The following discussion provides an analysis of the Company's financial
condition and results of operations and should be read in conjunction with the
Condensed Consolidated Financial Statements and notes thereto included in Item 1
of Part I of this Quarterly Report on Form 10-Q and with the Company's Annual
Report on Form 10-K filed for the fiscal year ended August 31, 2021.
Overview
General
In the quarter ended November 30, 2021, the Company's revenue grew as compared
to the prior year period, with all three of our reportable operating segments
surpassing sales achieved in the prior year period. However, a less favorable
relative margin and higher operating expenses (including those recognized in
relation to the ABchimie contingent earn-out accrual) resulted in lower
company-wide operating income and net income. The contracted relative margin in
the quarter was due to both: a.) increased input costs caused by continued
global raw material inflationary pressures, increased logistics costs and a more
competitive labor market; and b.) a less favorable sales mix, with sales
increases in our lower margin Industrial Tapes segment outpacing revenue gains
seen in our Adhesive, Sealants and Additives and Corrosion Protections and
Waterproofing segments. Further to this, the Adhesives, Sealants and Additives
and Industrial Tapes segments also experienced less favorable sales mixes within
the segments themselves - with historically less favorable margin products
constituting a comparatively larger part of total segment sales. The Company has
implemented and continues to implement customer price adjustments and work with
our customers and suppliers in an effort to counteract margin compression but
with a benefit lag reflected in current quarter results - given some delay
experienced due to notification period requirements with certain customers.
Revenue for our Adhesives, Sealants and Additives segment increased for the
first quarter against the comparable period with increased demand for our North
American focused functional additives product line, including inorganic growth
from our Emerging Technologies, Inc. ("ETi") business acquired in the second
quarter of fiscal 2021. Partially offsetting this increase in revenue was a
quarter-to-quarter reduction in sales volume from our electronic and industrial
coatings product line due to delayed quarterly demand most acutely seen with
sales into the automotive industry.
First quarter revenue for our Industrial Tapes segment surpassed the COVID-19
impacted prior year period with increased demand for our cable material, pulling
and detection and electronic materials product lines. Tempering this overall
increase in revenue were quarter-to-quarter reduction in sales volume from our
specialty products product line.
Revenue for our Corrosion Protection and Waterproofing segment surpassed the
prior year with increased demand for our coating and lining systems and bridge
and highway product lines. Partially offsetting these increases in revenue were
quarter-to-quarter reductions in sales volume from our pipeline coatings and
building envelope product lines.
Business Developments
During the first quarter of fiscal 2022, Chase took steps to prepare for the
future relocation of its Corporate Headquarters to another location within
Westwood, MA. The move, part of the Company's ongoing consolidation and
optimization initiative, takes advantage of the new work from home hybrid
realities of many of Chase's corporate employees and is expected to provide
future operational cost savings. The facility will also house research and
development operations currently performed at the existing Westwood, MA location
as well as those currently housed in our Woburn, MA location. The relocation to
the new Corporate Headquarters is anticipated to be completed during the second
fiscal quarter of 2022.
During the third quarter of fiscal 2021, Chase announced to the employees at its
Woburn, MA location that its adhesives systems operations, part of the
Adhesives, Sealants and Additives segment's electronic and industrial coatings
product line, would be consolidating into the Company's existing O'Hara
Township, PA location. This rationalization and consolidation initiative aligns
with the second quarter of fiscal 2021 announcement of the Company's plan to
move its
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sealant systems production from Newark, CA to Hickory, NC, described in more
detail below. Chase Corporation obtained both the adhesive and sealants systems
as part of its fiscal 2017 acquisition of the operations of Resin Designs. No
expense was recognized related to the adhesive systems initiative during the
first quarter of fiscal 2022, with the majority of future costs anticipated to
occur in the second half of fiscal 2022.
On February 5, 2021, the Company acquired certain assets of Emerging
Technologies, Inc. ("ETi"), a Greensboro, NC-located solutions provider and
formulator of absorbent polymers for use in the packaging, recreational,
consumer and sanitation markets. Following its fiscal 2018 acquisition of Zappa
Stewart, the acquisition of ETi expands Chase Corporation's market share in the
growing superabsorbent polymers vertical. This second quarter of fiscal 2021
acquisition came following the September 1, 2020 (first day of fiscal 2021)
purchase of ABchimie, a Corbelin, France-headquartered solutions provider for
the cleaning and protection of electronic assemblies, that includes additional
formulation, production, and research and development capabilities. Both the
fiscal 2021 acquisitions were funded with available cash on hand and broaden the
Company's specialty chemical offerings within the Adhesives, Sealants and
Additives reporting segment with high performance, environmentally-friendly
technologies that are complementary to Chase's existing product offerings.
