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, 2019.
Overview
We experienced a primarily volume-based revenue decline in the quarter ended
November 30, 2019, as compared to the first fiscal quarter of the prior year.
Macrotrends observed in the prior year continued, including tightness in Asian
markets, contraction in Middle East construction starts and declining domestic
bridge work. In the current quarter, we also saw a slowdown in cable materials
demand and the planned winding down of the transitional toll manufacturing
services we provide to the common purchaser of the structural composites rod and
fiber optic cable components businesses. While revenue was down, certain
operational improvements over the comparative period were recognized, including
an increased relative gross profit margin, as the Company saw the current year
benefits of the prior year consolidation of our wire and cable materials
manufacturing into our Oxford, MA and Lenoir, NC locations. A favorable sales
mix, including the reduction in low-margin tolling services, and price increases
put into effect to address rising raw material costs in the prior year both
further aided our gross profit margin as a percentage of revenue.
During the first quarter of fiscal 2020, the Company further progressed its
facility consolidation and rationalization initiative, nearly completing the
relocation of our pulling and detection product line production operations from
our Granite Falls, NC facility to our Hickory, NC facility. The pulling and
detection relocation effort began in the third quarter of the prior year and is
anticipated to be substantially completed in the coming second fiscal quarter of
2020. Operational efficiency gains continued at our Oxford, MA and Lenoir, NC
facilities. Our Industrial Tapes segment is the beneficiary of both these
consolidation efforts, and the segment's improved gross profit margin as a
percentage of revenue demonstrated the gains that can be realized by the proper
execution of an effective consolidation program. We also began the process of
exploring future upgrades to our existing worldwide ERP system as a means to
invest in the streamlining of our operations and making us more scalable for
future growth whether organic or via potential acquisitions.
Net cash provided by operating activities exceeded the prior year first quarter
and the Company's cash position continued the positive trend seen in the latter
half of the prior fiscal year following the full payoff of our outstanding debt.
We remain unleveraged, holding no outstanding balance on our revolving credit
facility at the close of the current period. Our revolving credit facility
allows for us to pay down debt when we have excess cash, while retaining access
to immediate liquidity to fund future accretive activities, including mergers
and acquisitions, as identified.
Revenue from the Adhesives, Sealants and Additives segment decreased as our
electronic and industrial coatings product line sales volume continued to be
affected by slower Asian markets, a trend which began in the second half of the
prior year. Our specialty chemical intermediates product line sales increased on
volume over the prior year, partially tempering the overall sales decline for
the segment.
Our Industrial Tapes segment's sales decreased compared to the prior year, most
notably related to both our cable materials and specialty products product
lines. The reduction in our specialty products product line came largely on less
low-margin transitional toll manufacturing services provided to the common
purchaser of our structural composites rod and fiber optical cable components
businesses as that arrangement neared completion. Our electronic materials
product line, which sells into near exclusively Asian end markets, also had
reduced sales volume as compared to the prior year. The segment's top-line
results for the quarter were positively affected by our pulling and detection
product line, which had strong sales into North American utility and
telecommunication markets.
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Our Corrosion Protection and Waterproofing segment's revenue fell short of the
prior year for the quarter ended November 30, 2019. Our bridge and highway,
pipeline coatings and coating and lining systems product lines all saw declines
from the prior year first quarter. Our bridge and highway product line sales
results in the first quarter were affected by non-repeating, large-scale bridge
work in the eastern U.S. which began in fiscal 2018 and completed in fiscal 2019
(prior year). Continued compressed construction in the Middle East affected our
U.K.-produced water and wastewater pipeline products, which was the primary
driver for the product line's year-over-year sales volume decline. Our building
envelope product line finished the quarter surpassing prior year sales results.
The upcoming second fiscal quarter has historically generated lower quarterly
revenue for many of our product lines, especially within the Corrosion
Protection and Waterproofing segment due to the seasonal effects of winter
weather across much of North America.
