the Company or any current or former officer or employee of the Company. Employee will also cooperate fully with the Company and/or its attorneys about any investigation into, litigation over, or in any proceeding concerning any matters which occurred during his employment with the
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Company. The Company will reimburse Mr. Talma for any reasonable expenses he incurs in the course of such cooperation.
Mr. Talma will not voluntarily provide information to, or cooperate in any way with, any person or entity who may become, or is, involved in any legal dispute, litigation or conflict with the Company or with any owner, officer or employee of the Company unless such cooperation is required by law or unless the parties may not lawfully agree to prohibit such cooperation. Mr. Talma will notify Paula Eckel, or her successor, within twenty-four hours of his receipt of any request for information or any subpoena, complaint or legal process involving the Company or an officer or employee of the Company.
9. Return of Property/Network and System Access
Mr. Talma will return all property belonging to the Company that Mr. Talma has in his possession, custody or control, including, but not limited to, electronic, computer or communications equipment, electronically stored information, keys, cards, documents, records or any other property, including copies or duplicates of any the Company property no later than the Separation Date. In addition to the Company’s other rights and remedies, if Mr. Talma fails to return any such equipment, the Company may, at its discretion, deduct the replacement value of the retained equipment from the Severance Payments.
Furthermore, Mr. Talma agrees that after receipt of this Agreement, Mr. Talma will not access any computer network or system of the Company, and that prior to the Separation Date, he has not and will not delete, erase, or in any way impair the Company’s ability to retrieve information from any electronic or communications equipment belonging to the Company.
10. Non-Disclosure
Mr. Talma agrees not to discuss, publicize, describe or otherwise communicate the terms, conditions or content of this Agreement except to members of the Employee’s immediate family, his professional advisors or as required by law. All such persons must also agree not to disclose the terms of this Agreement. If Mr. Talma believes that he is required by law to disclose the terms or existence of this Agreement, he will immediately notify Paula Eckel or her successor and will fully disclose the reason for his belief before disclosing this Agreement. The provisions of this Section 10 do not apply to any portion of this Agreement that maybe filed with the Securities and Exchange Commission or otherwise published by the Company.
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11. Confidentiality of this Agreement and Confidentiality, Non-Competition, Non-Solicitation, and Patents and Invention Agreement
Mr. Talma acknowledges he signed a Confidentiality, Non-Competition, Non-Solicitation, and Patents and Invention Agreement (“Confidentiality Agreement”), attached as Exhibit B, on August 20, 2018. Regardless of whether Mr. Talma signs this Agreement, the Confidentiality Agreement is still in effect and Mr. Talma must abide by its terms.
Mr. Talma agrees to maintain the confidentiality of this Agreement and shall not disclose any information contained in or concerning this Agreement to any 3rd party except for information that: (a) is or will be in the public domain; (b) is under the obligation to be disclosed pursuant to the applicable laws or regulations; and (c) Mr. Talma’s attorney, financial advisor and tax advisor (“Disclosees”) provided that those individuals where applicable shall be bound by the same confidentiality obligations set forth herein. Prior to disclosure to the permitted Disclosees, Mr. Talma agrees to notify the Disclosees of this confidentiality provision and to have the Disclosees agree to keep the information confidential. If any party sues to enforce the terms of this Agreement, that party must file it under seal. If Mr. Talma is served with a court order, subpoena, or other legal process that calls for disclosure of this Agreement or its terms, he will immediately provide the Company with written notice thereof, sent to Chase Corporation’s Legal Department, along with a copy of the order, subpoena, or other legal process and agree to allow the Company sufficient time to move to quash the legal process.
On or prior to the Separation Date, Mr. Talma must return all Confidential Information, as defined in the Confidentiality Agreement, in his possession or control to the Company and will keep no copies of such Confidential Information in either hard copy or electronic format.
12. Non-Liability
This Agreement is not to be construed as an admission of liability or wrongdoing by the Company and the Company expressly denies any liability or wrongdoing.
13. Breach
If Mr. Talma engages in a material breach of Section 7, 10 and 11 of this agreement, he will repay the Severance Payments to the Company except for the sum of three days of Mr. Talma’s base salary, minus applicable payroll deductions, which the parties mutually agree shall constitute ongoing valid consideration for all other commitments and provisions of this Agreement. Such
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repayment shall be in addition to all other damages and remedies available to the Company as a result of Mr. Talma’s breach.
14. Release
In consideration of the benefits, actions and payments described herein, together with other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Mr. Talma together with his agents, representatives, attorneys, assigns and designees (herein after “Releasors”), hereby knowingly, voluntarily, fully, finally and completely SETTLE, RELEASE AND FOREVER DISCHARGE the Company, its parent corporation, affiliates, subsidiaries, divisions, predecessors, insurers, successors and assigns, and their current and former employees, attorneys, officers, directors, representatives and agents thereof, both individually and in their corporate and official capacities, and their employee benefit plans and programs and their administrators and fiduciaries (collectively referred to throughout the remainder of this Agreement as “Releasees”), of and from any and all claims or causes of action, of whatever kind, character or nature, known and unknown, asserted or unasserted, which he has or may have against Releasees as of the date of execution of this Agreement, including, but not limited to, disputed wages, breach of contract, violation of the covenant of good faith and fair dealing, violation of public policy, intentional or tortious interference with contract, misrepresentation, fraud, conversion, promissory estoppel, detrimental reliance, wrongful termination, retaliatory discharge, assault, battery, false imprisonment, personal injury, defamation, libel, slander, invasion of privacy, negligence, negligent hiring, retention or supervision, negligent, reckless or intentional infliction of emotional distress and/or mental anguish, conspiracy, or loss of consortium; retaliation for complaining of protected conduct of any kind, discrimination against Mr. Talma or harassment on the basis of gender, race, color, national origin, citizenship, ancestry, gender identity, religion, age, disability, victim status, sexual orientation, leave status, genetics, marital status, veteran status, whistle-blower activity, or any other protected basis in violation of any city, local, state or federal laws, statutes, ordinances, executive orders, regulations or constitutions, including but not limited to, the Massachusetts Wage Act, the Massachusetts Minimum Fair Wage Law, the Massachusetts Parental Leave Act, the Massachusetts Pay Equity Act, the Massachusetts Pregnant Workers Fairness Act, the Massachusetts Paid Family Medical Leave Act, the Massachusetts Privacy Statute, the Massachusetts Civil Rights Act, the Massachusetts Equal Rights Act, the Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, Mass Gen. Law, ch. 151B, the Americans
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with Disabilities Act, the Occupational Safety and Health Act, the Equal Pay Act, Worker Adjustment and Retraining Notification Act (and the Massachusetts equivalent), Families First Coronavirus Response Act, the Age Discrimination in Employment Act, the Family Medical Leave Act, and the National Labor Relations Act, the Employee Retirement Income Security Act (regarding unvested benefits), the Civil Rights Act of 1991, Section 1981 of U.S.C. Title 42, the Fair Credit Reporting Act, the Uniform Services Employment and Reemployment Rights Act, the Genetic Information Nondiscrimination Act, the Immigration Reform and Control Act, and any other federal, state, or local law (statutory, regulatory, or otherwise) that may be legally waived and released; however, the identification of specific statutes is for purposes of example only, and the omission of any specific statute or law shall not limit the scope of this general release in any manner.
