Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR15(d)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the Quarterly Period Ended November 30,2009**

** **

**Commission File Number: 1-9852**

 

**CHASE CORPORATION**

(Exact name of registrant as specified in its charter)

 

| **Massachusetts**                                                 | ** ** | **11-1797126**                        |
|-------------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of incorporation   of organization) |       | (I.R.S. Employer  Identification No.) |

 

**26 Summer Street, Bridgewater,Massachusetts 02324**

(Address of Principal Executive Offices, Including Zip Code)

 

**(508) 279-1789**

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months, and (2) hasbeen subject to such filing requirements for the past 90 days. YES x NO o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted 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 registrantwas required to submit and post such files).   YES o NO o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reportingcompany.  See the definitions of “largeaccelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

| Large accelerated filer o                                                        |   | Accelerated filer x         |
|----------------------------------------------------------------------------------|--------|-----------------------------|
|                                                                             |   |                        |
| Non-accelerated filer o(Do not check if a smaller reporting company)   |   | Smaller reporting company o |

 

Indicate by checkmark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).   YES o NO x

 

The number of shares of Common Stock outstanding asof December 31, 2009 was 8,776,123.

 

 

 

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**CHASECORPORATION**

**INDEX TO FORM 10-Q**

 

**For theQuarter Ended November 30, 2009**

** **
| **Part I - FINANCIAL INFORMATION**                                                                   | ** **                                                                                             |
|-----------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------|
| ** **                                                                                                | ** **                                                                                             | ** ** |
| Item 1 — Unaudited Financial Statements                                                              | ** **                                                                                             |
|                                                                                                      | ** **                                                                                             |
|                                                                                                      | Consolidated Balance Sheets as of November 30,  2009 and August 31, 2009                     | 3 |
|                                                                                                      |                                                                                                   |   |
|                                                                                                      | Consolidated Statements of Operations for the three  months ended November 30, 2009 and 2008      |  4 |
|                                                                                                      |                                                                                                   |   |
|                                                                                                      | Consolidated Statement of Stockholders’ Equity for the  three months ended November 30, 2009 |  5 |
|                                                                                                      |                                                                                                   |   |
|                                                                                                      | Consolidated Statements of Cash Flows for the three  months ended November 30, 2009 and 2008      |  6 |
|                                                                                                      |                                                                                                   |   |
|                                                                                                      | Notes to Consolidated Financial Statements                                                             | 7 |
|                                                                                                      |                                                                                                   |   |
| Item 2 — Management’s Discussion and Analysis of  Financial Condition and Results of Operations | 16                                                                                                     |
|                                                                                                      |                                                                                                   |   |
| Item 3 — Quantitative and Qualitative Disclosures  About Market Risk                                 | 23                                                                                                     |
|                                                                                                      |                                                                                                   |   |
| Item 4 — Controls and Procedures                                                                     | 23                                                                                                     |
|                                                                                                      |                                                                                                   |   |
| **Part II — OTHER INFORMATION**                                                                 |                                                                                                   |
|                                                                                                      |                                                                                                   |   |
| Item  1 — Legal Proceedings                                                                          | 24                                                                                                     |
|                                                                                                      |                                                                                                   |   |
| Item 1A — Risk Factors                                                                               | 24                                                                                                     |
|                                                                                                      |                                                                                                   |   |
| Item 6 — Exhibits                                                                                    | 24                                                                                                     |
|                                                                                                      |                                                                                                   |   |
| **SIGNATURES**                                                                                            | 25                                                                                                     |

 

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**Part 1 — FINANCIALINFORMATION**

 

**Item 1 — Unaudited FinancialStatements**

 

**CHASECORPORATIONCONSOLIDATED BALANCE SHEETS**

(UNAUDITED)

 

*In thousands, except share andper share amounts*

 
| ** **                                                                                                                                                                   | ** ** | **November 30,** | ** **               | **August 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|--------------------------|---------------------|------------|
| ** **                                                                                                                                                                   | ** ** | **2009**              | ** **               | **2009**            | ** ** |
| **ASSETS**                                                                                                                                                                   |       |                  |                     |                |       |
| Current Assets:                                                                                                                                                              |       |                  |                     |                |       |
| Cash                                                                                                                                                                         |       | $                     |   7,149        |                | $          |    11,643 |   |
| Accounts receivable, less allowance for doubtful  accounts of $357 and $350                                                                                                  |       | 14,188                |                     | 14,536              |       |
| Inventories                                                                                                                                                                  |       | 16,268                |                     | 13,941              |       |
| Prepaid expenses and other current assets                                                                                                                                    |       | 996                   |                     | 607                 |       |
| Deferred income taxes                                                                                                                                                        |       | 368                   |                     | 471                 |       |
| Total current assets                                                                                                                                                         |       | 38,969                |                     | 41,198              |       |
|                                                                                                                                                                         |       |                  |                     |                |       |
| Property, plant and equipment, net                                                                                                                                           |       | 27,337                |                     | 23,219              |       |
|                                                                                                                                                                         |       |                  |                     |                |       |
| Other Assets:                                                                                                                                                                |       |                  |                     |                |       |
| Goodwill                                                                                                                                                                     |       | 23,279                |                     | 14,606              |       |
| Intangible assets, less accumulated amortization of  $5,331 and $4,869                                                                                                       |       | 12,254                |                     | 4,497               |       |
| Cash surrender value of life insurance                                                                                                                                       |       | 5,742                 |                     | 5,684               |       |
| Restricted investments                                                                                                                                                       |       | 603                   |                     | 573                 |       |
| Deferred income taxes                                                                                                                                                        |       | —                |                     | 1,264               |       |
| Other assets                                                                                                                                                                 |       | 70                    |                     | 25                  |       |
|                                                                                                                                                                         |       | $                     |    108,254     |                | $          |    91,066 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                               |       |                  |                     |                |       |
| Current Liabilities:                                                                                                                                                         |       |                  |                     |                |       |
| Accounts payable                                                                                                                                                             |       | $                     |     6,671 |                | $          |     6,319 |   |
| Accrued payroll and other compensation                                                                                                                                       |       | 1,217                 |                     | 2,561               |       |
| Accrued stock based compensation                                                                                                                                             |       | 318                   |                     | 302                 |       |
| Accrued expenses                                                                                                                                                             |       | 4,053                 |                     | 2,555               |       |
| Accrued income taxes                                                                                                                                                         |       | 1,936                 |                     | 1,346               |       |
| Current portion of long-term debt                                                                                                                                            |       | 3,000                 |                     | —              |       |
| Total current liabilities                                                                                                                                                    |       | 17,195                |                     | 13,083              |       |
|                                                                                                                                                                         |       |                  |                     |                |       |
| Long-term debt, less current portion                                                                                                                                         |       | 9,500                 |                     | —              |       |
| Deferred compensation                                                                                                                                                        |       | 1,543                 |                     | 1,525               |       |
| Accumulated pension obligation                                                                                                                                               |       | 5,938                 |                     | 5,690               |       |
| Other liabilities                                                                                                                                                            |       | 555                   |                     | 555                 |       |
| Deferred income taxes                                                                                                                                                        |       | 2,235                 |                     | —              |       |
|                                                                                                                                                                         |       |                  |                     |                |       |
| Commitments and Contingencies (Note 9)                                                                                                                                       |       |                  |                     |                |       |
|                                                                                                                                                                         |       |                  |                     |                |       |
| Stockholders’ Equity:                                                                                                                                                   |       |                  |                     |                |       |
| First Serial Preferred Stock,  $1.00 par value: Authorized 100,000 shares;  none issued                                                                                 |       |                  |                     |                |       |
| Common stock, $.10 par value: Authorized 20,000,000  shares; 8,779,061 shares at November 30, 2009 and 8,714,431 shares at  August 31, 2009 issued and outstanding |       | 878                   |                     | 871                 |       |
| Additional paid-in capital                                                                                                                                                   |       | 8,002                 |                     | 7,489               |       |
| Accumulated other comprehensive loss                                                                                                                                         |       | (3,372                | )                        | (3,563              | )          |
| Retained earnings                                                                                                                                                            |       | 65,780                |                     | 65,416              |       |
| Total stockholders’ equity                                                                                                                                              |       | 71,288                |                     | 70,213              |       |
| Total liabilities and stockholders’ equity                                                                                                                              |       | $                     |  108,254            |                | $          |  91,066 |   |

 

See accompanyingnotes to the consolidated financial statements

 

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**CHASE CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS**

(UNAUDITED**)**

 

*In thousands, except share and per share amounts*

 
| ** **                                                                           | ** ** | **Three  Months Ended November 30,** | ** **        |
|--------------------------------------------------------------------------------------|------------|-------------------------------------------|-------------------|
| ** **                                                                           | ** ** | **2009**                                  | ** **        | **2008** | ** ** |
|                                                                                 |       |                                      |              |   |   |
| Revenues                                                                             |       |                                      |              |   |   |
| Sales                                                                                |       | $                                         |  28,328      |   | $ |   30,607 |   |
| Royalties and commissions                                                            |       | 403                                       |              | 462 |   |
|                                                                                 |       | 28,731                                    |              | 31,069 |   |
| Costs and Expenses                                                                   |       |                                      |              |   |   |
| Cost of products and services sold                                                   |       | 18,754                                    |              | 21,559 |   |
| Selling, general and administrative expenses                                         |       | 6,657                                     |              | 6,034 |   |
|                                                                                 |       |                                      |              |   |   |
| Operating income                                                                     |       | 3,320                                     |              | 3,476 |   |
|                                                                                 |       |                                      |              |   |   |
| Interest expense                                                                     |       | (60                                       | )                 | (6 | ) |
| Other income                                                                         |       | 109                                       |              | 117 |   |
|                                                                                 |       |                                      |              |   |   |
| Income before income taxes                                                           |       | 3,369                                     |              | 3,587 |   |
|                                                                                 |       |                                      |              |   |   |
| Income taxes                                                                         |       | 1,246                                     |              | 1,327 |   |
|                                                                                 |       |                                      |              |   |   |
| Net income                                                                           |       | $                                         |   2,123      |   | $ |   2,260 |   |
|                                                                                 |       |                                      |              |   |   |
| Net income available to common shareholders, per  common and common equivalent share |       |                                      |              |   |   |
| Basic                                                                                |       | $                                         |   0.24  |   | $ |     0.26 |   |
| Diluted                                                                              |       | $                                         |    0.24 |   | $ |    0.26 |   |
|                                                                                 |       |                                      |              |   |   |
| Weighted average shares outstanding                                                  |       |                                      |              |   |   |
| Basic                                                                                |       | 8,701,049                                 |              | 8,397,695 |   |
| Diluted                                                                              |       | 8,779,524                                 |              | 8,655,588 |   |