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Revenue by Segment
Chase Corporation has three reportable operating segments as summarized below:
Segment Product Lines Manufacturing Focus and Products
Adhesives, Electronic and Protective coatings, including moisture
Sealants and Industrial Coatings protective coatings and cleaning
Additives Functional Additives chemistries, and customized sealant and
adhesive systems for electronics;
polyurethane dispersions, polymeric
microspheres and superabsorbent
polymers.
Industrial Cable Materials Protective tape and coating products and
Tapes Specialty Products services, including insulating and
Pulling and Detection conducting materials for wire and cable
Electronic Materials manufacturers; laminated durable papers,
packaging and industrial laminate
products and custom manufacturing
services; pulling and detection tapes
used in the installation, measurement
and location of fiber optic cables and
water and natural gas lines; cover tapes
essential to delivering semiconductor
components via tape-and-reel packaging.
Corrosion Coating and Lining Protective coatings and tape products,
Protection Systems including coating and lining systems for
and Pipeline Coatings use in liquid storage and containment
Waterproofing Building Envelope applications; protective coatings for
Bridge and Highway pipeline and general construction
applications; adhesives and sealants
used in architectural and building
envelope waterproofing applications;
high-performance polymeric asphalt
additives and expansion and control
joint systems for use in the
transportation and architectural
markets.
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Balance Sheet and Cash Flow
Chase Corporation's balance sheet remained strong as of November 30, 2021, with
cash on hand of $124,234,000, and a current ratio of 5.9. The Company's cash
position continues to remain healthy, as does cash flow from operations. Chase
continued its strategic inventory build during the quarter to ensure our ability
to satisfy our customers' demands and to address our elevated backlog caused in
part by supply chain challenges. In addition, Chase Corporation paid out an
annual cash dividend of $9,460,000 on December 9, 2021 during the second fiscal
quarter.
The Company held no outstanding balance on its $200,000,000 revolving credit
facility as of November 30, 2021. The revolving credit facility, which was
amended and restated in July 2021 (fourth quarter of fiscal 2021) to increase
its capacity from $150,000,000 to $200,000,000, allows for the Company to pay
down debt with excess cash, while retaining access to immediate liquidity to
fund future accretive activities, including mergers and acquisitions, as they
are identified. The new facility also gives Chase the ability to request an
increase in this amount by an additional $100,000,000 ($300,000,000 in total
borrowing capacity) at the individual or collective option of any of the
lenders. Through this amendment and restatement, Chase also extended the
maturity date of the facility through July 2026.
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Results of Operations
Revenue and Income before Income Taxes by Segment were as follows (dollars in
thousands):
% of % of
Three Months Ended Total Three Months Ended Total
November 30, 2021 Revenue November 30, 2020 Revenue
Revenue
Adhesives,
Sealants and
Additives $ 31,049 41 % $ 30,071 45 %
Industrial
Tapes 32,761 44 % 26,491 39 %
Corrosion
Protection and
Waterproofing 11,200 15 % 10,614 16 %
Total $ 75,010 $ 67,176
% of % of
Three Months Ended Segment Three Months Ended Segment
November 30, 2021 Revenue November 30, 2020 Revenue
Income before
income taxes
Adhesives,
Sealants and
Additives $ 7,597 (a) 24 % $ 9,979 33 %
Industrial
Tapes 9,290 28 % 7,868 30 %
Corrosion
Protection and
Waterproofing 4,446 40 % 4,086 38 %
Total for
reportable
segments 21,333 28 % 21,933 33 %
Corporate and
Common Costs (8,216) (b) (7,956)
Total $ 13,117 17 % $ 13,977 21 %
Includes $475 in loss on the upward adjustment of the performance-based
(a) earn-out contingent consideration associated with the September 2020
acquisition of ABchimie
(b) Includes $59 of optimization expense related to the future relocation of the
Company's Corporate Headquarters to another location within Westwood, MA
Total Revenue
Total revenue increased $7,834,000 or 12% to 75,010,000 for the quarter ended
November 30, 2021, compared to $67,176,000 in the same quarter of the prior
year.