This general release includes without limitation all claims that in any way arise from, relate to, or are in any way connected with Mr. Talma’s employment with and/or separation from the Company, regardless of whether or not same (i) are presently known or unknown, (ii) have been specifically referenced, claimed, asserted or made by either of the Parties, or (iii) are statutory, contractual or common law in nature or basis, including without limitation claims of negligence.
It is not the intent of this Agreement to waive or release any claim or right that cannot be lawfully released or waived through private agreement between the Parties. Both Parties acknowledge that this Agreement does not limit either party’s right, where applicable, to file or participate in an investigative proceeding of any federal, state or local governmental agency, including the Massachusetts Commission Against Discrimination, the Equal Employment Opportunity Commission, the U.S. Department of Labor, or the Massachusetts Labor or Workforce Development. To the extent permitted by law, Mr. Talma agrees that if such an administrative claim is made, he shall not be entitled to recover any individual monetary relief or other individual remedies.
Notwithstanding the generality of any part of this Paragraph, nothing in this Paragraph constitutes a release or waiver by Mr. Talma of, or prevents Mr. Talma from making or asserting: (i) any claim or right he may have under COBRA; (ii) any claim or right he may have for unemployment insurance or workers’ compensation benefits; (iii) any claim or right that may arise after the execution of this Agreement; or (iv) any claim or right he may have under this Agreement.
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15. Execution and Revocation of the Agreement
Mr. Talma understands that he has twenty- one (21) days to review and sign this Agreement and deliver it to the Company. Mr. Talma further understands that he may revoke this Agreement for a period of seven (7) calendar days following the day he executes this Agreement. Any revocation within this period must be submitted, in writing, to: Jeffery D. Haigh. General Counsel and state clearly that the employee revokes his acceptance of this Agreement. The revocation must be personally delivered to Jeffery D. Haigh. General Counsel, Chase Corporation, 295 University Avenue, Westwood, MA 02090, and postmarked within seven (7) calendar days of execution of this Agreement.
This Agreement shall not become effective or enforceable until the above-described seven (7) day revocation period has expired.
16. Employee Representations
Mr. Talma specifically represents, warrants, and confirms that he:
a. has not filed any claims, complaints, or actions of any kind against the Company with any court of law, or local, state, or federal government or agency, If he has done so, in consideration of the Separation Pay and other consideration provided to him in this Agreement, he will immediately dismiss with prejudice all such complaints, charges, or claims for relief, and he will take all steps necessary to ensure that the respective local, state, or federal court or administrative agency dismisses and closes the matter(s) and takes no further action with respect to same;
b. has not made any claims or allegations to the Company related to sexual harassment or sexual abuse, and that none of the payments set forth in this Agreement are related to sexual harassment or sexual abuse;
c. has been properly paid for all hours worked for the Company;
d. has received all salary, wages, commissions, bonuses, and other compensation due to him;
e. has no known workplace injuries or occupational diseases related to any employment with the Company;
f. has not engaged in and is not aware of any unlawful conduct relating to the Company’s business;
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g. has been granted any leave to which he was entitled under the Family and Medical Leave Act or related state or local leave or disability accommodation laws.
h. Mr. Talma further affirms that he has not been retaliated against for reporting any allegations of wrongdoing by the Company or Releasees, or their officers or representatives, including any allegations of corporate fraud.
i. Mr. Talma affirms that all of the Company’s decisions regarding his pay and benefits through the date of his execution of this Agreement were not discriminatory based on age, disability, race, color, sex, religion, national origin or any other classification protected by law.
17. Notice of Immunity Under the Defend Trade Secrets Act
The Company hereby gives notice that under the Defend Trade Secrets Act of 2016, an individual will not be held criminally or civilly liable under any Federal or state trade secret law for the disclosure of a trade secret made in confidence to a Federal, state, or local government official or to an attorney for the purpose of reporting or investigating a suspected violation of law, or for the disclosure of a trade secret made in a complaint or filed in a lawsuit, if such filing is made under seal.
18. General Provisions
This Agreement will be governed by the laws of the Commonwealth of Massachusetts without regard to conflicts of law provisions. The parties consent to the exclusive jurisdiction of the federal and state courts of Massachusetts over any issues arising under this Agreement.
This Agreement may be amended or modified only in writing executed by the parties to this Agreement.
This Agreement is binding upon and shall inure to the benefits of the parties and their respective agents, assigns, heirs, executors, successors and administrators.
If all or any portion of any clause or term of this Agreement is found to be void, unlawful or unenforceable, such void, unlawful or unenforceable clause or term shall not affect the continued validity of the remaining clauses of this Agreement, which are separate and distinct. The void, unlawful or unenforceable clause shall be deemed revised to the least extent possible to render it enforceable while maintaining the essential understanding and agreement between the parties.
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Any failure of the Company to enforce its rights and privileges under this Agreement shall not be deemed to constitute waiver of any rights and privileges contained herein.
Mr. Talma understands that the Company has not funded the benefits under this Agreement, and as such if he is entitled to any benefits hereunder, he will be a general creditor of the Company.
19. Mr. Talma’s Consent Is Voluntary; He Has Been Advised To Consult an Attorney
Mr. Talma understands it is the Company’s desire and intent to make certain that he fully understands the provisions and effects of this Agreement. To that end, Mr. Talma understands and the Company encourages him to consult with an attorney before signing this Agreement. By signing this Agreement, Mr. Talma acknowledges that:
a. Neither the Company nor its agents or representatives have made any representations inconsistent with the provisions of this Agreement;
b. He has carefully read this Agreement, and fully understand its meaning and intent;
c. He has freely and voluntarily agreed to all of the terms and conditions of this Agreement, and has signed his name of his own free will, without duress; and
Before signing, Mr. Talma affirms that he has have read carefully both this entire Agreement and the following bullet points and agrees to be bound by the following affirmations:
· I understand I have been given twenty-one (21) days to consider this Agreement.