 

See accompanying notes to the consolidated financial statements

 

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**CHASE CORPORATIONCONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY**

**THREE MONTHS ENDED NOVEMBER 30,2009**

(UNAUDITED)

 

*In thousands, except share and per share amounts*

 
| ** **                                                       | ** ** | ** **        | ** ** | ** **  | ** **       | ** **        | ** ** | **Accumulated** | ** ** | ** **             | ** **    | ** **        | ** ** | ** **          | ** **  |
|------------------------------------------------------------------|------------|-------------------|------------|-------------|------------------|-------------------|------------|-----------------|------------|------------------------|---------------|-------------------|------------|---------------------|-------------|
| ** **                                                       | ** ** | ** **        | ** ** | ** **  | ** **       | **Additional**    | ** ** | **Other**       | ** ** | ** **             | ** **    | **Total**         | ** ** | ** **          | ** **  |
| ** **                                                       | ** ** | **Common  Stock** | ** ** | **Paid-In** | ** **       | **Comprehensive** | ** ** | **Retained**    | ** ** | **Stockholders’** | ** **    | **Comprehensive** | ** ** |
| ** **                                                       | ** ** | **Shares**        | ** ** | **Amount**  | ** **       | **Capital**       | ** ** | **Income**      | ** ** | **Earnings**           | ** **    | **Equity**        | ** ** | **Income**          | ** **  |
| Balance at August 31, 2009                                  |       | 8,714,431         |       | $           |    871 |              | $          |  7,489     |       | $                      |   (3,563 | )                 | $          |   65,416       |        | $ |  70,213 |   |   |   |
| Restricted stock grants                                          |       | 60,930            |       | 6           |             | (6                | )          | —          |       | —                 |          | —            |       |                |        |
| Amortization of restricted stock grants                          |       |              |       |        |             | 359               |       | —          |       | —                 |          | 359               |       |                |        |
| Amortization of stock option grants                              |       |              |       |        |             | 132               |       | —          |       | —                 |          | 132               |       |                |        |
| Exercise of stock options                                        |       | 3,700             |       | 1           |             | 19                |       | —          |       | —                 |          | 20                |       |                |        |
| Tax benefit from exercise of stock options                       |       |              |       |        |             | 9                 |       | —          |       | —                 |          | 9                 |       |                |        |
| Cash dividend declared, $0.20 per share                          |       |              |       |        |             |              |       | —          |       | (1,759                 | )             | (1,759            | )          |                |        |
| Foreign currency translation adjustment, net of tax  of $99      |       |              |       |        |             |              |       | 184             |       | —                 |          | 184               |       | $                   |  184   |   |
| Net unrealized gain on restricted investments, net  of tax of $5 |       |              |       |        |             |              |       | 7               |       | —                 |          | 7                 |       | 7                   |        |
| Net income                                                       |       |              |       |        |             |              |       | —          |       | 2,123                  |          | 2,123             |       | 2,123               |        |
| Comprehensive income                                             |       |              |       |        |             |              |       |            |       |                   |          | —            |       | $                   |  2,314 |   |
| Balance at November 30, 2009                                |       | 8,779,061         |       | $           | 878              |              | $          |   8,002    |       | $                      |   (3,372 | )                 | $          |    65,780 |        | $ |   71,288 |   |   |   |

 

See accompanying notes to the consolidated financial statements

 

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**CHASE CORPORATION**

**CONSOLIDATED STATEMENT OF CASHFLOWS**

(UNAUDITED)

 

*Dollarsin thousands*

 
| ** **                                                                                 | ** ** | **Three  Months Ended November 30,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
|                                                                                       | ** ** | **2009**                                  | ** ** | **2008** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES                                                       |       |                                      |       |   |   |
| Net income                                                                                 |       | $                                         | 2,123      |   | $ | 2,260 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities          |       |                                      |       |   |   |
| Depreciation                                                                               |       | 792                                       |       | 703 |   |
| Amortization                                                                               |       | 417                                       |       | 244 |   |
| Provision for losses on trade receivables                                                  |       | 44                                        |       | 18 |   |
| Stock based compensation                                                                   |       | 508                                       |       | 690 |   |
| Realized loss (gain) on restricted investments                                             |       | (1                                        | )          | 147 |   |
| Excess tax benefit from stock based compensation                                           |       | (9                                        | )          | (6 | ) |
| Increase (decrease) from changes in assets and  liabilities                                |       |                                      |       |   |   |
| Accounts receivable                                                                        |       | 1,114                                     |       | 2,246 |   |
| Inventories                                                                                |       | (1,200                                    | )          | (1,871 | ) |
| Prepaid expenses & other assets                                                   |       | (305                                      | )          | (457 | ) |
| Accounts payable                                                                           |       | 58                                        |       | 114 |   |
| Accrued expenses                                                                           |       | (1,969                                    | )          | (3,492 | ) |
| Accrued income taxes                                                                       |       | 488                                       |       | 1,176 |   |
| Deferred compensation                                                                      |       | 18                                        |       | (271 | ) |
| Net cash provided by operating activities                                                  |       | 2,078                                     |       | 1,501 |   |
|                                                                                       |       |                                      |       |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                       |       |                                      |       |   |   |
| Purchases of property, plant and equipment                                                 |       | (187                                      | )          | (633 | ) |
| Payments for acquisitions, net of cash acquired                                            |       | (15,894                                   | )          | — |   |
| Withdrawals from restricted investments, net of  contributions                             |       | (18                                       | )          | 47 |   |
| Distributions from cost based investment                                                   |       | —                                    |       | 1 |   |
| Payments for cash surrender value life insurance,  including valuation (increase)/decrease |       | (57                                       | )          | (34 | ) |
| Net cash used in investing activities                                                      |       | (16,156                                   | )          | (619 | ) |
|                                                                                       |       |                                      |       |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                                       |       |                                      |       |   |   |
| Borrowings on long-term debt                                                               |       | 10,492                                    |       | 6,040 |   |
| Payments of principal on debt                                                              |       | (993                                      | )          | (6,040 | ) |
| Proceeds from exercise of common stock options                                             |       | 20                                        |       | 16 |   |
| Excess tax benefit from stock based compensation                                           |       | 9                                         |       | 6 |   |
| Net cash provided by financing activities                                                  |       | 9,528                                     |       | 22 |   |
|                                                                                       |       |                                      |       |   |   |
| INCREASE (DECREASE) IN CASH                                                                |       | (4,550                                    | )          | 904 |   |
| Effect of foreign exchange rates on cash                                                   |       | 56                                        |       | (501 | ) |
| CASH, BEGINNING OF PERIOD                                                                  |       | 11,643                                    |       | 3,917 |   |
|                                                                                       |       |                                      |       |   |   |
| CASH, END OF PERIOD                                                                        |       | $                                         | 7,149      |   | $ | 4,320 |   |
|                                                                                       |       |                                      |       |   |   |
| **Non-cash Investing and Financing  Activities**                                           |       |                                      |       |   |   |
| Property, plant & equipment additions  included in accounts payable               |       | $                                         | 435        |   | $ | 72 |   |
| Cash dividend declared                                                                     |       | $                                         | 1,759      |   | $ | 2,986 |   |
| Notes payable to C.I.M. shareholders related to  acquisition                               |       | $                                         | 3,000      |   | $ | — |   |

 

See accompanyingnotes to the consolidated financial statements

 

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**CHASE CORPORATION**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**(UNAUDITED)**

*Inthousands, except share and per share amounts*

 

**Note 1 - Basis of Presentation**

 

Theaccompanying unaudited consolidated financial statements have been prepared inaccordance with generally accepted accounting principles for interim financialreporting and instructions to Form 10-Q and Rule 10-01 of RegulationS-X. Therefore, they do not include all information and footnote disclosurenecessary for a complete presentation of Chase Corporation’s financialposition, results of operations and cash flows, in conformity with generallyaccepted accounting principles.  ChaseCorporation (the “Company,” “Chase,” “we,” or “us”) filed audited financialstatements which included all information and notes necessary for suchpresentation for the three years ended August 31, 2009 in conjunction withits 2009 Annual Report on Form 10-K.

 

Theaccompanying unaudited consolidated financial statements contain alladjustments (consisting of normal recurring items) which are, in the opinion ofmanagement, necessary for a fair presentation of the Company’s financialposition as of November 30, 2009, the results of operations and cash flowsfor the interim periods ended November 30, 2009 and 2008, and changes instockholders’ equity for the interim period ended November 30, 2009.

 

Thefinancial statements include the accounts of the Company and its wholly-ownedsubsidiaries.  All intercompany transactions and balances have beeneliminated in consolidation.  The Company uses the U.S. dollar as thereporting currency for financial reporting. Foreign currency translation gains and losses are determined usingcurrent exchange rates for monetary items and historical exchange rates forother balance sheet items and are recorded as a change in other comprehensiveincome.