Our balance sheet remains strong at November 30, 2019, with cash on hand of
$66,056,000, a current ratio of 4.6 and no outstanding principal balance owed on
our $150,000,000 revolving credit facility.
We have 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 customized
Additives Specialty Chemical sealant and adhesive systems for
Intermediates 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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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, 2019 Revenue November 30, 2018 Revenue
Revenue
Adhesives,
Sealants and
Additives $ 25,822 39 % $ 26,698 37 %
Industrial Tapes 30,124 45 % 33,462 46 %
Corrosion
Protection and
Waterproofing 10,856 16 % 12,343 17 %
Total $ 66,802 $ 72,503
% of % of
Three Months Ended Segment Three Months Ended Segment
November 30, 2019 Revenue November 30, 2018 Revenue
Income before
income taxes
Adhesives,
Sealants and
Additives $ 7,482 29 % $ 8,265 31 %
Industrial Tapes 6,637 (a) 22 % 6,538 (c) 20 %
Corrosion
Protection and
Waterproofing 3,964 37 % 4,466 36 %
Total for
reportable
segments 18,083 27 % 19,269 27 %
Corporate and
Common Costs (8,012) (b) (7,461) (d)
Total $ 10,071 15 % $ 11,808 16 %
--------------------------------------------------------------------------------
(a) Includes $499 in exit costs related to the movement of the pulling and
detection business out of the Granite Falls, NC location and into the
Hickory, NC location during the first quarter of fiscal 2020
(b) Includes $150 of expense related to exploratory IT work performed to assess
potential future upgrades to our companywide ERP system
(c) Includes $260 of expense related to the closure and exit of our Pawtucket, RI
location recognized in the first quarter of fiscal 2019
(d) Includes $200 of pension-related settlement costs due to the timing of
lump-sum distributions
Total Revenue
Total revenue decreased $5,701,000 or 8% to $66,802,000 for the quarter ended
November 30, 2019, compared to $72,503,000 in the same quarter of the prior
year.
Revenue in our Adhesives, Sealants and Additives segment decreased $876,000 or
3% to $25,822,000 for the quarter ended November 30, 2019 compared to
$26,698,000 in the first quarter of fiscal 2019. The decrease in revenue from
our Adhesives, Sealants and Additives segment in fiscal 2020 was primarily due
to our electronic and industrial coatings product line's $1,193,000
sales-volume-driven decrease, with headwinds seen most acutely in Asian markets.
Partially offsetting the segment's sales decline was an increase in revenue from
our specialty chemical intermediates product line totaling $317,000, with strong
North America sales into the consumer, environmental, industrial and medical
markets.
Revenue in our Industrial Tapes segment decreased $3,338,000 or 10% to
$30,124,000 for the three months ended November 30, 2019 compared to $33,462,000
in fiscal 2019. The decrease in revenue was primarily due to: (a) a sales volume
demand decrease of $1,978,000 from our cable materials product line; (b) a
quarter-over-quarter revenue reduction of $1,730,000 for our specialty products
product line, as we provided less low-margin transitional toll manufacturing
services in the current period; and (c) an entirely volume-driven sales decrease
of $270,000 in our electronic materials product line, which has a near
exclusively Asian end-market. Partially offsetting the sales decline for the
segment was our pulling and detection tapes product line, which achieved a
volume- and price-driven revenue growth of $640,000 over the first quarter of
the prior year.
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Compared to the prior year first quarter, revenue from our Corrosion Protection
and Waterproofing segment decreased $1,487,000 or 12% to $10,856,000 compared to
$12,343,000 in the first three months of fiscal 2019. The segment's sales
decrease was predominantly driven by unfavorable results for our bridge and
highway products, which saw a volume-driven sales decline of $1,090,000 as
compared to the elevated results of the bridge work-heavy prior year. Our
pipeline coatings and coating and lining systems product lines also saw sales
contract from the prior year by $677,000 and $265,000, respectively. In the case
of our pipeline coatings products, the reduction was primarily related to the
prolonged contraction in certain Middle East credit markets, which has delayed
construction starts. Tempering the overall sales decrease, our building envelope
product line finished the first quarter with sales favorable to the prior year
by $545,000.
