The following discussion provides an analysis of the Company's financial
condition and results of operations for the first quarter of fiscal 2023. It
should be read in conjunction with the Condensed Consolidated Financial
Statements. Notes thereto are 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, 2022.
Overview
General
The Company's revenue grew in the first fiscal quarter ended November 30, 2022,
with the Adhesives, Sealants and Additives and Industrial Tapes reportable
operating segments surpassing sales achieved in the prior comparable fiscal
quarter. The revenue increase was primarily attributable to inorganic growth
from our NuCera Solutions ("NuCera") business acquired in the first month of
fiscal 2023. The Company's gross margin decreased to 34.9% in the first quarter
compared to 37% in the first quarter of the prior year primarily due to purchase
accounting expense (NuCera inventory step-up) and unfavorable sales mix detailed
below.
Despite the Company's sales growth compared to the first quarter of the prior
fiscal year, the Company had a less favorable gross margin percentage in the
current quarter. The decrease in the gross margin percentage is primarily due to
purchase accounting expense related to our NuCera business which includes
inventory step-up adjustment expensed in the first quarter. Additionally, the
Company's gross margin was negatively impacted by unfavorable sales mix in our
Corrosion Protection and Waterproofing segment caused by decreased sales volume
due to lower demand and customer inventory reduction initiatives compared to the
prior comparable fiscal quarter. In addition, increased operating expenses for
the current quarter are related to purchase accounting adjustments, including
incremental depreciation and amortization (including backlog fully amortized
during the quarter) and a lease impairment associated with the Woburn, MA
facility relocation, all of which negatively impacted operating income over the
comparable prior year quarter.
The Company continues to be negatively impacted by both increased input costs
caused by continued global raw material inflationary pressures, increased
logistic costs and a more competitive labor market. The Company continues to
work with its customers and suppliers in an effort to counteract margin
compression and has benefited from sales price increases within the Adhesives,
Sealants and Additives and Industrial Tapes segments over the comparable prior
year quarter.
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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; highly differentiated
specialty waxes and 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.
Revenue for our Adhesives, Sealants and Additives segment grew in the first
quarter, predominately due to year-to-date inorganic growth from our NuCera
business acquired on the first day of fiscal 2023. The remaining revenue
increase for the segment was due to sales price increases realized over the
comparable prior year period and increased demand for both our world-wide
focused electronic and industrial coatings product line and our North
American-focused functional additives product line.
Revenue for our Industrial Tapes segment increased in the current quarter over
the comparable prior year period due to sales price increases realized over the
past year and increased demand for our North American-focused cable materials,
specialty products and pulling and detection product lines. Tempering this
overall increase in revenue was a reduction in sales volume from our
Asia-focused electronic materials product line.
Revenue decreased for our Corrosion Protection and Waterproofing segment in the
first quarter due to a reduction in sales volume for our building envelope,
coating and lining systems and pipeline coatings product lines over the
comparable prior period. The decrease in revenue for our building envelope and
coating and lining systems product lines is predominately due to a decrease in
customer sales volume as a result of to customer inventory reduction initiatives
compared to the prior comparable period. Additionally, the decrease in revenue
for our pipeline coatings product line is due to project delays in the Middle
East market and continued COVID-19 overhang delays in China which affect revenue
within other Asian-end markets and outpaces North American sales gains in the
oil and gas markets. Partially offsetting the decrease in revenue was an
increase in sales for our bridge and highway product line due to increased
demand of bridge and highway projects in North America.
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Balance Sheet and Cash Flow
Chase Corporation's balance sheet remained strong as of November 30, 2022, with
cash on hand of $56,317,000, and a current ratio of 4.1. The Company's cash
position remained healthy, as does cash flow from operations. Purchase
accounting adjustments related to the Company's NuCera business were made in the
first quarter and include increases in inventory step-up, intangible assets,
goodwill and other working capital. Additionally, the Company continued its
strategic inventory build during the first quarter, undertaken to help ensure
its ability to satisfy our customers' demands and to address its elevated
backlog caused in part by supply chain challenges.