 

Certainamounts reported in prior years have been reclassified to be consistent withthe current year presentation.  Thesereclassifications had no effect on the Company’s financial position or resultsof operations.

 

Theresults of operations for the interim period ended November 30, 2009 are notnecessarily indicative of the results to be expected for any future period orthe entire fiscal year.  These interimconsolidated financial statements should be read in conjunction with theaudited consolidated financial statements for the year ended August 31,2009, which are contained in the Company’s 2009 Annual Report on Form 10-K.

 

**Note 2 —Recent Accounting Policies**

 

*RecentlyAdopted Accounting Pronouncements*

 

InJune 2009, the Financial Accounting Standards Board’s (FASB) approved the “FASBAccounting Standards Codification” (“ASC” or the “Codification”) as the singlesource of authoritative nongovernmental U.S. GAAP.  The Codification does not change current U.S.GAAP, but is intended to simplify user access to all authoritative U.S. GAAP byproviding all the authoritative literature related to a particular topic in oneplace.  All existing accounting standarddocuments will be superseded and all other accounting literature not includedin the Codification will be considered nonauthoritative.  The Codification became effective for theCompany in the quarter ending November 30, 2009 and the adoption did nothave any effect on the Company’s consolidated financial position, results ofoperations or cash flows.

 

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**CHASE CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

*Inthousands, except share and per share amounts*

 

InDecember 2007, the FASB issued ASC Topic 805, “Business Combinations” (“ASC 805”).  ASC 805 establishes principles andrequirements for how an acquirer in a business combination recognizes andmeasures in its financial statements the identifiable assets acquired, theliabilities assumed and any noncontrolling interest in the acquiree; recognizesand measures the goodwill acquired in the business combination or a gain from abargain purchase; expenses acquisition related costs as incurred; anddetermines what information to disclose to enable users of the financialstatements to evaluate the nature and financial effects of the businesscombination.  The Company adopted ASC 805as of September 1, 2009, and its September 2009 acquisition of C.I.M.Industries was accounted for under this standard.

 

*Recently Issued Accounting Pronouncement*

 

InDecember 2008, the FASB issued ASC Topic 715, “Compensation—Retirement Benefits” (“ASC 715”).  ASC 715 provides additional guidance on anemployer’s disclosures about plan assets of a defined benefit pension or otherpost-retirement plan enabling users of the financial statements to assess theinputs and valuation techniques used to develop fair value measurements of planassets at the annual reporting date.  The guidance requires more detaileddisclosures about the assets of a defined benefit pension or otherpost-retirement plan and is effective for fiscal years ending after December 15,2009.  Since the guidance only requiresenhanced disclosures,the Company does not expect the adoption of ASC 715 to have an impacton its consolidated financial position and results of operations.

 

**Note 3 —Inventories**

 

Inventoriesconsist of the following as of November 30, 2009 and August 31, 2009:

 
| ** **              | ** ** | **November 30,  2009** | ** ** | **August 31,  2009** | ** ** |
|-------------------------|------------|-----------------------------|------------|---------------------------|------------|
| Raw materials           |       | $                           | 8,906      |                      | $          | 7,973 |   |
| Finished and in process |       | 7,362                       |       | 5,968                     |       |
| Total Inventories       |       | $                           | 16,268     |                      | $          | 13,941 |   |

 

**Note 4 — Net Income Per Share**

 

InJune 2008, the FASB issued guidance within ASC Topic 260, Earnings Per Share (“ASC 260”), toclarify that unvested share-based payment awards with a right to receivenonforfeitable dividends are participating securities. The standardprovides guidance on how to allocate earnings to participating securities andcompute earnings per share using the two-class method.  The Companyadopted the provisions of this standard on September 1, 2009.  The presentation of earnings per share forpreviously reported periods has been adjusted due to retrospective adoption ofthis standard.  The determination ofearnings per share under the standard is as follows:

 
| ** **                                   | ** ** | **Three  Months Ended November 30,** | ** ** |
|----------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                   | ** ** | **2009**                                  | ** ** | **2008** | ** ** |
| **Basic Earnings per Share**                 | ** ** | ** **                                | ** ** | ** ** | ** ** |
| Net income                                   |       | $                                         | 2,123      |   | $ | 2,260 |   |
| Income allocated to participating securities |       | 60                                        |       | 49 |   |
| Net income available to common shareholders  |       | $                                         | 2,063      |   | $ | 2,211 |   |
|                                         |       |                                      |       |   |   |
| Basic weighted averages shares outstanding   |       | 8,701,049                                 |       | 8,397,695 |   |
| Net income per share - Basic                 |       | $                                         | 0.24       |   | $ | 0.26 |   |
|                                         |       |                                      |       |   |   |
| **Diluted Earnings per Share**               |       |                                      |       |   |   |
| Net income                                   |       | $                                         | 2,123      |   | $ | 2,260 |   |
| Income allocated to participating securities |       | 60                                        |       | 47 |   |
| Net income available to common shareholders  |       | $                                         | 2,063      |   | $ | 2,213 |   |
|                                         |       |                                      |       |   |   |
| Basic weighted averages shares outstanding   |       | 8,701,049                                 |       | 8,397,695 |   |
| Additional dilutive common stock equivalents |       | 78,475                                    |       | 257,893 |   |
| Diluted weighted averages shares outstanding |       | 8,779,524                                 |       | 8,655,588 |   |
| Net income per share - Diluted               |       | $                                         | 0.24       |   | $ | 0.26 |   |

 

Forthe three months ended November 30, 2009 and 2008, stock options topurchase 250,000 shares of common stock were outstanding, but were not includedin the calculation of diluted income per share in either period because theoptions’ exercise prices were greater than the average market price of thecommon stock and thus their inclusion would be anti-dilutive.

 

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**CHASE CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

*In thousands, except share and per share amounts*

 

**Note 5 —Stock Based Compensation**

 

InAugust 2008, the Board of Directors of Chase Corporation approved a planfor issuing a performance and service based restricted stock grant of 50,657shares to key members of management with an issue date of September 1,2008 and a vesting date of August 31, 2011.  Based on the fiscal year 2009 financialresults coming in below the target, the grant was reduced by 15,944 shares ofrestricted stock subsequent to the end of fiscal year 2009 in accordance withthe performance measurement criteria.  The adjusted restricted stock award of 34,713 shares was finalized inthe quarter ended November 30, 2009 and no further performance-basedmeasurements apply to this award. Compensation expense is being recognized on a ratable basis over thevesting period.

 

InAugust 2009, the Board of Directors of Chase Corporation approved a planfor issuing a performance and service based restricted stock grant of 76,874shares to key members of management with an issue date of September 1,2009 and a vesting date of August 31, 2012.  These shares are subject to a performancemeasurement based upon the results of fiscal year 2010 which will determine thefinal calculation of the number of shares that will be issued (which may begreater than or less than 76,874 shares). Compensation expense is being recognized on a ratable basis over thevesting period based on quarterly probability assessments.

 

**Note 6 — Segment Information**

 

TheCompany operates in two business segments, a Specialized Manufacturing segmentand an Electronic Manufacturing Services segment.  Specialized Manufacturing products includeinsulating and conducting materials for wire and cable manufacturers, coatingand lining systems for use in liquid storage and containment applications,protective coatings for pipeline applications, and moisture protective coatingsfor electronics and printing services. Electronic Manufacturing Services include printed circuit board andelectro-mechanical assembly services for the electronics industry.  The Company evaluates segment performancebased upon income before income taxes.

 

Thefollowing tables summarize information about the Company’s reportable segments:

 
| ** **                           | ** ** | **Three  Months Ended November 30,** | ** ** |
|--------------------------------------|------------|-------------------------------------------|------------|
| ** **                           | ** ** | **2009**                                  | ** ** | **2008** | ** ** |
| **Revenues from external customers** |       |                                      |       |   |   |
| Specialized Manufacturing            |       | $                                         | 24,265     |   | $ | 26,708 |   |
| Electronic Manufacturing Services    |       | 4,466                                     |       | 4,361 |   |
| Total                                |       | $                                         | 28,731     |   | $ | 31,069 |   |
|                                 |       |                                      |       |   |   |
| **Income before income taxes**       |       |                                      |       |   |   |
| Specialized Manufacturing            |       | $                                         | 4,376      |   | $ | 4,923 |   |
| Electronic Manufacturing Services    |       | 455                                       |       | 325 |   |
| Total for reportable segments        |       | 4,831                                     |       | 5,248 |   |
| Corporate and Common Costs           |       | (1,462                                    | )          | (1,661 | ) |
| Total                                |       | $                                         | 3,369      |   | $ | 3,587 |   |

 

TheCompany’s products are sold world-wide. For the three month periods ended November 30, 2009 and 2008, salesfrom its operations located in the United Kingdom accounted for 8% and 11% oftotal Company revenues, respectively. No other foreign geographic areaaccounted for more than 10% of consolidated revenues.

 

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**CHASE CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

*In thousands, except share and per share amounts*

 
| ** **                        | ** ** | **November 30,  2009** | ** ** | **August 31,  2009** | ** ** |
|-----------------------------------|------------|-----------------------------|------------|---------------------------|------------|
| **Total assets**                  |       |                        |       |                      |       |
| Specialized Manufacturing         |       | $                           | 84,431     |                      | $          | 60,713 |   |
| Electronic Manufacturing Services |       | 13,739                      |       | 12,666                    |       |
| Total for reportable segments     |       | 98,170                      |       | 73,379                    |       |
| Corporate and Common Assets       |       | 10,084                      |       | 17,687                    |       |
| Total                             |       | $                           | 108,254    |                      | $          | 91,066 |   |

 

Theincrease in total assets of the Company’s Specialized Manufacturing segment asof November 30, 2009 is primarily due to the acquisition of C.I.M.Industries, Inc. (“C.I.M.”) in September 2009 (see Note 8 below).