· I understand that I may revoke this Agreement by contacting the Company contact identified below at any time during the seven (7) days immediately following the date that I deliver a signed original of the Agreement to the Company.
· I understand that if I do not revoke this Agreement by written notice to the Company, it will become effective and legally bind both the Company and me on the eighth (8th) day after delivery to the Company.
· I understand that if I choose to sign and return this Agreement to the Company, I must sign, date and return it without alteration; any change I make to its terms voids the Agreement in its entirety. The Agreement should be returned to the Company contact identified below.
· I understand that the Company has advised me to consult with counsel prior to
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signing this Agreement.
· Pursuant to the Older Workers Benefit Protection Act (“OWBPA”), and as part of the general release I have given in this Agreement, I hereby acknowledge that I am releasing and waiving all claims under the ADEA.
· I acknowledge that I am not waiving or releasing rights or claims that may arise after the date I sign this Agreement.
· I acknowledge that I am receiving consideration from the Company over and above anything of value to which I am otherwise entitled.
~~SIGNATURE PAGE FOLLOWS~~
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This Agreement may be executed in counterparts. The parties have knowingly and voluntarily executed this Agreement as a sealed instrument.
Chase Corporation
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Adam P. Chase |
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President & CEO |
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Date: |
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Christian J. Talma |
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Exhibit 10.8.7
AMENDED 2013 EQUITY INCENTIVE PLAN
Amended and restated as of December 1, 2020
The purpose of the Plan is to enable the Company to attract and retain highly qualified personnel who will contribute to the Company's success by their ability, ingenuity and industry experience and to provide incentives to the participating officers, directors, employees, consultants and advisors (eligible persons) that are linked directly to increases in shareholder value and will therefore inure to the benefit of all shareholders of the Company.
ARTICLE I
DEFINITIONS
Wherever the following terms are used in this Plan they shall have the meaning specified below, unless the context clearly indicates otherwise.
1.1 "Award" means any award under the Plan, including any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award, Dividend Equivalent, awards of Deferred Stock, Stock Payments or other awards pursuant to Article VI of this Plan.
1.2 "Award Agreement" means, with respect to each Award, the written or electronic agreement between the Company and the Participant setting forth the terms and conditions of the Award, which shall be in substantially a form (which need not be the same for each Participant) that the Committee has from time to time approved, and will comply with and be subject to the terms and conditions of the Plan.
1.3 "Applicable Withholding Taxes" means any and all taxes and other source deductions or other amounts which Company is required by Applicable Law to withhold from any amounts paid or credited to a Participant under the Plan.
1.4 “Beneficiary" means, subject to Applicable Law, any person designated by a Participant to receive any amount payable under the Plan in the event of a Participant's death or, failing designation, the Participant's estate;
1.5 "Blackout Period" means the period during which the relevant Participant is prohibited from trading in any securities of Company due to trading restrictions imposed by Company in accordance with its securities trading policies.
1.6 "Board" means the Board of Directors of the Company.
1.7 "Cause" means, except as set forth in the applicable Award Agreement, dishonesty, theft, fraud, violation of Company policies, insubordination, material violation of governmental regulations applicable to the Company, substantial malfeasance or non-feasance of duty, unauthorized disclosure of trade secrets or confidential information, and conduct substantially prejudicial to the Company or a Subsidiary, including without limitation conviction of or plea of no contest to a felony under applicable law or a material breach by Participant of the terms of any non-competition, non-solicitation, non-disclosure agreement, stockholder, voting or other written agreement with the Company, as determined by the Board, whose determination shall be final and binding on the Company and the Participant.
1.8 "Code" means the United States Internal Revenue Code of 1986, as amended from time to time, or any successor thereto.
1.9 "Committee" means the Compensation and Management Development Committee of the Board, or a subcommittee of the Board.
1.10 "Common Stock" means the common stock of the Company, par value of $0.10.
1.11 "Company" means Chase Corporation, a Massachusetts corporation.
1.12 “Date of Grant” of a share means the date such share is granted to a Participant under the Plan, as evidenced by an Award Agreement between the Company and the Participant;
1.13 "Deferred Stock" means an Award granted pursuant to Article VI of the Plan.
1.14 "Director" means a member of the Board."
1.15 Disability" shall be defined pursuant to section 22(e)(3) of the Code, except as otherwise may be required by section 409A, in which case "disability" shall be defined as set forth in section 409A.
1.16 "Dividend Equivalent" means a right to receive the equivalent value (in cash or Common Stock) of dividends paid on Common Stock, awarded under Article VI of this Plan.
1.17 "Employee" shall mean any officer or other employee (as defined in accordance with section 3401 (c) of the Code) of the Company, or of any corporation which is a Subsidiary.
1.18 “Eligible Person” means, subject to all applicable laws, any employee, officer or director of the Corporation or any Subsidiary or any other person or entity engaged to provide ongoing services to the Corporation or any Subsidiary pursuant to a written contract with the Corporation or any Subsidiary where such person or entity spends or will spend a significant amount of time and attention on the affairs and business of the Corporation or any Subsidiary and any other person who is designated by the Board as an Eligible Person.
1.19 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
1.20 "Fair Market Value" of a share of Common Stock, as of a given date, means (1) the value of a share of Common Stock at the closing of trading on such date on the principal market on which shares of Common Stock are then trading, if any, or if shares were not traded on such date, then on the closest preceding date on which a trade occurred, or (2) if the Common Stock is not publicly traded, the Fair Market Value of a share of Common Stock as established by the Board or Committee acting in good faith, in compliance with applicable, statutory and regulatory guidelines.
1.21 “Incentive Stock Option” means an option representing the right to acquire Shares from the Company, granted in accordance with the provisions of Section 5, that meets the requirements of Section 422 of the Code.
1.22 "Option" means a stock option granted under Article IV of this Plan.
1.23 "Participant" means a person who has received Options, awards of Restricted Stock or Deferred Stock, Performance Awards, Dividend Equivalents, Stock Payments or other awards or rights granted under this Plan.
1.24 "Performance Award" means a cash bonus, stock bonus or other performance or incentive award that is paid in cash, Common Stock or a combination of both, awarded under Article VI of this Plan.