Subsequent to the end of the first fiscal quarter of 2023, Chase Corporation
paid out an annual cash dividend of $9,500,000 on December 9, 2022.
The Company had a $165,000,000 outstanding balance on its $200,000,000 revolving
credit facility as of November 30, 2022, related to the funding of the NuCera
acquisition as noted above. The revolving credit facility, which was amended and
restated in July 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 facility also gives Chase the
ability to request an increase in this amount by an additional $100,000,000
($300,000,000 in total borrowing capacity) at the individual or collective
option of any of the lenders. The facility matures in July 2026.
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Results of Operations
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, 2022 Revenue November 30, 2021 Revenue
Revenue
Adhesives, Sealants and
Additives $ 55,553 54 % $ 31,049 41 %
Industrial Tapes 39,077 38 % 32,761 44 %
Corrosion Protection and
Waterproofing 8,263 8 % 11,200 15 %
Total $ 102,893 $ 75,010
% of % of
Three Months Ended Segment Three Months Ended Segment
November 30, 2022 Revenue November 30, 2021 Revenue
Income before income taxes
Adhesives, Sealants and
Additives $ 4,124 (a) 7 % $ 7,597 (c) 24 %
Industrial Tapes 11,947 31 % 9,290 28 %
Corrosion Protection and
Waterproofing 2,551 31 % 4,446 40 %
Total for reportable
segments 18,622 18 % 21,333 28 %
Corporate and Common Costs (10,022) (b) (8,216) (d)
Total $ 8,600 8 % $ 13,117 17 %
Note: Some percentage of total revenue amounts may not sum to 100% due to
rounding.
Includes $306 loss on the upward adjustment of the performance-based earn out
contingent consideration associated with the September 2020 acquisition of
ABchimie, $113 in operations optimization costs related to the move from
(a) Woburn, MA to O'Hara Township, PA, $548 of lease impairment related to the
Woburn, MA facility relocation, $2,200 of purchase accounting inventory
adjustment related to the Company's NuCera business, and $2,820 of backlog
amortization fully amortized related to the Company's NuCera business
(b) Includes $540 of operations optimization related to the Company's ERP upgrade
Includes $475 loss on the upward adjustment of the performance-based earn out
(c) contingent consideration associated with the September 2020 acquisition of
ABchimie
(d) Includes $59 of operations optimization costs related to the Company's move
to the new corporate headquarters in Westwood, MA
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Total Revenue
Total revenue increased $27,883,000, or 37% to $102,893,000 for the quarter
ended November 30, 2022, compared to $75,010,000 in the same quarter of the
prior year.
Revenue in the Company's Adhesives, Sealants and Additives segment increased
$24,504,000, or 78.9% to $55,553,000 for the quarter ended November 30, 2022,
compared to $31,049,000 in the same quarter of the prior year. The increase in
revenue was primarily driven by year-to-date inorganic growth from our NuCera
business acquired on the first day of fiscal 2023, which benefited sales growth
in our functional additives product line. The remaining revenue increase for the
segment was predominately due to sales price increases realized over the
comparable prior period and increased demand for both our world-wide focused
electronic and industrial coatings product line and our North American-focused
functional additives product line.
Revenue in the Company's Industrial Tapes segment increased $6,316,000, or 19.3%
to $39,077,000 for the quarter ended November 30, 2022, compared to $32,761,000
in the comparable quarter of the prior year. The increase in sales for the
current quarter was driven by sales price increases realized over the comparable
prior period and increased demand for our North American-focused cable
materials, specialty products and pulling and detection product lines totaling
$6,757,000. Tempering this overall increase in revenue was a reduction in sales
volume due to decreased demand for our Asia-focused electronic materials product
line over the comparable period totaling $441,000.