 

Asof November 30, 2009 and August 31, 2009, the Company had long-livedassets (defined as providing the Company with a future economic benefit beyondthe current year or operating period, including buildings, equipment, goodwilland other intangibles) of $8,922 and $8,969, respectively, located in theUnited Kingdom.

 

**Note 7 — Goodwill and Other Intangibles**

 

Thechanges in the carrying value of goodwill, by reportable segment, are asfollows:

 
| ** **                        | ** ** | **Specialized  Manufacturing** | ** ** | **Electronic  Manufacturing   Services** | ** ** | **Consolidated** | ** ** |
|-----------------------------------|------------|--------------------------------|------------|------------------------------------------|------------|------------------|------------|
| Balance at August 31, 2009   |       | $                              | 8,607      |                                     | $          | 5,999            |       | $ | 14,606 |   |
| Acquisition of C.I.M. Industries  |       | 8,573                          |       | —                                   |       | 8,573            |       |
| FX translation adjustment         |       | 100                            |       | —                                   |       | 100              |       |
| Balance at November 30, 2009 |       | $                              | 17,280     |                                     | $          | 5,999            |       | $ | 23,279 |   |

 

TheCompany evaluates the possible impairment of goodwill annually each fourthquarter and whenever events or circumstances indicate the carrying value ofgoodwill may not be recoverable.

 

Intangibleassets subject to amortization consist of the following as of November 30,2009 and August 31, 2009:

 
| ** **                       | ** ** | **Weighted-Average**     | ** ** | **Gross  Carrying** | ** ** | **Accumulated**  | ** ** | **Net  Carrying** | ** ** |
|----------------------------------|------------|--------------------------|------------|---------------------|------------|------------------|------------|-------------------|------------|
| ** **                       | ** ** | **Amortization  Period** | ** ** | **Value**           | ** ** | **Amortization** | ** ** | **Value**         | ** ** |
| November 30, 2009           | ** ** | ** **               | ** ** | ** **          | ** ** | ** **       | ** ** | ** **        | ** ** |
| Patents and agreements           |       | 12.5 years               |       | $                   | 2,264      |             | $          | 2,083             |       | $ | 181 |   |
| Formulas and technology          |       | 9.7 years                |       | 3,083               |       | 639              |       | 2,444             |       |
| Trade names                      |       | 4.4 years                |       | 538                 |       | 274              |       | 264               |       |
| Customer lists and relationships |       | 10.2 years               |       | 11,700              |       | 2,335            |       | 9,365             |       |
|                             |       |                     |       | $                   | 17,585     |             | $          | 5,331             |       | $ | 12,254 |   |
|                             | ** ** | ** **               | ** ** | ** **          | ** ** | ** **       | ** ** | ** **        | ** ** |
| August 31, 2009             |       |                     |       |                |       |             |       |              |       |
| Patents and agreements           |       | 12.6 years               |       | $                   | 2,258      |             | $          | 2,059             |       | $ | 199 |   |
| Formulas and technology          |       | 9.3 years                |       | 1,191               |       | 552              |       | 639               |       |
| Trade names                      |       | 3.8 years                |       | 277                 |       | 255              |       | 22                |       |
| Customer lists and relationships |       | 10.4 years               |       | 5,640               |       | 2,003            |       | 3,637             |       |
|                             |       |                     |       | $                   | 9,366      |             | $          | 4,869             |       | $ | 4,497 |   |

 

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**CHASE CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

*In thousands, except share and per share amounts*

 

Theincrease in gross carrying value of intangible assets for the three monthsended November 30, 2009 is  due tothe addition of intangible assets associated with the Company’s acquisition ofC.I.M. in September 2009 (see Note 8 below).

 

Aggregateamortization expense related to intangible assets for the three months ended November 30,2009 and 2008 was $417 and $244, respectively. Estimated amortization expense for the remainder of fiscal year 2010 andfor each of the five succeeding fiscal years is as follows:

 
| **Years  ending August 31,** |   |   |   |
|-----------------------------------|--------|--------|--------|
| 2010 (remaining nine  months)     |   | $      | 1,318  |   |
| 2011                              |   | 1,611  |   |
| 2012                              |   | 1,591  |   |
| 2013                              |   | 1,474  |   |
| 2014                              |   | 1,418  |   |
| 2015                              |   | 1,344  |   |
|                              |   | $      | 8,756  |   |

 

**Note 8 —Acquisition of C.I.M. Industries Inc.**

 

InSeptember 2009, Chase Corporation acquired all of the outstanding capitalstock of C.I.M. Industries Inc. (“C.I.M.”) which is based in Peterborough, NHand has a manufacturing facility in Texas. C.I.M. is a specialized manufacturer of high performance coating andlining systems used worldwide in the liquid storage and containmentapplications.  The total purchase price, net of cash received, was$18,894.

 

*Allocation of Purchase Price*

 

Thepurchase price consisted of cash in the amount of $16,500 (before taking intoconsideration any cash received) and the delivery of non-negotiable promissorynotes in the aggregate amount of $3,000 payable to the shareholders ofC.I.M.  The acquisition was accounted foras a business combination under ASC Topic 805, “Business Combinations.”  In accordance with this new accountingstandard, the Company expensed $105 of acquisition related costs.

 

Thepurchase price has been allocated to the acquired tangible and identifiableintangible assets and liabilities assumed based on their fair values as of thedate of the acquisition:

 
| **Assets & Liabilities**           | ** ** | **Amount** | ** ** |
|----------------------------------------|------------|------------|------------|
| Current assets  (net of cash acquired) |       | $          | 1,991      |   |
| Property, plant  & equipment       |       | 4,262      |       |
| Goodwill                               |       | 8,573      |       |
| Intangible  assets                     |       | 8,100      |       |
| Accounts  payable and accrued expenses |       | (439       | )          |
| Deferred tax  liabilities              |       | (3,593     | )          |
|                                   |       |       |       |
| Total purchase  price                  |       | $          | 18,894     |   |

 

Theexcess of the purchase price over the net tangible and intangible assetsacquired resulted in goodwill of $8,573 that is largely attributable to thesynergies and economies of scale from combining the operations and technologiesof Chase and C.I.M., particularly as it pertains to the global expansion of theCompany’s product and service offerings, and marketing efforts.  This goodwill is not deductible for incometax purposes.

 

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**CHASE CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

*In thousands, except share and per share amounts*

 

Allassets, including goodwill, acquired as part of C.I.M. are included in theSpecialized Manufacturing segment. Identifiable intangible assets purchased with this transaction are asfollows:

 
| **Intangible  Asset**            | ** ** | **Amount** | ** ** | **Useful  life** | ** ** |
|----------------------------------|------------|------------|------------|------------------|------------|
| Formulas and technology          |       | $          | 1,880      |             | 10 years   |   |
| Trade names                      |       | 260        |       | 5 years          |       |
| Customer lists and relationships |       | 5,960      |       | 10 years         |       |
|                             |       |       |       |             |       |
| Total intangible assets          |       | $          | 8,100      |             |       |   |

 

*Supplemental Pro Forma Data*

 

The following table presents the pro forma results of the Company for the three month period ended November 30, 2008, as though the C.I.M. acquisition described above occurred on September 1, 2008.  The actual revenues and expenses for this acquisition are included in our fiscal 2010 consolidated results beginning on September 4, 2009 and would not be materially different if the acquisition occurred on September 1, 2009, the first day of our first fiscal quarter in 2010.  Adjustments have been made for the estimated amortization of intangibles, estimated interest expense in connection with debt financing of the acquisition, and the income tax impact of the pro forma adjustments at the statutory rate of 38%. The following pro forma information is not necessarily indicative of the results of operations that would have been achieved if the acquisition had been effective on September 1, 2008.

** **
| ** **                                        | ** ** | **Three  Months Ended  November 30, 2008** | ** ** |
|---------------------------------------------------|------------|-------------------------------------------------|------------|
| Revenues                                          |       | $                                               | 33,295     |   |
| Net income                                        |       | $                                               | 2,463      |   |
|                                              |       |                                            |       |
| Net income per common and common equivalent share |       |                                            |       |
| Basic                                             |       | $                                               | 0.29       |   |
| Diluted                                           |       | $                                               | 0.28       |   |

 

**Note 9 —Commitments and Contingencies**

 

TheCompany is one of over 100 defendants in a personal injury lawsuit, pending inOhio, which alleges personal injury from exposure to asbestos contained incertain Chase products.  The case iscaptioned Marie Lou Scott, Executrix of the Estate of James T. Scott v. A-BestProducts, et al., No. 312901 in the Court of Common Pleas for CuyahogaCounty, Ohio.  The plaintiff in the caseissued discovery requests to Chase in August 2005, to which Chase timelyresponded in September 2005.  Thetrial had initially been scheduled to begin on April 30, 2007.  However, that date had been postponed and nonew trial date has been set.  As of November 2009,there have been no new developments as this Ohio lawsuit has been inactive withrespect to Chase.

 

TheCompany was named as one of the defendants in a complaint filed on June 25,2009, in a lawsuit captioned Lois Jansen, Individually and as SpecialAdministrator of the Estate of Thomas Jansen v. Beazer East, Inc., et al.,No: 09-CV-6248 in the Milwaukee County (Wisconsin) Circuit Court.  The plaintiff alleges that her husbandsuffered and died from malignant mesothelioma resulting from exposure toasbestos in his workplace.  The plaintiffhas sued seven alleged manufacturers or distributors of asbestos-containingproducts, including Royston Laboratories (formerly an independent company andnow a division of Chase Corporation). Chase has filed an answer to the claim denying the material allegationsin the complaint.  The parties arecurrently engaged in discovery.