1.25 "Performance Goals" means, with respect to any designated performance period, one or more Performance Measures established by the Committee prior to the beginning of such performance period or within such period after the beginning of the performance period as shall meet the requirements to be considered "pre-established objective performance goals" for purposes of the regulations issued under section 162(m) of the Code. Such Performance Goals may be particular to a Participant or may be based, in whole or in part, on the performance of the division, department, line of business, subsidiary, or other business unit, whether or not legally constituted, in which the Participant works or on the performance of the Company generally.
1.26 "Performance Measures" include, any one or more of the following, as described by the Committee, measured
either absolutely or by reference to an index or indices and determined either on a consolidated basis or, as the context permits, on a divisional, subsidiary, line of business, project or geographical basis or in combinations thereof): sales; revenues; assets; expenses; earnings before or after deduction for all or any portion of interest, taxes, depreciation, or amortization, whether or not on a continuing operations or an aggregate or per share basis; return on equity, investment, capital or assets; one or more operating ratios; borrowing levels, leverage ratios or credit rating; market share; capital expenditures; cash flow; stock price; stockholder return; sales of particular products or services; customer acquisition or retention; acquisitions and divestitures (in whole or in part); joint ventures and strategic alliances; spin-offs, split-ups and the like; reorganizations; or recapitalizations, restructurings, financings (issuance of debt or equity) or refinancing. In addition, for Awards or portions of Awards not intended to qualify as "performance-based compensation" under Section 162(m) of the Code, the Committee may establish Performance Measures based on other criteria as it deems appropriate.
1.27 "Performance Period" means the period of service determined by the Committee, during which years of service or performance is to be measured for the Award.
1.28 "Plan" means this Chase Corporation 2013 Equity Incentive Plan.
1.29 "Restricted Stock" means Common Stock awarded under and subject to restrictions as provided in Article V of this Plan.
1.30 "Restricted Stock Unit" means an award granted under the provisions of Article V of this Plan.
1.31 "Retirement" has the meaning specified by the Committee in the terms of an Award Agreement or, in the absence of any such term, means retirement from the active employment with the Company and its Subsidiaries (i) at or after age 65 and (ii) with the intention of not seeking alternative employment with any other company, firm, organization or otherwise. The determination of the Committee as to an individuals' Retirement shall be conclusive on all parties.
1.32 "Shares" means shares of the Company's Common Stock and the common stock of any successor entity.
1.33 "Stock Appreciation Right" means an award granted under the provisions of Article IV of this Plan.
1.34 "Stock Payment" means (1) a payment in the form of shares of Common Stock, or (2) an option or other right to purchase shares of Common Stock, as part of a deferred compensation arrangement, made in lieu of all or any portion of the compensation, including without limitation, salary, bonuses and commissions, that would otherwise become payable to an Employee, consultant, advisor or Director in cash, awarded under Article VI of this Plan.
1.35 "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
1.36 “Replacement Award” means an Award granted in assumption of, or in substitution for, an outstanding award previously granted by a company or business acquired by the Company or with which the Company, directly or indirectly, combines.
1.37 “Shares” means ordinary shares of the Company.
1.38 “Third Party” means, in relation to Company, a person with whom it deals at arm’s length.
In this Plan, unless the context requires otherwise, words importing the singular number may be construed to extend to and include the plural number, and words importing the plural number may be construed to extend to and include the singular number.
ARTICLE II
SHARES SUBJECT TO PLAN
2.1 Shares Subject to Plan. Subject to Section 8.11 and any other applicable provision, the maximum aggregate number of Shares, which may be issued upon exercise of such options or rights or upon any other Awards under the Plan shall be 1,200,000 Shares ("Share Authorization"), all of which may be issued as incentive stock options. The shares of Common Stock issuable upon exercise of such options or rights or upon any such awards may be either previously authorized but unissued shares.
2.2 Unexercised Options and Other Rights. To the extent that (1) an Option expires or is otherwise terminated without being exercised, or (2) any Shares subject to any other Award granted hereunder are forfeited, such shares shall again be available for issuance in connection with future awards under the Plan. If any Shares have been pledged as collateral for indebtedness incurred by a Participant in connection with the exercise of an Option and such shares are returned to the Company in satisfaction of such indebtedness, such shares shall again be available for issuance in connection with future Awards under the Plan. To the extent an Award under the Plan is paid out in cash rather than Shares, such cash payment shall not result in reducing the number of Shares available for issuance under the Plan. Shares used or withheld to pay the exercise price of an Award or to satisfy the tax withholding obligations related to an Award will become available for future grant or sale under the Plan. For avoidance of doubt, Common Stock issued through the assumption or substitution of outstanding grants from an acquired company shall not reduce the Shares available for Awards under the Plan. Notwithstanding the foregoing, Awards that are expired, cancelled, forfeited or otherwise returned to the Company cannot be recounted for purposes of section 162(m) of the Code.
2.3 Forfeited Units. For greater certainty, no Participant shall have any entitlement to receive any payment (whether in cash, Shares or otherwise) in respect of any Units which have been forfeited under this Plan, by way of damages, payment in lieu or otherwise.
2.4 Individual Award Limits. The maximum number of shares of Common Stock that may be granted to any Participant in any fiscal year subject to Options or any other type of Award with respect to which Performance Goals apply shall be 500,000 Shares. The maximum cash Award that may be issued to any Participant in any fiscal year shall be $3,000,000.
ARTICLE III
ELIGIBILITY
3.1 Eligibility. Awards may be granted to Employees, consultants, advisors, Directors of the Company or any Subsidiary; provided that such consultants, advisors and directors render bona fide services not in connection with the offer and sale of securities in a capital raising transaction. Incentive stock options may be granted only to Employees.
3.2 Replacement Grants. Holders of equity compensation awards granted by a company acquired by the Company (or whose business is acquired by the Company) or with which the Company combines are eligible for grants of Replacement Awards under the Plan.
ARTICLE IV
OPTIONS AND STOCK APPRECIATION RIGHTS
4.1 Option Grant. An Option granted under this Plan shall, as determined by the Committee, be either a an incentive stock option ("ISO") within the meaning of Section 422 of the Code or a non-qualified stock option ("NQSO"); provided, however, that ISOs may only be granted to Employees. Each Option shall be evidenced by a written stock option agreement, which shall be executed by the Participant and an authorized officer of the Company and which shall contain such terms and conditions as the Committee shall determine, consistent with this Plan. Stock option agreements evidencing Options intended to qualify as performance-based compensation as described in section 162(m)(4)(C) of the Code shall contain such terms and conditions as may be necessary to meet the
applicable provisions of section 162(m) of the Code.