Revenue in the Company's Adhesives, Sealants and Additives segment increased
$978,000 or 3% to $31,049,000 in the current quarter. The increase in revenue
for the Adhesives, Sealants and Additives segment for the current quarter was
primarily due to our functional additives product line's $2,243,000 increase,
which includes the inorganic growth attributable to ETi in the quarter.
Negatively impacting the segment's sales was a decrease in revenue from our
electronic and industrial coatings line totaling $1,265,000, with logistics and
raw material supply constraints effecting sales in automotive verticals.
Revenue in the Company's Industrial Tapes segment increased $6,270,000 or 24% to
$32,761,000 in the current quarter. The increase in revenue for the Industrial
Tapes segment for the current quarter was primarily due to our wire and cable,
pulling and detection, and electronic materials product lines' combined
$6,385,000 increase over the COVID-19 impacted prior year period. Negatively
impacting the segment's sales was a decrease in revenue from our specialty
products product line totaling $115,000.
Revenue in the Company's Corrosion Protection and Waterproofing segment
increased $586,000 or 6% to $11,200,000 in the current quarter. The increase in
revenue for the Corrosion Protection and Waterproofing segment for the current
quarter was primarily due to our coatings and lining systems and bridge and
highway product lines' combined $778,000 increase. Negatively impacting the
segment's sales was a decrease in revenue from our pipeline coatings and
building envelope product lines, totaling a combined $192,000. The pipeline
coatings product line saw a net decrease for the period, with COVID-19 overhang
delays in products sold into Middle East and Asian markets outpacing North
American sales gains into oil and gas markets.
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Cost of Products and Services Sold
Cost of products and services sold increased $7,676,000 or 19% to $47,281,000
for the quarter ended November 30, 2021, compared to $39,605,000 in the prior
year quarter.
The following table summarizes the cost of products and services sold as a
percentage of revenue for each of Chase Corporation's reportable operating
segments:
Three Months Ended November 30,
Cost of products and services sold 2021 2020
Adhesives, Sealants and Additives 61 % 55 %
Industrial Tapes 68 65
Corrosion Protection and Waterproofing 55 55
Total Company 63 % 59 %
Cost of products and services sold in the Adhesives, Sealants and Additives
segment was $18,905,000 in the current quarter compared to $16,613,000 in the
comparable prior year period. Cost of products and services sold in the
Industrial Tapes segment was $22,231,000 in the current quarter compared to
$17,117,000 in the comparable prior year period. Cost of products and services
sold in the Corrosion Protection and Waterproofing segment was $6,145,000 in the
current quarter compared to $5,875,000 in the same prior year period.
As a percentage of revenue, cost of products and services sold increased for
both the Adhesives, Sealants and Additives and Industrial Tapes segments and
held steady for the Corrosion Protection and Waterproofing segment as compared
to the prior year first quarter. The decrease in the relative gross margin for
the Adhesives, Sealants and Additives and Industrial Tapes segments was due to
continued global raw material inflationary pressures, increased logistics and
freight costs, and a more competitive labor market. Additionally, the Company's
overall relative margin was affected by a less favorable sales mix with sales
increases in our lower margin Industrial Tapes segment outpacing revenue gains
seen in our Adhesive, Sealants and Additives and Corrosion Protections and
Waterproofing segments. The Adhesives, Sealants and Additives and Industrial
Tapes segments also experienced less favorable sales mixes within the segments
themselves, with historically less favorable margin products constituting a
comparatively larger part of total segment sales. The Company has implemented
and continues to implement customer price adjustments and continues to work with
our customers and suppliers in an effort to counteract margin compression but
with a lag reflected in current quarter results.
With the composition of the Company's finished goods and the markets it serves,
the costs of certain commodities (including petroleum-based solvents, films,
yarns, polymers and nonwovens, aluminum and copper foils, specialty papers, and
various resins, adhesives and inks) directly and indirectly affect both the
purchase price of the raw materials and market demand for its product offerings.
The Company diligently monitors raw materials and commodities pricing across all
its product lines in an effort to preserve margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $1,115,000 or 9% to
$13,375,000 for the quarter ended November 30, 2021 compared to $12,260,000 in
the prior year quarter. As a percentage of revenue, selling, general and
administrative expenses represented 18% for both the current and prior year
periods.
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Research and Product Development Costs
Research and Product Development Costs decreased $58,000 to $993,000 during the
first quarter of fiscal 2022, compared to $1,051,000 in the prior year quarter.
Research and development stayed relatively consistent from fiscal 2021 to 2022
as the Company continued focused development work on strategic product lines.