 

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**CHASE CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

*In thousands, except share and per share amounts*

 

Inaddition to the matters described above, the Company is involved from time totime in litigation incidental to the conduct of its business.  Although the Company does not expect that theoutcome in any of these matters, individually or collectively, will have amaterial adverse effect on its financial condition or results of operations,litigation is inherently unpredictable. Therefore, judgments could be rendered or settlements entered, thatcould adversely affect the Company’s operating results or cash flows in aparticular period.  The Company routinelyassesses all of its litigation and threatened litigation as to the probabilityof ultimately incurring a liability, and records its best estimate of theultimate loss in situations where the Company assesses the likelihood of lossas probable.

 

**Note 10— Debt**

 

TheCompany borrowed $10,000 from Bank of America in September 2009 in orderto fund its acquisition of C.I.M.  Thisborrowing involved an unsecured, three year term note (“Term Note”) withinterest and principal payments due monthly. Interest is calculated at the applicable London Interbank Offered Rate (“LIBOR”)plus a margin of 1.75% per annum, with interest payments due on the last day ofeach month.  At November 30, 2009,the applicable interest rate was 1.99% per annum.  In addition to monthly interest payments,Chase Corporation will repay the principal in equal installments of $167 permonth, beginning on September 30, 2009, and on the last day of each monththereafter, ending on August 31, 2012 (the “Repayment Period”).  In any event, on the last day of theRepayment Period, Chase will repay the remaining principal balance plus anyinterest then due.

 

TheTerm Note is subject to certain covenants which require the Company to maintaincertain financial ratios, which include (a) the ratio of total liabilitiesto tangible net worth and (b) the ratio of operating cash flow to debtservice on a rolling twelve month basis. The Company was in compliance with these debt covenants as of November 30,2009.   Prepayment of the Term Note isallowed at any time during the term of the loan.

 

Aspart of the C.I.M. acquisition in September 2009, the Company delivered$3,000 in non-negotiable promissory notes (the “Notes”) payable to five C.I.M.shareholders, who were the holders of all of the issued and outstanding sharesof capital stock of C.I.M. as of the acquisition date.   The principal of the Notes will be paid inthree consecutive annual installments of $1,000 each, with the initial paymentdue on September 4, 2010.  Intereston the unpaid principal balance of the Notes will accrue at a rate per annumequal to the applicable Federal rate, and will be paid annually with eachprincipal payment.  At November 30,2009, the applicable interest rate was 0.71% per annum.

 

**Note 11- Pensions and Other Post Retirement Benefits**

 

Thecomponents of net periodic benefit cost for the three months ended November 30,2009 and 2008 are as follows:

 
| ** **                         | ** ** | **Three  Months Ended**    | ** ** |
|------------------------------------|------------|----------------------------|------------|
| ** **                         | ** ** | **November 30, 2009** | ** ** | **November 30, 2008** | ** ** |
| Service cost                       |       | $                          | 124        |   | $ | 108 |   |
| Interest cost                      |       | 123                        |       | 137 |   |
| Expected return on plan assets     |       | (100                       | )          | (112 | ) |
| Amortization of prior service cost |       | 21                         |       | 23 |   |
| Amortization of unrecognized loss  |       | 53                         |       | 13 |   |
| Net periodic benefit cost          |       | $                          | 221        |   | $ | 169 |   |

 

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**CHASE CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

*In thousands, except share and per share amounts*

 

Whenfunding is required, the Company’s policy is to contribute amounts that aredeductible for federal income tax purposes. As of November 30, 2009, the Company was not required to make anycontributions nor did it make any voluntary contributions to the pension planin the current fiscal year.

 

**Note 12— Fair Value Measurements**

 

TheCompany adopted the guidance of FASB ASC Topic 820, “Fair Value Measurementsand Disclosures” (“ASC 820”) as of September 1, 2008, as it related to allfinancial assets and financial liabilities. ASC 820 provided for a one-year deferral of the effective date as itrelated to non-financial assets and non-financial liabilities that arerecognized or disclosed at fair value in the financial statements on anon-recurring basis.

 

EffectiveSeptember 1, 2009, the Company adopted ASC 820 for all non-financialassets and non-financial liabilities that are recognized or disclosed at fairvalue in the financial statements on a non-recurring basis.  Other than the assets acquired from C.I.M.,the Company has not valued any non-financial assets at fair value.  Accordingly, there was no cumulative effectof adoption and the adoption did not have an impact on the Company’s financialposition, results of operations, or cash flows. The adoption may impact futureevaluations of impairment of goodwill and long-lived assets.

 

TheCompany generally defines fair value as the price that would be received tosell an asset or paid to transfer a liability in an orderly transaction betweenmarket participants at the measurement date (exit price).  The Company uses a three-tier fair valuehierarchy, which classifies the inputs used in measuring fair values.These tiers include: Level1, defined as observable inputs such as quoted prices for identical instrumentsin active markets; Level 2, defined as inputs other than quoted prices inactive 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.

 

TheCompany endeavors to utilize the best available information in measuring fairvalue.  Financial assets and liabilitiesare classified in their entirety based on the lowest level of input that issignificant to the fair value measurement. The Company has determined that it does not have any financialliabilities measured at fair value and that its financial assets are currentlyall classified within Level 1 and Level 2 in the fair value hierarchy.

 

Thefollowing tables set forth the Company’s financial assets that were accountedfor at fair value on a recurring basis as of November 30, 2009 and August 31,2009:

 
| ** **             | ** ** | ** **                  | ** ** | **Fair  value measurements at November 30, 2009 using:** | ** ** |
|------------------------|------------|-----------------------------|------------|---------------------------------------------------------------|------------|
| ** **             | ** ** | **November 30,  2009** | ** ** | **Quoted  prices  in active markets  (Level 1)**              | ** ** | **Significant  other  observable inputs  (Level 2)** | ** ** | **Significant  unobservable inputs  (Level 3)** | ** ** |
| Restricted investments |       | $                           | 603        |                                                          | $          | 576 |   | $ | 27 |   | $ | — |   |
|                   |       |                        |       |                                                          |       |   |   |   |   |
| Total                  |       | $                           | 603        |                                                          | $          | 576 |   | $ | 27 |   | $ | — |   |

 
| ** **             | ** ** | ** **                | ** ** | **Fair  value measurements at August 31, 2009 using:** | ** ** |
|------------------------|------------|---------------------------|------------|-------------------------------------------------------------|------------|
| ** **             | ** ** | **August 31,  2009** | ** ** | **Quoted  prices  in active markets  (Level 1)**            | ** ** | **Significant  other  observable inputs  (Level 2)** | ** ** | **Significant  unobservable inputs  (Level 3)** | ** ** |
| Restricted investments |       | $                         | 573        |                                                        | $          | 239 |   | $ | 334 |   | $ | — |   |
|                   |       |                      |       |                                                        |       |   |   |   |   |
| Total                  |       | $                         | 573        |                                                        | $          | 239 |   | $ | 334 |   | $ | — |   |

 

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**CHASE CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**(UNAUDITED)**

*In thousands, except share and per share amounts*

 

**Note 13— Subsequent Events**

 

Inaccordance with ASC Topic 855, “Subsequent Events”, the Company evaluatedsubsequent events through January 11, 2010, the date these financialstatements were filed.

 

*Acquisition of ServiWrap Product Line*

 

OnDecember 18, 2009, the Company acquired the full range of ServiWrappipeline protection products from Grace Construction Products Limited, a UKbased unit of W.R. Grace & Co. (the “Seller”).  ServiWrap / ServiShield® anti-corrosionsystems provide protection for new and refurbished oil, gas and water pipelinesin projects around the world.  Theacquisition of ServiWrap will complement the portfolio of the Company’spipeline protection tapes, coatings and accessories and will extend the Company’sglobal customer base.  The total purchaseprice for this acquisition was £5,983(approximately US $9,700 at the time ofacquisition).

 

Theassets acquired by the Company include product lines, manufacturing equipmentand certain intellectual property rights. The Company is still finalizing the purchase price allocation as itrelates to the value of the intangible assets acquired and is expected tocomplete this in the quarter ending February 28, 2010.  Beginning on the date of the acquisitionthrough no later than September 30, 2010, the Seller will manufacture theServiWrap products for their exclusive supply to the Company, while the Companytransitions production to its own facility in the UK.

 

TheCompany funded this acquisition partly through its available cash on hand andfunded the balance through a loan in the amount of $7,000 from RBSCitizens.  The loan from RBS Citizens(the “Term Loan”) is an unsecured, three year term note with interest andprincipal payments due monthly.  Interestis calculated at the applicable LIBOR rate plus a margin of 1.9% per annum,with interest payments due on the last day of each month.  In addition to monthly interest payments, theCompany will repay the principal in equal installments of $117 each, beginningon January 15, 2010, and on the 15th day of each month thereafter, endingon December 15, 2012, on which date the Company will repay the remainingprincipal balance plus any interest then due. The Term Loan is subject to the same debt covenants as the Company’sexisting term debt.  Prepayment of theTerm Loan is allowed at any time.  At December 31,2009, the applicable interest rate was 2.13% per annum.

 

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**Item 2 — Management’s Discussion and Analysis of Financial Conditionand Results of Operations**

 

Thefollowing discussion provides an analysis of our financial condition andresults of operations and should be read in conjunction with the ConsolidatedFinancial Statements and notes thereto included in Item 1 of Part I ofthis Quarterly Report on Form 10-Q and our Annual Report on Form 10-Kfiled for the fiscal year ended August 31, 2009.