Cost of Products and Services Sold
Cost of products and services sold decreased $4,792,000 or 10% to $41,783,000
for the quarter ended November 30, 2019, compared to $46,575,000 in the prior
year quarter.
The following table summarizes our cost of products and services sold as a
percentage of revenue for each of our reportable operating segments:
Three Months Ended November 30,
Cost of products and services sold 2019 2018
Adhesives, Sealants and Additives 56 % 56 %
Industrial Tapes 71 74
Corrosion Protection and Waterproofing 55 56
Total Company 63 % 64 %
Cost of products and services sold in our Adhesives, Sealants and Additives
segment was $14,532,000 in the current quarter compared to $14,992,000 in the
comparable period in the prior year. Cost of products and services sold in our
Industrial Tapes segment was $21,319,000 in the current quarter compared to
$24,618,000 in the comparable period in the prior year. Cost of products and
services sold in our Corrosion Protection and Waterproofing segment was
$5,932,000 for the quarter ended November 30, 2019, compared to $6,965,000 in
the same period of the prior year.
As a percentage of revenue, cost of products and services sold stayed the same
for the Adhesives, Sealants and Additives segment, and was reduced for both the
Industrial Tapes and Corrosion Protection and Waterproofing segments for the
quarter as compared to the same period in the prior year. These relative gross
margin improvements were primarily due to: (a) production efficiencies
recognized in the quarter over the prior year, most acutely seen at our Oxford,
MA and Lenoir, NC locations following the consolidation of our former Pawtucket,
RI cable materials plant, and benefiting our Industrial Tapes segment; (b) more
favorable sales mix, most specifically obtained in our Industrial Tapes segment,
as our lower margin products constituted a comparatively lower portion of total
sales; and (c) the full period effects of price increases the Company instituted
during fiscal 2019 (prior year) to address inflation in raw material costs.
With the composition of our finished goods and the markets we serve, the costs
of certain commodities (including petroleum-based solvents, films, yarns,
polymers and nonwovens, aluminum and copper foils, specialty papers, and various
resins, adhesives and inks) both directly and indirectly affect the purchase
price of our raw materials and the market demand for our product offerings. The
Company diligently monitors raw material and commodities pricing across all its
product lines in its efforts to preserve margins.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $278,000 or 2% to
$13,640,000 for the quarter ended November 30, 2019 compared to $13,362,000 in
the prior year quarter. As a percentage of revenue, selling, general and
administrative expenses represented 20% and 18% for the quarter ended November
30, 2019 and 2018, respectively. The nominal increase for the current fiscal
quarter compared to the prior year period was largely attributable to an
increase of $209,000 in non-cash stock-based compensation expenses.
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Operations Optimization Costs
During the first quarter of fiscal 2020, third-party-led studies regarding the
potential upgrading of the Company's current worldwide ERP system were
conducted. Chase is currently reviewing the data and recommendations provided by
the study and may further utilize third-party engineering, IT and other
professional services firms in the future for similar work, as well as work
around our facilities rationalization and consolidation initiative. The Company
recognized $150,000 in expense related to these services in the first quarter of
fiscal 2020. Given the ongoing nature of the review, an estimate of future
costs, including costs that could be capitalized, cannot currently be
determined.