Operations Optimization Costs
During the first quarter of fiscal 2022, Chase took steps to prepare for the
future relocation of its Corporate Headquarters to a new location also located
within Westwood, MA. The move, part of the Company's ongoing consolidation and
optimization initiatives, takes advantage of the new work from home hybrid
realities of many of Chase's corporate employees and is expected to provide
future operational cost savings. The facility will also house research and
development operations currently performed at the existing Westwood, MA location
as well as those currently housed in our Woburn, MA location. Operations
optimization expenses of $59,000 related to the relocation were expensed in the
first quarter. The relocation to the new Corporate Headquarters is anticipated
to be completed during the second fiscal quarter of 2022.
During the third quarter of fiscal 2021, Chase announced to the employees at its
Woburn, MA location that its adhesives systems operations, part of the
Adhesives, Sealants and Additives segment's electronic and industrial coatings
product line, would be consolidating into the Company's existing O'Hara
Township, PA location. This rationalization and consolidation initiative aligns
with the second quarter of fiscal 2021 announcement of the Company's plan to
move its sealant systems production from Newark, CA to Hickory, NC, described in
more detail below. Chase Corporation obtained both the adhesive and sealants
systems as part of its fiscal 2017 acquisition of the operations of Resin
Designs. No expense was recognized related to the adhesive systems initiative
during the first quarter of fiscal 2022, with the majority of future costs
anticipated to occur in the second half of fiscal 2022.
During the second quarter of fiscal 2021, Chase began moving the sealant systems
operations, part of the Adhesives, Sealants and Additives segment's electronic
and industrial coatings product line, from its Newark, CA location to its
Hickory, NC facility. This is in line with the Company's ongoing initiative to
consolidate its manufacturing plants and streamline its existing processes. The
sealant systems operations and Newark, CA location came to Chase Corporation as
part of the fiscal 2017 acquisition of the operations of Resin Designs, and the
Company's lease there terminated in fiscal 2021. The Company recognized $977,000
in expense related to the move during the prior fiscal year ended August 31,
2021 (but with no expense recognized in the first quarter of 2021). This project
is now substantively completed, and no expense was recognized during the first
quarter of fiscal 2022. Any future costs related to this move are not
anticipated to be significant to the Condensed Consolidated Financial
Statements.
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Loss (Gain) on Contingent Consideration
As a component of the September 1, 2020 acquisition of ABchimie, the Company
incurred a performance-based earn out liability potentially worth an additional
€7,000,000 (approximately $8,330,000 at the time of the transaction) in
consideration. Following its initial recording of an accrual for $928,000 at the
acquisition date, $1,664,000 in expense related to adjustments to the
performance-based earn out accrual were recorded during fiscal year ended August
31, 2021 (but with no expense recognized in the first quarter of fiscal 2021).
The Company recognized an additional $475,000 in the first quarter of fiscal
2022 related to the contingent consideration.
Interest Expense
Interest expense increased $18,000 or 26% to $87,000 in fiscal 2022 compared to
$69,000 in the first quarter of fiscal 2021. As the Company had no outstanding
balance on its revolving debt facility for both periods, interest expense has
remained relatively low.
Other Income (Expense)
Other income was $377,000 in the first quarter of fiscal 2022 compared to other
expense of $214,000 in the comparable fiscal quarter, a change of $591,000.
Other income (expense) primarily includes foreign exchange gains (losses) caused
by changes in exchange rates on transactions or balances denominated in
currencies other than the functional currency of our subsidiaries, non-service
cost components of periodic pension expense (including pension-related
settlement costs due to the timing of lump-sum distributions), interest income,
rental income and other non-trade/non-royalty/non-commission receipts. The
change in total other income (expense) in fiscal 2022 compared to fiscal 2021
was largely due to the recognition of a foreign exchange gain in fiscal 2022 as
compared to a loss in fiscal 2021.
Income Taxes
The effective tax rate for the quarter ended November 30, 2021 was 25.8%,
compared to 22.5% for the quarter ended November 30, 2020. The prior year first
quarter benefited from a discrete item that did not repeat in the current fiscal
year first quarter.
For fiscal 2021 and 2020, the Company is utilizing the 21% Federal tax rate
enacted by the Tax Cuts and Jobs Act (the "Tax Act") passed in December 2017.
Please see Note 14 - "Income Taxes" to the Condensed Consolidated Financial
Statements for further discussion of the effects of the Tax Act.