4.2 Exercise Price. The exercise price per share of the shares subject to each Option shall be set by the Committee at the time the Option is granted; provided, however, that (i) the exercise price of any Option will not be less than one hundred percent (100%) of the Fair Market Value of a share of Common Stock on the date of grant, and (ii) the exercise price of an ISO granted to an individual then owning (within the meaning of section 424(d) of the Code) more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Subsidiary will not be less than one hundred ten percent (110%) of the Fair Market Value of a share of Common Stock on the date of grant.
4.3 Option Vesting and Exercisability. Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at or after grant and set forth in the Option Agreement; provided, however, that, no Option shall be exercisable after the expiration of ten (10) years from the date the Option is granted; and provided, further, that in the case of ISOs granted to an individual then owning (within the meaning of section 424(d) of the Code) more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Subsidiary, the term of the ISO shall not be more than five (5) years from the date of grant.
4.4 Method of Exercise. Any Option granted hereunder will be vested and exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Committee and set forth in the option agreement. An Option may not be exercised for a fraction of a Share. The Committee may specify a minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent any Participant from exercising the Option for the full number of Shares for which it is then exercisable. An Option will be deemed exercised when the Company receives: (i) notice of exercise (in such form as the Committee may specify from time to time) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised (together with applicable withholding taxes). Full payment may consist of any consideration and method of payment authorized by the Committee and permitted by the Award Agreement and the Plan. Shares issued upon exercise of an Option will be issued in the name of the Participant. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Shares, notwithstanding the exercise of the Option. The Company will issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 8.11 of the Plan.
4.5 Limitations on ISOs. With respect to Awards granted as ISOs, to the extent that the aggregate Fair Market Value of the Shares with respect to which such ISOs are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds one hundred thousand dollars ($100,000), such Options will be treated as NQSOs. For purposes of this Section 4.5, ISOs will be taken into account in the order in which they were granted. The Fair Market Value of the Shares will be determined as of the time the Option, with respect to such Shares, is granted. In the event that the Code or the regulations promulgated thereunder are amended after the effective date of this Plan to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment.
4.6 Termination of Service. Except as set forth in the applicable award agreement or as otherwise determined by the Committee, upon the termination of the service of a Participant, the Participant's Options shall expire on the earliest of the following occasions:
(i) the date that is three (3) months after the voluntary termination of the Participant's service, other than Retirement, or the termination of the Participant's service by the Company (or by a Subsidiary) other than for Cause;
(ii) the date of the termination of the Participant's service by the Company (or by a Subsidiary) for Cause;
(iii) the date one (1) year after the termination of the Participant's service by reason of Disability;
(iv) the date one (1) year after the termination of the Participant's service by reason of the Participant's death; or
(v) the date one (1) year after the Participant's Retirement
The Participant may exercise all or any part of the Participant's Options at any time before the expiration of such Options, but only to the extent that such Options had become exercisable before the Participant's service terminated (or became exercisable as a result of the termination) and the underlying shares had vested before the Participant's service terminated (or vested as a result of the termination). The balance of such Options shall lapse when the Participant's service terminates.
4.7 No Disqualification. Notwithstanding any other provision in this Plan, no term of this Plan relating to ISOs will be interpreted, amended or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under section 422 of the Code or, without the consent of the Participant affected, to disqualify any ISO under section 422 of the Code.
4.8 Awards of SARs. A Stock Appreciation Right ("SAR") is an award to a Participant that may be settled in cash, or Shares (which may consist of Restricted Stock), having a value equal to (a) the difference between the Fair Market Value on the date of exercise over the exercise price multiplied by (b) the number of Shares with respect to which the SAR is being settled (subject to any maximum number of Shares that may be issuable as specified in an Award Agreement). All SARs shall be made pursuant to an Award Agreement.
4.9 Terms of SARs. The Committee will determine the terms of each SAR including, without limitation: (a) the number of Shares subject to the SAR; (b) the exercise price and the time or times during which the SAR may be settled; (c) the consideration to be distributed on settlement of the SAR; and (d) the effect of the Participant's Termination on each SAR. The exercise price of the SAR will be determined by the Committee when the SAR is granted, and may not be less than Fair Market Value. A SAR may be awarded upon satisfaction of Performance Goals, if any, during any Performance Period as are set out in advance in the Participant's individual Award Agreement. If the SAR is being earned upon the satisfaction of Performance Goals, then the Committee will: (x) determine the nature, length and starting date of any Performance Period for each SAR; and (y) select from among the Performance Goals to be used to measure the performance, if any. Performance Periods may overlap and Participants may participate simultaneously with respect to SARs that are subject to different Performance Goals and other criteria.
4.10 Exercise Period and Expiration Date. A SAR will be exercisable within the times or upon the occurrence of events determined by the Committee and set forth in the Award Agreement governing such SAR. The SAR Agreement shall set forth the expiration date; provided that no SAR will be exercisable after the expiration of ten (10) years from the date the SAR is granted. The Committee may also provide for SARs to become exercisable at one time or from time to time, periodically or otherwise (including, without limitation, upon the attainment during a Performance Period of performance goals based on Performance Goals), in such number of Shares or percentage of the Shares subject to the SAR as the Committee determines. Except as may be set forth in the Participant's Award Agreement, vesting ceases on such Participant's termination of employment or services with the Company (unless determined otherwise by the Committee).
4.11 Form of Settlement. Upon exercise of a SAR, a Participant will be entitled to receive payment from the Company in an amount determined by multiplying (i) the difference between the Fair Market Value of a Share on the date of exercise over the exercise price; times (ii) the number of Shares with respect to which the SAR is exercised. At the discretion of the Committee, the payment from the Company for the SAR exercise may be in cash, in Shares of equivalent value, or in some combination thereof. The portion of a SAR being settled may be paid currently or on a deferred basis with such interest or dividend equivalent, if any, as the Committee determines, provided that the terms of the SAR and any deferral satisfy the requirements of Section 409A of the Code.
ARTICLE V
AWARD OF RESTRICTED STOCK AND RESTRICTED STOCK UNITS
5.1 Award of Restricted Stock. The Committee shall from time to time, in its absolute discretion, select which Participant shall be awarded Restricted Stock, and determine the purchase price, if any, and other terms and conditions, including Performance Goals, applicable to such Restricted Stock, consistent with this Plan.
5.2 Restricted Stock Agreement. Restricted Stock shall be issued only pursuant to a written Restricted Stock Agreement, which shall be executed by the Participant and an authorized officer of the Company and which shall contain such terms and conditions as the Committee shall determine, consistent with this Plan.