 

****Recent Developments****

 

InSeptember 2009, we acquired all of the outstanding capital stock of C.I.M.Industries Inc. (“C.I.M.”), which is based in Peterborough, NH and has amanufacturing facility in Texas.  C.I.M.is a specialized manufacturer of high performance coating and lining systemsused worldwide in the liquid storage and containment industry.  With a primary focus on the water andwastewater industry, C.I.M. has the preferred products that complement ourproduct line of high performance tapes and coatings.  The total purchase price for this acquisitionwas $18.9 million (net of cash acquired).

 

Thenet assets acquired by us include cash, inventories, trade receivables,property, plant & equipment, trade payables and certain other currentassets and liabilities.  The effectivedate for this acquisition was September 4, 2009, and the results of thisacquisition have been included in our financial statements since that date.

 

OnDecember 18, 2009, we acquired the full range of ServiWrap pipelineprotection products from Grace Construction Products Limited, a UK based unitof W.R. Grace & Co. (the “Seller”). ServiWrap / ServiShield® anti-corrosion systems provide protection fornew and refurbished oil, gas and water pipelines in projects around theworld.  The acquisition of ServiWrap willcomplement the portfolio of our pipeline protection tapes, coatings andaccessories and will extend our global customer base.  The total purchase price for this acquisitionwas £5.98 million (approximately US $9.7 million at the time ofacquisition).  The purchase was fundedthrough a combination of cash on hand and a term loan in the amount of $7.0million from RBS Citizens.

 

Theassets acquired by us include product lines, manufacturing equipment andcertain intellectual property rights. Beginning on the date of the acquisition through no later than September 30,2010, the Seller will manufacture the ServiWrap products for their exclusivesupply to us, while we transition production to our own facility in the UK.

 

**Overview**

 

Weobserved some positive signs during the first quarter of fiscal 2010.  While sales and profits were down from theprior year period across most of our product lines, we continue to experiencegrowth in some key sectors that was first observed during that later portion offiscal 2009.  Additionally, our effortsto streamline costs and consolidate purchasing efforts have helped ourprofitability.  Revenues from theSpecialized Manufacturing segment fell short of the same period in the prioryear primarily due to decreased demand from key customers in the wire &cable and pipeline & construction product lines.  The decreased revenues in the current yearwere partially offset by new sales from C.I.M., which was acquired in September 2009,as well as increased sales from our HumiSeal conformal coatings.  While our second quarter ending in February ishistorically a slower time of year, we will continue to focus our efforts onthe integration of our C.I.M. and ServiWrap acquisitions in order to maximizeour existing resources.  We will alsocontinue our product and marketing development efforts for our establishedproduct lines in order to seize new business opportunities as they arise.

 

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Inthe current quarter, our Electronic Manufacturing Services segment benefitedfrom increased demand from existing customers that resulted in higher sales andprofits in the current quarter compared to the prior year period.  While this segment is still facing softnessin some key market segments, the overall demand for products and services hasimproved with a backlog of customer orders of $8.2 million as of November 30,2009, compared to $6.5 million as of August 31, 2009.  We continue to focus on maximizing productionefficiencies, closely monitoring our key customers’ demands, and new customeracquisitions.

 

Wewill remain proactive during fiscal 2010 with our key strategies which includecontinuous improvement, product and market development and a targetedacquisition effort.  Our long termconsolidation efforts continue with our recent closing of the Paterson, NJplant whose manufacturing operations were redistributed to other Chasefacilities, and the final stages of the renovation of our facility inPittsburgh, PA, which will include a new coatings plant.  We also recently entered into a new buildinglease in Westwood, MA that will be used to consolidate sales, administrativeand laboratory personnel currently located in our Taunton and Albany locations.

 

Wehave two reportable segments as summarized below:

 
| **Segment**                                | ** ** | ** ** | **Product Lines**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | ** ** | ** ** | **Manufacturing Focus and Products**                                                                                                                                                                                                                                                                                                                                                                                                                                    | ** ** |
|--------------------------------------------|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Specialized  Manufacturing Segment         |       |       | ·                  Wire and Cable

·                  Electronic  Coatings

·                  Pipeline &  Construction

·                  Specialty  Products |       |       | Produces  protective coatings and tape products including insulating and conducting  materials for wire and cable manufacturers, fluid applied coating and lining  systems for use in the water and wastewater industry, protective coatings for  pipeline applications, moisture protective coatings for electronics, high  performance polymeric asphalt additives, and expansion and control joint  systems for use in the transportation and architectural markets. |       |
|                                       |       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |       |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |       |
| Electronic Manufacturing  Services Segment |       |       | ·                  Contract Electronic  Manufacturing Services                                                                                                                                                                                                                                                                                                                                                                                         |       |       | Provides  assembly and turnkey contract manufacturing services including printed  circuit board and electromechanical assembly services to the electronics  industry operating principally in the United States.

                                                                                                                                                                                                                                                 |       |

 

**Results of Operations**

 

***Revenues and Operating Profit by Segment are asfollows:***

 
| ** **                           | ** ** | **Three Months Ended November 30,** | ** ** |
|--------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                           | ** ** | **2009**                                                | ** ** | **2008** | ** ** |
| ** **                           | ** ** | **(Dollars in thousands)**                    | ** ** |
| **Revenues from external customers** |       |                                                    |       |   |   |   |   |   |   |
| Specialized Manufacturing            |       | $                                                       | 24,265     |   | 84% |   | $ | 26,708 |   | 86% |   |
| Electronic Manufacturing Services    |       | 4,466                                                   |       | 16% |   | 4,361 |   | 14% |   |
| Total                                |       | $                                                       | 28,731     |   |   |   | $ | 31,069 |   |   |   |
|                                 |       |                                                    |       |   |   |   |   |   |   |
| **Income before income taxes**       |       |                                                    |       |   |   |   |   |   |   |
| Specialized Manufacturing            |       | $                                                       | 4,376      |   | 18% |   | $ | 4,923 |   | 18% |   |
| Electronic Manufacturing Services    |       | 455                                                     |       | 10% |   | 325 |   |  7% |   |
| Total for reportable segments        |       | 4,831                                                   |       | 17% |   | 5,248 |   | 17% |   |
| Corporate and Common Costs           |       | (1,462                                                  | )          |   |   | (1,661 | ) |   |   |
| Total                                |       | $                                                       | 3,369      |   | 12% |   | $ | 3,587 |   | 12% |   |

 

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***Total Revenues***

 

Totalrevenues decreased $2,338,000 or 8% to $28,731,000 for the quarter ended November 30,2009 compared to $31,069,000 in the prior year quarter.  Revenues in our Specialized Manufacturingsegment decreased $2,443,000 or 9% to $24,265,000 for the quarter ended November 30,2009 compared to $26,708,000 in the prior year quarter.  The decrease in revenues from our SpecializedManufacturing segment in the current quarter was primarily due to thefollowing: (a) decreased sales of $2,702,000 in the Wire & Cablemarket primarily due to lower demand in the energy and communications markets; (b) decreasedsales of $1,311,000 in the Pipeline and Construction product lines; and (c) decreasedsales of $818,000 in Specialty products. The decreases in revenues were partially offset by the inclusion ofsales of $2,183,000 from C.I.M. which we acquired in September 2009 andincreased sales of $533,000 in the Electronic Coatings product lines.

 

Revenuesfrom our Electronic Manufacturing Services segment increased $105,000 or 2% to$4,466,000 in the current quarter compared to $4,361,000 in the same periodlast year.  The increase reflectsincreased demand and order activity from existing customers.

 

***Cost of Products and Services Sold***

 

Costof products and services sold decreased $2,805,000 or 13% to $18,754,000 in thequarter ended November 30, 2009 compared to $21,559,000 in the same periodin fiscal 2009.  Cost of products andservices sold in our Specialized Manufacturing segment were $15,040,000 for thefirst three months of fiscal 2010 compared to $17,838,000 for the same periodin the prior year.  Cost of products andservices sold in our Electronic Manufacturing Services segment were $3,714,000in the current quarter compared to $3,721,000 for the same period last year.

 

Thefollowing table summarizes the relative percentages of revenues for cost ofproducts and services sold for both of our reporting segments:

 
| ** **                         | ** ** | **Three Months Ended November 30,** | ** ** |
|------------------------------------|------------|------------------------------------------|------------|
| ** **                         | ** ** | **2009**                                 | ** ** | **2008** | ** ** |
| Specialized Manufacturing          |       | 62%                                      |       | 67% |   |
| Electronic Manufacturing  Services |       | 83%                                      |       | 85% |   |
| Total                              |       | 65%                                      |       | 69% |   |

 

Asa percentage of revenues, cost of products and services sold in our SpecializedManufacturing segment decreased primarily due to increased sales of higher marginproducts, management’s diligent emphasis on improving manufacturingefficiencies, and the favorable impact of ongoing cost reduction efforts andcontinued focus on raw material costs through supply chain management.

 

Asa percentage of revenues, cost of products and services sold in our ElectronicManufacturing Services segment decreased as a result of cost savingsinitiatives that were implemented over the past few quarters along withcontinued focus and scrutiny on material purchases that helped stabilizemargins.

 

***Selling, General and Administrative Expenses***

 

Selling,general and administrative expenses increased $623,000 or 10% to $6,657,000 inthe quarter ended November 30, 2009 compared to $6,034,000 in the sameperiod in fiscal 2009.  The increase inthe current quarter over the prior year period is primarily due to expenses,including acquisition costs of $105,000, related to the C.I.M. business, whichwas acquired at the beginning of the current quarter.  These increases were partially offset by ourcontinued emphasis on controlling costs, including reduced travel and externalconsulting costs, and lower stock based compensation as a result of decreasedprofits in fiscal 2009.