Net Income
Net income decreased $1,110,000 or 10% to 9,727,000 in the quarter ended
November 30, 2021 compared to $10,837,000 in the prior year first quarter. The
decrease in net income in the first quarter was primarily due to: a.) a lower
relative margin, brought on by continued global raw material inflationary
pressures, increased logistics costs and a more competitive labor market; b.) a
less favorable sales mix; and c.) increased operating expenses (including those
recognized in relation to the ABchimie contingent earn-out accrual).
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Liquidity and Sources of Capital
The Company's overall cash and cash equivalents balance increased $4,805,000 to
$124,234,000 at November 30, 2021, from $119,429,000 at August 31, 2021. The
increased cash balance is primarily attributable to cash flow from operations.
Of the above-noted amounts, $27,428,000 and $26,309,000 were held outside the
United States by Chase Corporation and its foreign subsidiaries as of November
30, 2021 and August 31, 2021, respectively. Given the Company's cash position
and borrowing capability in the United States and the potential for increased
investment and acquisitions in foreign jurisdictions (as evidenced by the fiscal
2021 acquisition of ABchimie), prior to the second quarter of fiscal 2018 the
Company did not have a history of repatriating a significant portion of its
foreign cash. With the passage of the Tax Cuts and Jobs Act (the "Tax Act") in
the second fiscal quarter of 2018, significant changes in the Internal Revenue
Code were enacted, changing the U.S. taxable nature of previously unrepatriated
foreign earnings. Following the passage of the Tax Act, the Company repatriated
$10,499,000 in U.K. foreign earnings in fiscal 2018 and $17,230,000 in fiscal
2019. No additional amounts were repatriated in fiscal year 2020, 2021 and the
first quarter of fiscal 2022. Please see Note 14 - "Income Taxes" to the
Condensed Consolidated Financial Statements for further discussion of the
effects of the Tax Act.
Cash flow provided by operations was $5,903,000 in the first three months of
fiscal year 2022 compared to $14,052,000 in the same period in the prior year.
Cash provided by operations during the current period was primarily related to
operating income. Negatively impacting the cash flow from operations in the
current period was a strategic build up in inventory, and a decrease in accrued
compensation and other expenses, due in part to the payment of the Company's
domestic annual bonus to its employees during the first quarter of fiscal 2022.
The ratio of current assets to current liabilities was 5.9 as of November 30,
2021 compared to 6.5 as of August 31, 2021. The ratio decreased over the first
three months of fiscal 2022 due largely to the dividend payable which was
recorded at November 30, 2021 and paid out in the second quarter of fiscal 2022.
Cash flow used in investing activities of $617,000 was largely due to the cash
spent on capital purchases of machinery and equipment in the first quarter of
fiscal 2022.
Cash flows from financing activities had no activity during the first quarter
ended November 30, 2021.
On November 15, 2021, Chase Corporation announced a cash dividend of $1.00 per
share (totaling $9,460,000). The dividend was paid on December 9, 2021 (the
second quarter of fiscal 2022) to shareholders of record on November 30, 2021.
On July 27, 2021 (the fourth quarter of fiscal 2021), the Company entered into
the Second Amended and Restated Credit Agreement (the "New Credit Agreement") by
and among the Company (the "Chase Borrower"), NEPTCO Incorporated ("NEPTCO"),
the subsidiary guarantors party thereto, the financial institutions party
thereto as Lenders, and Bank of America, N.A., as administrative agent, with
participation from Wells Fargo Bank, N.A., PNC Bank, N.A. and JPMorgan Chase
Bank, N.A. The New Credit Agreement was entered into to amend, restate and
extend the Company's preexisting Amended and Restated Credit Agreement (the
"Prior Credit Agreement"), which had a maturity date of December 15, 2021, and
to provide for additional liquidity to finance acquisitions, working capital and
capital expenditures, and for other general corporate purposes. Under the New
Credit Agreement, Chase obtained an increased revolving credit loan (the "New
Revolving Facility"), with borrowing capabilities not to exceed $200,000,000 at
any time, with the ability to request an increase in this amount by an
additional $100,000,000 at the individual or collective option of any of the
Lenders. The applicable interest rate for the New Revolving Facility and New
Term Loan (defined below) is based on the effective London Interbank Offered
Rate (LIBOR) plus a range of 1.00% to 1.75%, depending on the consolidated net
leverage ratio of Chase and its subsidiaries. At November 30, 2021, there was no
outstanding principal balance, and as such, no applicable interest rate. The New
Credit Agreement has a five-year term with interest payments due at the end of
the applicable LIBOR period (but in no event less frequently than the
three-month anniversary of the commencement of such LIBOR period) and principal
payment due at the expiration of the agreement, July 27, 2026. The New Credit
Agreement contains provisions that may replace LIBOR as the benchmark index
under certain circumstances. In addition, the Company may elect a base rate
option for all or a portion of the New Revolving Facility, in which case
interest payments shall be due with respect to such portion of the New Revolving
Facility on the
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last business day of each quarter. Subject to certain conditions set forth in
the New Credit Agreement, the Company may elect to convert all or a portion of
the outstanding New Revolving Facility into a new term loan twice during the
term of the New Revolving Facility (each, a "New Term Loan", and collectively
with the New Revolving Facility, the "New Credit Facility"), which New Term Loan
shall be payable quarterly in equal installments sufficient to amortize the
original principal amount of such Term Loan on a ten year amortization schedule.