5.3 Terms of Restricted Stock Awards. Restricted Stock Awards will be subject to such restrictions as the Committee may impose or are required by law. These restrictions may be based on completion of a specified number of years of service with the Company or upon completion of Performance Measures, if any, during any Performance Period as set out in advance in the Participant's Restricted Stock Agreement. Prior to the grant of a Restricted Stock Award, the Committee shall: (a) determine the nature, length and starting date of any Performance Period for the Restricted Stock Award; (b) select from among the Performance Measures to be used to measure Performance Goals, if any; and (c) determine the number of Shares that may be awarded to the Participant. Performance Periods may overlap and a Participant may participate simultaneously with respect to Restricted Stock Awards that are subject to different Performance Periods and having different performance goals and other criteria.
5.4 Restrictions Under the Corporation’s Insider Trading Policy. Transactions by officers of the Corporation in Common Shares, whether the Common Shares were purchased or received by a grant from the Corporation, are subject to the Corporation’s insider trading policy. Participants should consult with counsel for the Corporation for more information about this policy.
5.5 Awards of Restricted Stock Units. A Restricted Stock Unit ("RSU") is an award to a Participant covering a number of Shares that may be settled in cash, or by issuance of those Shares (which may consist of Restricted Stock). All RSUs shall be made pursuant to an Award Agreement.
5.6 Terms of RSUs. The Committee will determine the terms of an RSU including, without limitation: (a) the number of Shares subject to the RSU; (b) the time or times during which the RSU may be settled; (c) the consideration to be distributed on settlement; and (d) the effect of the Participant's termination of employment or services on each RSU. An RSU may be awarded upon satisfaction of such performance goals based on Performance Goals during any Performance Period as are set out in advance in the Participant's Award Agreement. If the RSU is being earned upon satisfaction of Performance Goals, then the Committee will: (x) determine the nature, length and starting date of any Performance Period for the RSU; (y) select from among the Performance Goals to be used to measure the performance, if any; and (z) determine the number of Shares deemed subject to the RSU. Performance Periods may overlap, and participants may participate simultaneously with respect to RSUs that are subject to different Performance Periods and different performance goals and other criteria.
5.7 Form and Timing of Settlement. Payment of earned RSUs shall be made as soon as practicable after the date(s) determined by the Committee and set forth in the Award Agreement. The Committee, in its sole discretion, may settle earned RSUs in cash, Shares, or a combination of both. The Committee may also permit a Participant to defer payment under a RSU to a date or dates after the RSU is earned provided that the terms of the RSU and any deferral satisfy the requirements of Section 409A of the Code.
5.8 Termination of Participant. Except as may be set forth in the Participant's Award Agreement, vesting ceases on the date a Participant's employment with the Company terminates (unless determined otherwise by the Committee).
ARTICLE VI
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS,
DEFERRED STOCK, STOCK PAYMENTS OR OTHER AWARDS
6.1 Performance Awards. Any Participant selected by the Committee may be granted one or more Performance Awards. The value of such Performance Awards may be linked to the market value, book value, net profits or other measure of the value of Common Stock or other specific performance criteria determined appropriate by the Committee, or may be based upon the appreciation in the market value, book value, net profits or other measure of the value of a specified number of shares of Common Stock over a fixed period or periods determined by the Committee.
6.2 Dividend Equivalents. Any Participant selected by the Committee may be granted Dividend Equivalents based on the dividends declared on Common Stock, to be credited as of dividend payment dates, during the period between the date an Award is granted, and the date such Award is exercised, vests or expires, as determined by the Committee. Such Dividend Equivalents shall be converted to cash or additional shares of Common Stock by such formula at such time and subject to such limitations as may be determined by the Committee.
6.3 Stock Payments. Any Participant selected by the Committee may receive Stock Payments in the manner determined from time to time by the Committee. The number of shares shall be determined by the Committee and may be based upon the Fair Market Value, book value, net profits or other measure of the value of Common Stock or other specific performance criteria determined appropriate by the Committee.
6.4 Deferred Stock. Any Participant selected by the Committee may be granted an award of Deferred Stock in the manner determined from time to time by the Committee. The number of shares of Deferred Stock shall be determined by the Committee and may be linked to the market value, book value, net profits or other measure of the value of Common Stock or other specific performance criteria determined appropriate by the Committee. Common Stock underlying a Deferred Stock award will not be issued until the Deferred Stock award has vested, pursuant to a vesting schedule or performance criteria set by the Committee. Unless otherwise provided by the Committee, a Grantee of Deferred Stock shall have no rights as a Company stockholder with respect to such Deferred Stock until such time as the award has vested and the Common Stock underlying the award has been issued. Legal and equitable title to any funds set aside for the purposes of the award in respect of Deferred Stock shall remain in Company and no DS Participant shall have any security or other interest in such funds. Any funds so set aside shall remain subject to the claims of creditors of Company present or future. Amounts payable to any DS Participant under the Plan in respect of Deferred Share shall be a general, unsecured obligation of Company. The right of the DS Participant or Beneficiary to receive payment pursuant to the Plan in respect of Deferred Share shall be no greater than the right of other unsecured creditors of Company.
6.5 Other Stock Based Awards. The Committee shall have the right to grant such awards based upon the Common Stock having terms and conditions as the Committee may determine, including, without limitation, the grant of shares based upon certain conditions, the grant of securities convertible into Common Stock and the grant of warrants to purchase Common Stock.
ARTICLE VII
ADMINISTRATION
7.1 Compensation and Management Development Committee. The Plan will be administered by the Committee (or a subcommittee designated by the Board to assume the functions of the Committee under this Plan) or by the Board acting as the Committee. To the extent applicable, the members of the Committee shall each be an "outside director" as defined under section 162(m) of the Code. Awards granted to Participants who are subject to Section 16 of the Exchange Act must be approved by two or more "non-employee directors" (as defined in the regulations promulgated under Section 16 of the Exchange Act). Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan. The Committee will have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the operation of the Plan as it shall from time to time consider advisable, select the persons eligible to receive Awards, determine the terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder, interpret the
provisions hereof in its discretion and make all other determinations necessary or advisable for the administration of this Plan; consisting of one or more executive officers pursuant to a specific delegation. The Committee's determination hereunder shall be final and binding on the Company and all persons having an interest in any Award under the Plan.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 The transfer of an employee within Company shall not be considered a termination of employment for the purposes of the Plan, so long as such Participant continues to be a qualified participant.
8.2 The determination by the Board of any question which may arise as to the interpretation or implementation of the Plan or any of the Units granted hereunder shall be final and binding on all Participants and other persons claiming or deriving rights through any of them.