 

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***Interest Expense***

 

Interestexpense increased $54,000 to $60,000 in the quarter ended November 30,2009 compared to $6,000 in the same period in fiscal 2009, during which we wereessentially debt free.  The increase ininterest expense is a direct result of the $10 million term loan agreement and$3 million promissory notes related to the acquisition of C.I.M.  We anticipate additional increases tointerest expense in fiscal 2010 due to our $7.0 million term loan agreementrelated to the December acquisition of the ServiWrap product line.

 

***Other Income (Expense)***

 

Other income decreased$8,000 or 7% to $109,000 in the quarter ended November 30, 2009 comparedto $117,000 in the same period in the prior year.  Other income primarilyincludes bank interest and foreign exchange gains in Europe.  The decrease in other income from the prioryear is because we no longer receive rental income on real property (buildingand land) that we previously owned but sold in June 2009, offset byincreased foreign exchange gains due to the strength of the euro.

 

***Net Income***

 

Netincome decreased $137,000 or 6% to $2,123,000 in the quarter ended November 30,2009 compared to $2,260,000 in the same period in the prior year.  The decrease in net income in the currentquarter compared to the prior year period is primarily due to decreased revenueacross many of our product lines as discussed previously, partially offset bythe inclusion of sales related to C.I.M., coupled with increased sales ofhigher margin products and management’s continued emphasis on cost savingsinitiatives.

 

****Liquidity and Sources of Capital****

 

Ouroverall cash balance decreased $4,494,000 to $7,149,000 at November 30,2009 from $11,643,000 at August 31, 2009. Generally, we manage our borrowings and payments under our revolvingline of credit in order to maintain a low cash balance.  The higher cash balances at both November 30,2009 and August 31, 2009 were a result of cash flow generated fromoperations being held for the C.I.M. acquisition which closed in September 2009(fiscal 2010) and the acquisition of the ServiWrap product lines which closedin December 2009.  Additionally, aportion of cash held as of November 30, 2009 was subsequently used in December 2009to pay our annual dividend.  We willcontinue to review our current cash balances denominated in foreign currency inlight of current tax guidelines and potential acquisitions.

 

Cashflow provided by operations was $2,078,000 in the first quarter of fiscal 2010compared to $1,501,000 in the prior year’s first quarter.  Cash providedby operations during the first three months of fiscal 2010 was primarily due tooperating income and decreased accounts receivable balances offset by increasedinventory balances and decreased accrued expenses.

 

Theratio of current assets to current liabilities was 2.3 as of November 30,2009 compared to 3.2 as of August 31, 2009.  The decrease in our current ratio at November 30,2009 was primarily attributable to the increase in the current portion oflong-term debt and decrease in cash used to finance the C.I.M. acquisitionalong with increases in accrued expenses. This was partially offset by an increase in inventory coupled with adecrease in accrued payroll and other compensation.

 

Cashflow used in investing activities of $16,156,000 was primarily due to theC.I.M. acquisition.

 

Cashflow provided by financing activities of $9,528,000 was primarily due to the$10 million term loan from Bank of America used to fund our acquisition ofC.I.M.

 

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OnOctober 15, 2009, we announced a cash dividend of $0.20 per share(totaling $1,759,000) to shareholders of record on October 31, 2009 andpayable on December 3, 2009.

 

Wecontinue to have a long-term unsecured line of credit available with Bank ofAmerica up to a maximum amount of $10 million at the bank’s base lending rateor, at the option of the Company, at the effective 30-day London InterbankOffered Rate (LIBOR) plus 1.25 percent. As of November 30, 2009, the entire amount of $10 million wasavailable for use under this line of credit. As of December 31, 2009, the Company had $7.7 million in availablecredit under this line of credit.  Weplan to use this availability to help finance our cash needs, includingacquisitions, in fiscal 2010 and future periods.

 

Underthe terms of our line of credit, we must comply with certain debt covenantsrelated to (a) the ratio of total liabilities to tangible net worth and (b) theratio of operating cash flow to debt service on a rolling twelve monthbasis.  We were in compliance with ourdebt covenants as of November 30, 2009. The line of credit currently has a maturity date of March 31, 2011.

 

Weborrowed $10.0 million from Bank of America in September 2009 in order tofund our acquisition of C.I.M.  Thisborrowing involved an unsecured, three year term note (“Term Note”) withinterest and principal payments due monthly. Interest is calculated at the applicable LIBOR rate plus a margin of1.75% per annum, with interest payments due on the last day of each month.  At November 30, 2009, the applicableinterest rate was 1.99% per annum.  Inaddition to monthly interest payments, we will repay the principal in equalinstallments of $167,000 per month, beginning on September 30, 2009, andon the last day of each month thereafter, ending on August 31, 2012, whenwe will repay the remaining principal balance plus any interest then due.  The Term Note is subject to the same debtcovenants as our line of credit discussed above.  Prepayment of the Term Note is allowed at anytime during the term of the loan.

 

Aspart of the C.I.M. acquisition in September 2009, we delivered $3,000,000in non-negotiable promissory notes (the “Notes”) payable to five C.I.M.shareholders, who were the holders of all of the issued and outstanding sharesof capital stock of C.I.M. as of the acquisition date.  The principal of the Notes will be paid inthree consecutive annual installments of $1,000,000 each, with the initialpayment due on September 4, 2010. Interest on the unpaid principal balance of the Notes will accrue at arate per annum equal to the applicable Federal rate, and will be paid annuallywith each principal payment.  At November 30,2009, the applicable interest rate was 0.71% per annum.

 

InDecember 2009, we borrowed $7.0 million from RBS Citizens in order to fundour acquisition of the ServiWrap product lines. This borrowing involved an unsecured, three year term note (“Term Loan”)with interest and principal payments due monthly.  Interest is calculated at the applicableLIBOR rate plus a margin of 1.90% per annum, with interest payments due on thelast day of each month.  In addition tomonthly interest payments, we will repay the principal in equal installments of$117,000 each, beginning on January 15, 2010, and on the 15th day of eachmonth thereafter, ending on December 15, 2012, when we will repay theremaining principal balance plus any interest then due.  The Term Loan is subject to the same debtcovenants as our line of credit discussed above.  Prepayment of the Term Loan is allowed at anytime.  At December 31, 2009, theapplicable interest rate was 2.13% per annum.

 

Tothe extent that interest rates increase in future periods, we will assess theimpact of these higher interest rates on the financial and cash flowprojections of our potential acquisitions.

 

Wehave no significant off balance sheet arrangements.

 

Wecurrently have several on-going capital projects as follows: (1) land andbuilding in Oxford, MA purchased in December 2008 that is currently beingrenovated to provide capacity for storage needs and future growth; (2) continuedrenovation of our facility in O’Hara Township, PA in order to increaseproduction capacity and improve efficiencies for existing product lines as wellas provide space to integrate future acquisitions; and (3) an office leasein Westwood, MA where we are redesigning and building out office space aspreviously discussed.  Machinery andequipment will be added as needed to increase capacity or enhance operatingefficiencies in our other manufacturing plants.

 

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Wemay consider the acquisition of companies or other assets this year or infuture periods which are complementary to our business.  We believe that our existing resources,including our line of credit, together with cash generated from operations andadditional bank borrowings, will be sufficient to fund our cash flowrequirements through at least the next twelve months.  However, there can be no assurances thatadditional financing will be available at favorable terms, if at all.

 

****ContractualObligations****

 

****Please refer to Item 7****“Management’s Discussion and Analysis of Financial Condition and Resultsof Operations” section****in our Form 10-Kfor the fiscal year ended August 31, 2009 for a complete discussion of ourcontractual obligations.  In addition tothose items reported for the fiscal year ended August 31, 2009, we enteredinto the following contractual cash obligations during the quarter ended November 30,2009:****

**** ****
| **Contractual  Obligations** | ** ** | **Total** | ** ** | **Payments  Due  Less than 1 Year** | ** ** | **Payments  Due  1 - 3 Years** | ** ** | **Payments  Due  4 - 5 Years** | ** ** | **Payments  After 5 Years** | ** ** |
|------------------------------|------------|-----------|------------|-------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|-----------------------------|------------|
|                         |       |      |       |                                |       |                           |       |                           |       |                        |       |
| Long-term debt (1)           |       | $         | 12,500     |                                | $          | 3,000                          |       | $                              | 9,500      |                        | $          | — |   | $ | — |   |
| Operating leases (2)         |       | 4,134     |       | 297                                 |       | 862                            |       | 1,473                          |       | 1,502                       |       |
|                         |       |      |       |                                |       |                           |       |                           |       |                        |       |
| **Total**                    |       | $         | 16,634     |                                | $          | 3,297                          |       | $                              | 10,362     |                        | $          | 1,473 |   | $ | 1,502 |   |

 

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****(1)********         ********Long-term debt includes the remaining payment obligationswe used to finance the C.I.M. acquisition.****

 

****(2)********         ********Operating leases includes the new office lease in Westwood,MA and an amended and extended property lease in Winchester, MA for ourexisting Electronic Manufacturing Services business.****

 

****The table above does not include any payment obligationsunder the $7 million borrowing from RBS Citizens used to****fund our acquisitionof the ServiWrap product lines****, because this was incurred after November 30,2009.  The payment terms for thatobligation are described above under “Liquidity and Sources of Capital”.****

 

**RecentAccounting Standards**

 

InJune 2009, the Financial Accounting Standards Board’s (FASB) approved the “FASBAccounting Standards Codification” (“ASC” or the “Codification”) as the singlesource of authoritative nongovernmental U.S. GAAP.  The Codification does not change current U.S.GAAP, but is intended to simplify user access to all authoritative U.S. GAAP byproviding all the authoritative literature related to a particular topic in oneplace.  All existing accounting standarddocuments will be superseded and all other accounting literature not includedin the Codification will be considered nonauthoritative.  The Codification became effective for us inthe quarter ending November 30, 2009 and the adoption did not have aneffect on our consolidated financial position, results of operations or cashflows.