During the third quarter of fiscal 2019, Chase began moving the pulling and
detection operations housed in its Granite Falls, NC location to its Hickory, NC
facility. This is in line with the Company's ongoing initiative to consolidate
its manufacturing plants and streamline its existing processes. Currently, the
pulling and detection operations are the only Chase-owned production operations
in Granite Falls, NC, with the remaining portions of the building being either
utilized for research and development or leased to a third party. The process of
moving has continued subsequent to the end of fiscal 2019 and is anticipated to
be completed during the first half of fiscal 2020. The Company recognized
$499,000 in expense related to the move in the three-month period ended November
30, 2019, having recognized $1,260,000 in expense during the second half of
fiscal 2019. Future costs related to this move are currently anticipated to be
approximately $200,000, and the Company plans to disclose these amounts
separately on the condensed consolidated statement of operations in future
periods.
On June 25, 2018, the Company announced to its employees the planned closing of
its Pawtucket, RI manufacturing facility effective August 31, 2018. This is in
line with the Company's ongoing efforts to consolidate its manufacturing plants
and streamline its existing processes. The manufacture of products previously
produced in the Pawtucket, RI facility was substantially moved to Company
facilities in Oxford, MA and Lenoir, NC during a two-month transition period. In
the fourth quarter of fiscal 2018, the Company expensed $1,272,000 related to
the closure. The Company also recognized $260,000 in expense related to the move
in the three-month period ended November 30, 2018, with no additional expense
recognized in fiscal 2019. Future costs related to this move are not anticipated
to be significant to the condensed consolidated financial statements.
Interest Expense
Interest expense decreased $149,000 or 73% to $55,000 for the quarter ended
November 30, 2019 compared to $204,000 in the prior year first quarter. The
decrease in interest expense in the current quarter is primarily the result of
the decreased average outstanding balance of our revolving debt facility,
following the $65,000,000 draw on the facility in December 2017 (the second
fiscal quarter of fiscal 2018) to substantially fund the Company's acquisition
of Zappa Stewart.
In fiscal 2018, subsequent to the December 2017 borrowing, the Company made
$40,000,000 in payments against the principal. In the first, second and third
quarters of fiscal 2019, Chase made additional $10,000,000, $9,000,000 and
$6,000,000 principal payments, respectively, paying off the outstanding balance
in full as of May 31, 2019 (third quarter of the prior year).
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Other Income (Expense)
Other income (expense) was an expense of $604,000 in the quarter ended November
30, 2019 compared to an expense of $294,000 in the same period in the prior
year, an increase of $310,000. 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 receipts that are not classified as
trade, royalties or commissions. For the current quarter, the net loss was
primarily caused by foreign exchange losses of $501,000, as compared to a
$52,000 gain seen in the comparable period.
Income Taxes
The effective tax rates for the three-month periods ended November 30, 2019 and
2018 were 26.9% and 25.3%, respectively.
The current and prior year effective tax rates were most prominently affected by
the passage of the Tax Cuts and Jobs Act (the "Tax Act") in December 2017. For
fiscal 2020 and 2019, the Company is utilizing the new 21% Federal tax rate
enacted by the Tax Act. Please see Note 17 - "Income Taxes" to the Condensed
Consolidated Financial Statements for further discussion of the effects of the
Tax Act.
Net Income
Net income decreased $1,461,000 or 17% to $7,362,000 in the quarter ended
November 30, 2019 compared to $8,823,000 in the prior year first quarter. The
decrease in net income in the first fiscal quarter was primarily due to a lower
recognized gross margin on decreased sales volume, a net foreign exchange loss
as compared to a gain in the prior year and higher operations optimization costs
in the current year.
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Other Important Performance Measures
We believe that EBITDA, Adjusted EBITDA and Free Cash Flow are useful
performance measures. They are used by our executive management team to measure
operating performance, to allocate resources, to evaluate the effectiveness of
our business strategies and to communicate with our Board of Directors and
investors concerning our financial performance. The Company believes EBITDA,
Adjusted EBITDA and Free Cash Flow are also useful to investors. EBITDA is
useful in comparing the core operations of the business from period to period by
removing the impact of the Company's capital structure (through interest
expense), asset base (through depreciation and amortization) and tax rate, and
in evaluating operating performance relative to others in the industry. Adjusted
EBITDA allows for comparison to the Company's performance in prior periods
without the effect of items that, by their nature, tend to obscure the Company's
core operating results due to the potential variability across periods based on
their timing, frequency and magnitude. Free Cash Flow provides a means for
measuring the cash generated from operations that is available for mandatory
obligations, including interest payments and debt repayment, and discretionary
investment opportunities such as funding acquisitions, product and market
development and paying dividends. As a result, management believes these
metrics, which are commonly used by financial analysts and others in the
industries in which the Company operates, enhance the ability of investors to
analyze trends in the Company's business and evaluate the Company's performance
relative to peer companies and the past performance of the Company itself.