8.3 As a condition of participating in the Plan, each Participant agrees to comply with all such Applicable Laws and agrees to furnish to Company all the information and undertakings as may be required to permit compliance with such Applicable Laws. Each Participant that is subject to the 2020 Chase Stock Ownership Policy shall provide the Board with all information (including personal information) that the Board requires in order to fully administer the Plan and ensure compliance with the 2020 Chase Stock Ownership Plan (the “Participant Information”).
8.4 The Board pursuant to its obligations under the Chase 2020 Stock Ownership Policy may from time to time transfer or provide access to Participant Information to a third party service provider for purposes of the administration of the Plan provided that such service providers will be provided with such information for the sole purpose of providing services to the Board in connection with the operation and administration of the Plan. The Board may also transfer and provide access to Participant Information to Company for purposes of preparing financial statements or other necessary reports and facilitating payment or reimbursement of Plan expenses. By participating in the Plan, each Participant acknowledges that Participant Information may be so provided and agrees and consents to its provision on the terms set forth herein. Company shall not disclose Participant Information except (i) in response to regulatory filings or other requirements for the information by a governmental authority or regulatory body, or (ii) for the purpose of complying with a subpoena, warrant or other order by a court, person or body having jurisdiction over Company to compel production of the information.
8.5 By participating in the Plan, and for those Participants that are governed by the Chase 2020 Stock Ownership Policy agrees, acknowledges and consents to:
i. the disclosure to Company and applicable directors, officers, employees, Consultants, representatives and agents of Company, the Exchange and all tax, securities and other regulatory authorities of all Participant Information; and
ii. the collection, use and disclosure of such personal information by the persons described in (a) above of all Participant Information in accordance with their requirements, including the provision to third party service providers, from time to time.
8.6 Nothing herein or otherwise shall be construed so as to confer on any Participant any rights as a shareholder of Company with respect to any Shares reserved for the purpose of any Award, including for greater certainty, no Award shall confer any entitlement as to dividends (except as set forth herein) or voting rights on a Participant.
8.7 Neither designation as a Participant nor the grant of any Units to any Participant entitles any Participant to any additional grant of any Units under the Plan. Neither the Plan nor any action taken hereunder shall interfere with the right of Company to terminate a Participant’s employment, if applicable, at any time. Neither any period of notice, if any, nor any payment in lieu thereof, upon termination of employment shall be considered as extending the period of employment for the purposes of the Plan.
8.8 Participation in the Plan shall be entirely voluntary and any decision not to participate shall not affect any person’s
relationship with Company.
8.9 Not Transferable. Except as otherwise provided in the applicable Award Agreement, Awards under this Plan may not be sold, pledged, assigned, or transferred in any manner other than by will or the laws of descent and distribution, unless and until such rights or awards have been exercised, or the shares underlying such rights or awards have been issued, and all restrictions applicable to such shares have lapsed. During the lifetime of the Participant, only the Participant may exercise an Option or other right or award (or any portion thereof) granted under the Plan. After the death of the Participant, any exercisable portion of an Option or other right or award may, subject to the terms of such Option, right or award, be exercised by the Participant's personal representative or by any person empowered to do so under a beneficiary designation, under a will or under the then applicable laws of descent and distribution.
8.10 Amendment of Plan; Term. The Board may amend, suspend or terminate the Plan or any portion thereof at any time, subject to such stockholder approval as the Board determines to be necessary or advisable to comply with any tax or regulatory requirement. Unless sooner terminated, the Plan shall automatically terminate on the day before the 10th anniversary of the earlier of (i) the date the Plan is adopted by the Board, or (ii) the date the Plan is approved by stockholders of the Company. No Awards may be granted under the Plan while the Plan is suspended or after it is terminated.
8.11 Governing Law. This Plan and any agreements hereunder shall be administered, interpreted and enforced under the internal laws of the Commonwealth of Massachusetts without regard to conflicts of laws thereof.
8.12 No Right to Employment. No person shall have any claim or right hereunder to be granted an Award. Neither the adoption, maintenance, or operation of the Plan nor any Award hereunder shall confer upon any person any right with respect to the continuance of his or her employment by or other service with the Company nor shall they interfere with the rights of the Company to terminate or otherwise change the terms of such service at any time, including, without limitation, the right to promote, demote or otherwise re-assign any person from one position to another within the Company.
8.13 No Rights as Stockholder. Subject to the provisions of the applicable Award, no Participant shall have any rights as a stockholder with respect to any shares of Common Stock to be issued under the Plan until he or she becomes the holder thereof.
8.14 Legal Compliance. The Company shall not be required to issue any shares of Common Stock or take any other action pursuant to the Plan unless the Company is satisfied that all requirements of law, or of any stock exchange on which the Common Stock is then listed, in connection therewith have been or will be complied with, and the Committee may impose any restrictions on the rights of Participants hereunder as it shall deem necessary or advisable to comply with any such requirements.
8.15 Amendment of Awards. The Committee may amend, modify or terminate any outstanding Award, including without limitation changing the dates of vesting, exercise or settlement, causing the Award to be assumed by another entity, and converting an ISO to a NQSO, provided that the Participant's consent to such action shall be required unless the terms of the Award permit such action, the Committee determines that such action is required by law, or the Committee determines that the action, taking into account any related action, would not materially and adversely affect the Participant. The foregoing notwithstanding, without further approval of the stockholders of the Company, the Committee shall not authorize the amendment of any outstanding Option to reduce the exercise price and no Option shall be canceled and replaced with an Award exercisable for Common Stock at a lower exercise price.