 

InDecember 2007, the FASB issued ASC Topic 805, “Business Combinations” (“ASC 805”).  ASC 805 establishes principles andrequirements for how an acquirer in a business combination recognizes andmeasures in its financial statements the identifiable assets acquired, theliabilities assumed and any noncontrolling interest in the acquiree; recognizesand measures the goodwill acquired in the business combination or a gain from abargain purchase; expenses acquisition related costs as incurred; anddetermines what information to disclose to enable users of the financialstatements to evaluate the nature and financial effects of the businesscombination.  We adopted ASC 805 as of September 1,2009, and our acquisition of C.I.M. was accounted for under this standard.

 

In June 2008, the FASB issued guidance withinASC Topic 260, Earnings Per Share(“ASC 260”), to clarify that unvested share-based payment awards with a rightto receive nonforfeitable dividends are participating securities. Thestandard provides guidance on how to allocate earnings to participatingsecurities and compute earnings per share using the two-class method.  Weadopted the provisions of this standard on September 1, 2009.

 

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InDecember 2008, the FASB issued ASC Topic 715, “Compensation—Retirement Benefits” (“ASC 715”).  ASC 715 provides additional guidance on anemployer’s disclosures about plan assets of a defined benefit pension or otherpost-retirement plan enabling users of the financial statements to assess theinputs and valuation techniques used to develop fair value measurements of planassets at the annual reporting date.  The guidance requires more detaileddisclosures about the assets of a defined benefit pension or otherpost-retirement plan and is effective for fiscal years ending after December 15,2009. Since the guidance only requires enhanced disclosures,we do not expect theadoption of ASC 715 to have an impact on our consolidated financial positionand results of operations.

 

**Critical Accounting Policies and Estimates**

 

Our financial statements are prepared in accordancewith accounting principles generally accepted in the United States.  To apply these principles, we must makeestimates and judgments that affect our reported amounts of assets,liabilities, revenues and expenses, and related disclosure of contingent assetsand liabilities.  In many instances, wereasonably could have used different accounting estimates and, in otherinstances, changes in the accounting estimates are reasonably likely to occurfrom period to period. Accordingly, actual results could differ significantlyfrom our estimates.  To the extent thatthere are material differences between these estimates and actual results, ourfinancial condition or results of operations will be affected.  We base our estimates and judgments onhistorical experience and other assumptions that we believe to be reasonable atthe time and under the circumstances, and we evaluate these estimates andjudgments on an ongoing basis.  We referto accounting estimates and judgments of this type as critical accountingpolicies, judgments, and estimates. Management believes there have been no material changes during the threemonths ended November 30, 2009 to the critical accounting policiesreported in Item 7 “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” section in our Form 10-K for the fiscal yearended August 31, 2009.

 

**Forward Looking Information**

 

Thepart of this Quarterly Report on Form 10-Q captioned “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”contains certain forward-looking statements, which involve risks anduncertainties.  Forward-lookingstatements include, without limitation, statements as to our future operatingresults, future economic conditions and expectations or plans relating to theimplementation or realization of our strategic goals.  These statements are based on currentexpectations, estimates and projections about the industries in which weoperate, and the beliefs and assumptions made by management.  Readers should refer to the discussions under“Forward Looking Information” and “Risk Factors” contained in our Annual Reporton Form 10-K for the fiscal year ended August 31, 2009 concerningcertain factors that could cause our actual results to differ materially fromthe results anticipated in such forward-looking statements. These discussionsand Risk Factors are hereby incorporated by reference into this QuarterlyReport.

 

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**Item 3 - Quantitative and Qualitative Disclosures about Market Risk**

 

Welimit the amount of credit exposure to any one issuer.  At November 30, 2009, other than ourrestricted investments (which are restricted for use in a non qualifiedretirement savings plan for certain key employees and Directors), all of ourfunds were either in demand deposit accounts or investment instruments thatmeet high credit quality standards such as money market funds, governmentsecurities, or commercial paper.

 

Ourdomestic operations have limited currency exposure since substantially alltransactions are denominated in U.S. dollars. However, our European operationsare subject to currency exchange fluctuations. We continue to review our policies and procedures to reduce thisexposure while maintaining the benefit from these operations and sales to otherEuropean customers.  As of November 30,2009, we had cash balances in the United Kingdom for our HumiSeal Europe Ltdand Chase Protective Coatings Ltd divisions denominated primarily in poundssterling and equal to US $3,625,000 and cash balances in France for ourHumiSeal Europe SARL division denominated primarily in euros and equal to US$641,000.  We will continue to review ourcurrent cash balances denominated in foreign currency in light of current taxguidelines and potential acquisitions.

 

Weincurred a foreign currency translation gain, net of tax, for the three monthsended November 30, 2009 in the amount of $184,000 related to our Europeanoperations which is recorded in other comprehensive income within our Statementof Stockholders’ Equity.  We do not haveor utilize any derivative financial instruments.

 

**Item 4 - Controls and Procedures**

 

*Evaluation of disclosure controls and procedures*

 

Wemaintain disclosure controls and procedures that are designed to ensure thatinformation required to be disclosed in our reports under the SecuritiesExchange Act of 1934, as amended, is recorded, processed, summarized andreported within the time periods specified in the Commission’s rules andforms and that such information is accumulated and communicated to ourmanagement, including our Chief Executive Officer and Chief Financial Officer,as appropriate, to allow for timely decisions regarding requireddisclosure.  In designing and evaluatingthe disclosure controls and procedures, management recognizes that any controlsand procedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving the desired control objectives, andmanagement is required to apply its judgment in evaluating the cost-benefitrelationship of possible controls and procedures.

 

Wecarry out a variety of ongoing procedures, under the supervision and with theparticipation of our  management,including our Chief Executive Officer and Chief Financial Officer, to evaluatethe effectiveness of the design and operation of our disclosure controls andprocedures. Based on the foregoing, our Chief Executive Officer and ChiefFinancial Officer concluded that our disclosure controls and procedures wereeffective at a reasonable assurance level as of the end of the period coveredby this report.

 

*Changes in internal control over financial reporting*

 

Therewas no change in our internal control over financial reporting during our mostrecent fiscal quarter that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

 

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**Part II — OTHER INFORMATION**

 

**Item 1 — Legal Proceedings**

 

We are one of over 100 defendants in a personal injury lawsuit, pendingin Ohio, which alleges personal injury from exposure to asbestos contained incertain Chase products.  The case is captioned Marie Lou Scott, Executrixof the Estate of James T. Scott v. A-Best Products, et al., No. 312901 inthe Court of Common Pleas for Cuyahoga County, Ohio.  The plaintiff in the case issued discoveryrequests to us in August 2005, to which we timely responded in September 2005. The trial had initially been scheduled to begin on April 30, 2007.  However, that date had been postponed and nonew trial date has been set.  As of November 2009,there have been no new developments as this Ohio lawsuit has been inactive withrespect to us.

 

Wewere named as one of the defendants in a complaint filed on June 25, 2009,in a lawsuit captioned Lois Jansen, Individually and as Special Administratorof the Estate of Thomas Jansen v. Beazer East, Inc., et al., No: 09-CV-6248in the Milwaukee County (Wisconsin) Circuit Court.  The plaintiff allegesthat her husband suffered and died from malignant mesothelioma resulting fromexposure to asbestos in his workplace.  The plaintiff has sued sevenalleged manufacturers or distributors of asbestos-containing products,including Royston Laboratories (formerly an independent company and now adivision of Chase Corporation).  We have filed an answer to the claimdenying the material allegations in the complaint.  The parties are currentlyengaged in discovery.

 

Inaddition to the matters described above, we are involved from time to time inlitigation incidental to the conduct of our business.  Although we do not expect that the outcome inany of these matters, individually or collectively, will have a materialadverse effect on our financial condition or results of operations, litigationis inherently unpredictable.  Therefore,judgments could be rendered or settlements entered, that could adversely affectour operating results or cash flows in a particular period.  We routinely assesses all of our litigationand threatened litigation as to the probability of ultimately incurring aliability, and record our best estimate of the ultimate loss in situationswhere we assess the likelihood of loss as probable.

 

**Item 1A — Risk Factors**

 

Pleaserefer to Item 1A in our Form 10-K for the fiscal year ended August 31,2009 for a complete discussion of the risk factors which could materiallyaffect our business, financial condition or future results.

 

**Item 6 - Exhibits**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                               |
|---------------------|------------|---------------------------------------------------------------------------------------------------------------|
| 31.1                |       | Certification of  principal executive officer pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002 |
| 31.2                |       | Certification of  principal financial officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002 |
| 32.1                |       | Certification of  principal executive officer pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |
| 32.2                |       | Certification of  principal financial officer pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 |

 

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**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
| ** **                    | **Chase  Corporation** |
|-------------------------------|------------------------|
| ** **                    |                   |
| ** **                    |                   |
| Dated: January 11,  2010 | By:                    | /s/ Peter R. Chase |
|                          |                   | Peter R. Chase, |
|                          |                   | Chairman and Chief  Executive Officer |
|                          |                   |   |
|                          |                   |   |
| Dated: January 11,  2010 | By:                    | /s/ Kenneth L. Dumas |
|                          |                   | Kenneth L. Dumas, |
|                          |                   | Chief Financial Officer  and Treasurer |

 

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