EBITDA, Adjusted EBITDA and Free Cash Flow are non-U.S. GAAP financial measures.
We define EBITDA as net income before interest expense from borrowings, income
tax expense, depreciation expense from fixed assets, and amortization expense
from intangible assets. We define Adjusted EBITDA as EBITDA excluding costs and
(gains) losses related to our acquisitions and divestitures, costs of products
sold related to inventory step-up to fair value, settlement (gains) losses
resulting from lump-sum distributions to participants from our defined benefit
plans, operations optimization costs, and other significant items. We define
Free Cash Flow as net cash provided by operating activities less purchases of
property, plant and equipment.
The use of EBITDA, Adjusted EBITDA and Free Cash Flow has limitations and these
performance measures should not be considered in isolation from, or as an
alternative to, U.S. GAAP measures such as net income and net cash provided by
operating activities. None of these measures should be interpreted as
representing the residual cash flow of the Company available solely for
discretionary expenditures or to invest in the growth of our business, since we
may have certain non-discretionary expenditures that are not deducted from these
measures, including scheduled principal and (in the case of Free Cash Flow)
interest payments on outstanding debt. Our measurement of EBITDA, Adjusted
EBITDA and Free Cash Flow may not be comparable to similarly-titled measures
used by other companies.
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The following table provides a reconciliation of net income, the most directly
comparable financial measure presented in accordance with U.S. GAAP, to EBITDA
and Adjusted EBITDA for the periods presented (dollars in thousands):
Three Months Ended November 30,
2019 2018
Net income $ 7,362 $ 8,823
Interest expense 55 204
Income taxes 2,709 2,985
Depreciation expense 1,053 1,238
Amortization expense 2,914 3,113
EBITDA $ 14,093 $ 16,363
Operations optimization costs (a) 649 260
Pension settlement costs (b) - 200
Adjusted EBITDA $ 14,742 $ 16,823
(a) Represents costs to relocate certain production operations from Granite
Falls, NC to Hickory, NC and to perform certain exploratory work into
upgrading our companywide ERP system, both incurred in the first quarter of
fiscal 2020, and Pawtucket, RI facility closure costs recognized in the first
quarter of fiscal 2019
(b) Represents pension-related settlement costs due to the timing of lump-sum
distributions
The following table provides a reconciliation of net cash provided by operating
activities, the most directly comparable financial measure presented in
accordance with U.S. GAAP, to Free Cash Flow for the periods presented (dollars
in thousands):
Three Months Ended November 30,
2019 2018
Net cash provided by operating activities $ 18,153 $ 11,577
Purchases of property, plant and equipment
(699) (639)
Free Cash Flow $ 17,454 $ 10,938
Liquidity and Sources of Capital
Our overall cash and cash equivalents balance increased $18,285,000 to
$66,056,000 at November 30, 2019, from $47,771,000 at August 31, 2019. The
increased cash balance is primarily attributable to cash provided by operations
of $18,153,000. Of the above-noted amounts, $18,996,000 and $17,235,000 were
held outside the United States by Chase Corporation and our foreign subsidiaries
as of November 30, 2019 and August 31, 2019, respectively. Given our cash
position and borrowing capability in the United States and the potential for
increased investment and acquisitions in foreign jurisdictions, prior to the
second quarter of fiscal 2018 we did not have a history of repatriating a
significant portion of our foreign cash. With the passage of the Tax Cuts and
Jobs Act (the "Tax Act") in the second fiscal quarter of 2018, significant
changes in the Internal Revenue Code were enacted, changing the U.S. taxable
nature of previously unrepatriated foreign earnings. Following the passage of
the Tax Act, the Company repatriated $10,499,000 in U.K. foreign earnings in
fiscal 2018 and $17,230,000 in fiscal 2019. No additional amounts were
repatriated in the first fiscal quarter of 2020. Please see Note 17 - "Income
Taxes" to the Condensed Consolidated Financial Statements for further discussion
of the effects of the Tax Act.