Revenue in the Company's Corrosion Protection and Waterproofing segment
decreased $2,937,000, or 26.2% to $8,263,000 for the quarter ended November 30,
2022, compared to $11,200,000 in the same quarter of the prior year. Negatively
impacting segment sales was a reduction in our building envelope, coating and
lining systems, and pipeline coating product line totaling $3,121,000. The sales
decrease for our building envelope and coating and lining system in the first
quarter is attributed to sales volume decrease and lower inventory levels of our
customers compared to the comparable prior fiscal period. Additionally, the
decrease in revenue for our pipeline coatings product line is due to project
delays in the Middle East market and continued COVID-19 overhang delays in China
which affect revenue within other Asian-end markets and outpace North American
sales gains in the oil and gas markets. Positively impacting segment sales was
our bridge and highway product line totaling $184,000 compared to the comparable
period of the prior year, attributed to increased demand in bridge and highway
projects in North America.
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Cost of Products and Services Sold
Cost of products and services sold increased $19,719,000, or 42% to $67,000,000
for the quarter ended November 30, 2022, compared to $47,281,000 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 2022 2021
Adhesives, Sealants and Additives 65 % 61 %
Industrial Tapes 66 68
Corrosion Protection and Waterproofing 61 55
Total Company 65 % 63 %
Cost of products and services sold in the Adhesives, Sealants and Additives
segment was $36,232,000 in the current quarter compared to $18,905,000 in the
comparable prior year period. The increase in cost of products and services in
the Adhesives, Sealants and Additives segment is primarily attributed to the
inclusion of expenses from our NuCera business which was acquired on the first
day of fiscal 2023. Cost of products and services sold in the Industrial Tapes
segment was $25,719,000 in the current quarter compared to $22,231,000 in the
comparable prior year period. Cost of products and services sold in the
Corrosion Protection and Waterproofing segment was $5,049,000 in the current
quarter compared to $6,145,000 in the comparable prior year period.
As a percentage of revenue, cost of products and services increased for both the
Adhesives, Sealants and Additives and Corrosion Protection and Waterproofing
segments as compared to the prior year first quarter. As a percentage of
revenue, cost of products and services decreased for the Industrial Tapes
segment as compared to first quarter of the prior fiscal year. The decrease in
the relative gross margin for the Adhesives, Sealants and Additives and
Corrosion Protection and Waterproofing segments was due in each case to
continued global raw material inflationary pressures, increased logistics costs
and a more competitive labor market. The decrease in relative gross margin for
the Adhesives, Sealants and Additives segment was also impacted by purchase
accounting inventory step-up expense related to our NuCera business and a lease
impairment associated with the Woburn, MA facility relocation. The Company has
implemented and will continue to implement customer price adjustments (if
necessary) and continues to work with our customers and suppliers in an effort
to counteract margin compression.
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 the market demand for its product
offerings. In an effort to preserve margins, the Company diligently monitors raw
materials and commodities pricing across all its product lines.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $8,232,000, or 62% to
$21,607,000 for the quarter ended November 30, 2022, compared to $13,375,000 in
the comparable prior year quarter. The quarter-to-quarter increase in expense is
predominately due to the inclusion of expenses from our NuCera business
(including additional amortization expected to recur in future periods and
backlog amortization fully amortized during the quarter) which was acquired on
the first day of fiscal 2023. As a percentage of revenue, selling, general and
administrative expenses represented 21% and 17.8% for the three-month periods
ended November 30, 2022 and 2021, respectively.
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Research and Product Development Costs
Research and product development costs increased $498,000, or 50% to $1,491,000
during the first quarter of fiscal 2023, compared to $993,000 in the first
quarter of fiscal 2022. The increase in research and product development costs
is primarily related to our NuCera business which was acquired in the first
month of fiscal 2023.
Operations Optimization Costs
ERP System Upgrade
During the first quarter of fiscal 2023, the Company began the process of
upgrading our current Oracle Legacy ERP System to the Oracle Fusion Cloud
Platform. This upgrade will position us with a more advanced system to support
business expansion, access to upgrades in functionality and a more modern system
for operations, all within the Oracle Ecosystem. Additionally, the upgrade will
be a multi-year, phased-in approach designed to mitigate any disruptions to our
business. The Company recognized $540,000 in operations optimization expense
related to the ERP system upgrade in the first quarter of fiscal 2023.