The outstanding balance on the New Credit Facility is guaranteed by all of
Chase's direct and indirect domestic subsidiaries. The New Credit Facility is
subject to restrictive covenants under the New Credit Agreement, and financial
covenants that require Chase and its subsidiaries to maintain certain financial
ratios on a consolidated basis, including a consolidated net leverage ratio of
3.25 to 1.00 and a consolidated interest coverage ratio of 3.50 to 1.00 (both
defined in the New Credit Agreement). Chase Corporation was in compliance with
the debt covenants as of November 30, 2021. The New Credit Agreement also places
certain Lender-approval requirements as to the size of permitted acquisitions
which may be entered into by the Company and its subsidiaries, and allows for a
temporary step-up in the allowed consolidated leverage ratio for the four fiscal
quarters ending after certain designated acquisitions. Prepayment is allowed by
the New Credit Agreement at any time during the term of the agreement, subject
to customary notice requirements and the payment of customary LIBOR breakage
fees.
The Company has several ongoing capital projects, as well as its facility
rationalization and consolidation initiative, which are important to its
long-term strategic goals. Machinery and equipment may be added as needed to
increase capacity or enhance operating efficiencies in the Company's production
facilities.
We may acquire companies or other assets in future periods which are
complementary to our business. The acquisition of ABchimie included a potential
earnout based on performance of up to an additional €7,000,000 (approximately
$8,330,000 at the time of the transaction), which the Company expects to pay
with cash on hand if the applicable conditions are met. The acquisition of ETi
includes a $1,000,000 withholding, which is payable by the Company within
eighteen months of the acquisition. The Company believes that its existing
resources, including cash on hand and the New Amended and Restated Credit
Agreement, together with cash generated from operations and additional bank
borrowings, will be sufficient to fund its cash flow requirements through at
least the next twelve months. However, there can be no assurance that additional
financing, if needed, will be available on favorable terms, if at all.
To the extent that interest rates increase in future periods, we will assess the
impact of these higher interest rates on the financial and cash flow projections
of our potential acquisitions.
We have no material off-balance sheet arrangements.
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Contractual Obligations
Please refer to Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's Annual Report on Form 10-K
for the fiscal year ended August 31, 2021 for a complete discussion of its
contractual obligations.
Recent Accounting Standards
Please see Note 2 - "Recent Accounting Standards" to the Condensed Consolidated
Financial Statements for a discussion of the effects of recently issued and
recently adopted accounting pronouncements.
Critical Accounting Policies
Our financial statements are prepared in accordance with accounting principles
generally accepted in the United States. To apply these principles, we must make
estimates and judgments that affect our reported amounts of assets, liabilities,
revenue and expenses, and related disclosure of contingent assets and
liabilities. In many instances, we reasonably could have used different
accounting estimates and, in other instances, changes in the accounting
estimates are reasonably likely to occur from period to period. Accordingly,
actual results could differ significantly from our estimates. To the extent that
there are material differences between these estimates and actual results, our
financial condition or results of operations will be affected. We base our
estimates and judgments on historical experience and other assumptions that we
believe to be reasonable at the time and under the circumstances, and we
evaluate these estimates and judgments on an ongoing basis. We refer to
accounting estimates and judgments of this type as critical accounting policies,
judgments, and estimates. Management believes there have been no material
changes during the three months ended November 30, 2021 to the critical
accounting policies reported in Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in our Annual Report on Form 10-K
for the fiscal year ended August 31, 2021.
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