Cash flow provided by operations was $18,153,000 in the first three months of
fiscal year 2020 compared to $11,577,000 in the same period in the prior
year. Cash provided by operations during the current period was primarily
related to operating income. Positively impacting our cash flow from operations
were decreases in accounts receivable and inventory balances, as the Company had
lower sales in the first quarter of the current year.
The ratio of current assets to current liabilities was 4.6 as of November 30,
2019 compared to 6.0 as of August 31, 2019. The ratio decreased over the first
three months of fiscal 2020 primarily as a result of the declaration of the
dividend payable.
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Cash flow used in investing activities of $744,000 was primarily due to cash
spent on capital purchases of machinery and equipment in fiscal 2020.
There was no cash flow related to financing activities for the first three
months of fiscal 2020.
On November 13, 2019, we announced a cash dividend of $0.80 per share (totaling
$7,539,000). The dividend was paid on December 4, 2019 (the second quarter of
fiscal 2020) to shareholders of record on November 26, 2019.
On December 15, 2016, we entered an Amended and Restated Credit Agreement (the
"Credit Agreement") with Bank of America, acting as administrative agent, and
with participation from Citizens Bank and JPMorgan Chase Bank (collectively with
Bank of America, the "Lenders"). The Credit Agreement is initially an
all-revolving credit facility with a borrowing capacity of $150,000,000, which
can be increased by an additional $50,000,000 at the request of the Company and
the individual or collective option of any of the Lenders. The Credit Agreement
contains customary affirmative and negative covenants that, among other things,
restrict our ability to incur additional indebtedness and require lender
approval for acquisitions by us and our subsidiaries over a certain size. It
also requires us to maintain certain financial ratios on a consolidated basis,
including a consolidated net leverage ratio (as defined in the facility) of no
more than 3.25 to 1.00, and a consolidated fixed charge coverage ratio (as
defined in the facility) of at least 1.25 to 1.00. We were in compliance with
our debt covenants as of November 30, 2019. The applicable interest rate for the
Credit Agreement is based on the effective LIBOR plus an additional amount in
the range of 1.00% to 1.75%, depending on our consolidated net leverage
ratio or, at our option, at the bank's base lending rate. At November 30, 2019,
there was no outstanding principal balance, and as such no applicable interest
rate.
We have several ongoing capital projects, as well as our facility
rationalization and consolidation initiative, which are important to our
long-term strategic goals. Machinery and equipment may be added as needed to
increase capacity or enhance operating efficiencies in our production
facilities.
We may acquire companies or other assets in future periods which are
complementary to our business. We believe that our existing resources,
including cash on hand and the Credit Agreement, together with cash generated
from operations and additional bank borrowings, will be sufficient to fund our
cash flow requirements through at least the next twelve months. However, there
can be no assurance that additional financing, if needed, will be available on
favorable terms, if at all.
To the extent that interest rates increase in future periods, we will assess the
impact of these higher interest rates on the financial and cash flow projections
of our potential acquisitions.
We have no significant off-balance sheet arrangements.
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Contractual Obligations
Please refer to Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in our Annual Report on Form 10-K for the
fiscal year ended August 31, 2019 for a complete discussion of our 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 that there have been no material
changes during the three months ended November 30, 2019 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, 2019.
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