8.16 Change in Control. Notwithstanding any other provision of the Plan, but subject to the provisions of any particular award agreement, in the event of any Change in Control (as defined below) of the Company, and in anticipation thereof if required by the circumstances, the Board, in its sole discretion (and in addition to or in lieu of any actions permitted to be taken by the Company under the terms of any particular award agreement), may, on either an overall or a Participant by Participant basis, (i) accelerate the exercisability, prior to the effective date of such Change in
Control, of any outstanding Options (and terminate the restrictions applicable to any shares of Restricted Stock), (ii) upon written notice, provide that any outstanding Options must be exercised, to the extent then exercisable, within a specified number of days after the date of such notice, at the end of which period such Options shall terminate, (iii) if there is a surviving or acquiring entity, and subject to the consummation of such Change in Control, cause that entity or a Subsidiary of that entity to grant replacement awards having such terms and conditions as the Board determines to be appropriate in its sole discretion, upon which replacement the replaced Options or Restricted Stock shall be terminated or cancelled, as the case may be, (iv) terminate any outstanding Options and make such payments, if any, therefor (or cause the surviving or acquiring entity to make such payments, if any, therefor) as the Board determines to be appropriate in its sole discretion (including, without limitation, with respect to only the then exercisable portion of such Options based on the Fair Market Value of the underlying shares as determined by the Board in good faith), upon which termination such Options shall immediately cease to have any further force or effect, (v) repurchase (or cause the surviving or acquiring entity to purchase) any shares of Restricted Stock for such amounts, if any, as the Board determines to be appropriate in its sole discretion (including, without limitation, an amount with respect to only the vested portion of such shares (i.e., the portion that is not then subject to forfeiture or repurchase at a price less than their value), based on the Fair Market Value of such vested portion as determined by the Board in good faith), upon which purchase the holder of such shares shall surrender such shares to the purchaser, or (vi) take any combination (or none) of the foregoing actions. Except as otherwise may be required with respect to any award constituting deferred compensation under section 409A of the Code, for purposes of this Plan, a "Change in Control" shall mean and include any of the following:
(a) a merger or consolidation of the Company with or into any other corporation or other entity in which holders of the Company's voting securities immediately prior to such merger or consolidation will not, directly or indirectly, continue to hold at least a majority of the outstanding voting securities of the Company;
(b) a sale, lease, exchange or other transfer (in one transaction or a related series of transactions) of all or substantially all of the Company's assets;
(c) the acquisition by any person or any group of persons, acting together in any transaction or related series of transactions, of such quantity of the Company's voting securities as causes such person, or group of persons, to own beneficially, directly or indirectly, as of the time immediately after such transaction or series of transactions, 50% or more of the combined voting power of the voting securities of the Company other than as a result of (i) an acquisition of securities directly from the Company or (ii) an acquisition of securities by the Company which by reducing the voting securities outstanding increases the proportionate voting power represented by the voting securities owned by any such person or group of persons to 50% or more of the combined voting power of such voting securities;
(d) a change in the composition of the Board within a two (2) year period such that a majority of the members of the Board are not continuing directors; or
(e) the liquidation or dissolution of the Company.
8.17 Assumption of Options Upon Certain Events. In connection with a merger or consolidation of an entity with the Company or the acquisition by the Company of property or stock of an entity, the Board may grant awards under the Plan in substitution for stock and stock based awards issued by such entity or a Subsidiary thereof, as long as such substitute awards will not constitute a deferral of compensation under section 409A of the Code. Notwithstanding the foregoing, to the extent that the Board determines that any such substitute award shall constitute a deferral of compensation under section 409A of the Code, such award shall be accompanied with a written award agreement which shall set forth the terms and conditions required to comply with the requirements of section 409A of the Code. The substitute awards shall be granted on such terms and conditions as the Board considers appropriate in the circumstances. The awards so granted shall not reduce the number of shares that would otherwise be available for awards under the Plan.
8.18 Withholding. A Participant shall pay to the Company or make provision satisfactory to the Committee for payment of, the minimum withholding taxes required by law to be withheld in respect of Awards under the Plan no later than the date of event creating the tax liability. The Company may, to the extent permitted by law, deduct the minimum tax obligations from any payment of any kind due to the Participant under the Plan or otherwise. In the Committee's discretion, the minimum tax obligations required by law to be withheld in respect of Awards may be paid in whole or in part in shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value on the date of retention or delivery.
8.19 Adjustments. Upon any equity restructuring, whether a stock dividend, recapitalization, split-up or combination of shares, or otherwise, the number of shares in respect of which Awards may be made under the Plan, the number of shares subject to outstanding Awards, the exercise price with respect to any of the foregoing, and the limit on individual grants under this Plan shall be proportionately adjusted, provided that the number of shares subject to any Award shall always be a whole number. In the event the Committee determines that any other reorganization, recapitalization, extraordinary dividend of cash and/or assets, merger, spin-off or other corporate transaction affects the Common Stock such that an adjustment is required in order to preserve the benefits intended to be provided by the Plan, the Committee shall equitably adjust any or all of the number and kind of shares in respect of which Awards may be made under the Plan, the number and kind of shares subject to outstanding Awards, the exercise price with respect to any of the foregoing, provided that the number of shares subject to any Award shall always be a whole number. Any adjustment made pursuant to this subsection shall be subject, in the case of ISOs, to any limitation required under the Code and shall comply with the requirements of section 409A of the Code.
ARTICLE IX
AUTHORIZATION OF SUB-PLANS
The Board may from time to time establish one or more sub-plans under the Plan for purposes of satisfying applicable blue sky, securities or tax laws of various jurisdictions. The Board shall establish such sub-plans by adopting supplements to this Plan containing such limitations on the Board's discretion under the Plan as the Board deems necessary or desirable or (ii) such additional terms and conditions not otherwise inconsistent with the Plan as the Board shall deem necessary or desirable. All supplements adopted by the Board shall be deemed to be part of the Plan, but each supplement shall apply only to Participants within the affected jurisdiction and the Company shall not be required to provide copies of any supplement to Participants in any jurisdiction which is not the subject of such supplement.
Exhibit 31.1
CERTIFICATION
I, Adam P. Chase, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Chase Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: April 8, 2021
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/s/ Adam P. Chase |
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Adam P. Chase |
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President and Chief Executive Officer |
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(Principal executive officer) |
1
Exhibit 31.2
CERTIFICATION
I, Michael J. Bourque, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Chase Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: April 8, 2021
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/s/ Michael J. Bourque |
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Michael J. Bourque |
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Treasurer and Chief Financial Officer |
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(Principal financial officer) |
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Exhibit 32.1
CERTIFICATION
PURSUANT TO
18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officer of Chase Corporation (the “Company”) hereby certifies that the Company’s Quarterly Report on Form 10-Q for the period ended February 28, 2021 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certificate is furnished solely pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Date: April 8, 2021
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/s/ Adam P. Chase |
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Adam P. Chase |
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President and Chief Executive Officer |
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(Principal executive officer) |
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1
Exhibit 32.2
CERTIFICATION
PURSUANT TO
18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officer of Chase Corporation (the “Company”) hereby certifies that the Company’s Quarterly Report on Form 10-Q for the period ended February 28, 2021 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certificate is furnished solely pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Date: April 8, 2021
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/s/ Michael J. Bourque |
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Michael J. Bourque |
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Treasurer and Chief Financial Officer |
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(Principal financial officer) |
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1