Relocation of Adhesives Systems Manufacturing to O'Hara Township, PA
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. Chase Corporation obtained the adhesives systems
operations as part of its fiscal 2017 acquisition of the operations of Resin
Designs. The Company recognized $113,000 in operations optimization expense
related to the consolidation of the Woburn, MA location during the first quarter
of fiscal 2023.
Loss on Impairment of right-of-use Lease Asset
The Company recognized a $548,000 lease impairment related to the Woburn, MA
facility relocation, as part of the relocation of the Company's Adhesives,
Sealants and Additives segment's electronic and industrial coatings product line
to the Company's existing O'Hara Township, PA location.
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Loss on Contingent Consideration
As a component of the September 1, 2020 (fiscal 2021) 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 and $432,000 in expense related to adjustments
to the performance-based earn out accrual were recorded during the fiscal years
ended August 31, 2021 and 2022, respectively. The Company recognized an expense
of $306,000 and $406,000 in the first quarter of fiscal 2023 and 2022,
respectively, related to the performance-based contingent consideration.
Interest Expense
Interest expense increased to $2,138,000 for the quarter ended November 30,
2022, compared to $87,000 in the comparable prior year period. The increase in
interest expense relates to our outstanding long-term debt which was used to
fund our NuCera business acquisition at the beginning of fiscal 2023.
Other Income (Expense)
Other income (expense) was an expense of ($521,000) in the quarter ended
November 30, 2022, compared to an income of $377,000 in the same period in the
prior year, a difference of $898,000. 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 the first quarter of fiscal 2023 compared to the first quarter of
fiscal 2022 was largely due to the recognition of a foreign exchange loss in
fiscal 2023 as compared to a foreign exchange gain in fiscal 2022.
Income Taxes
For the three-month periods ended November 30, 2022 and 2021, the Company's
recognized effective tax rate was 21.8% and 25.8%, respectively.
For fiscal 2023 and 2022, 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 $3,003,000, or 31% to $6,724,000 in the quarter ended
November 30, 2022, compared to $9,727,000 in the comparable prior year first
quarter. The decrease in net income is predominately caused by purchase
accounting expense related to our NuCera business which includes inventory
step-up, incremental depreciation and amortization (including backlog fully
amortized during the quarter), and a lease impairment associated with the
Woburn, MA facility all negatively impacting operating income over the
comparable prior year quarter.
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Liquidity and Sources of Capital
The Company's overall cash and cash equivalents balance decreased by
$259,178,000 to $56,317,000 at November 30, 2022, from $315,495,000 at August
31, 2022. The lower cash balance at November 30, 2022 was attributed to the
$180,000,000 of cash drawn from the revolving credit facility prior to the end
of fiscal 2022, the proceeds of which were used, together with $70,000,000 in
cash on hand, to fund the acquisition of NuCera which closed on September 1,
2022 (the first day of fiscal 2023). The decrease in cash balance at November
30, 2022 is also attributable in part to the continued strategic inventory build
(outside of purchase accounting inventory step-up) offset by cash provided by
operations of $6,758,000.
Of the above-noted balances, $20,000,000 and $28,951,000 were held outside the
United States by Chase Corporation and its foreign subsidiaries as of November
30, 2022 and August 31, 2022, 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, 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 quarter of fiscal 2018, significant
changes in the Internal Revenue Code were enacted, changing the U.S. taxable
nature of previously unrepatriated foreign earnings. Following the passage of
the Tax Act, the Company repatriated $10,499,000 in U.K. foreign earnings in
fiscal 2018 and $17,230,000 in fiscal 2019. No additional amounts were
repatriated in fiscal year 2020, 2021, or 2022. The Company repatriated
$11,458,000 in U.K. foreign earnings in first quarter of fiscal 2023. 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 $6,758,000 in the first three months of
fiscal year 2023 compared to $5,903,000 in the same period of the comparable
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 our continued strategic inventory build, undertaken to
help ensure our ability to satisfy our customers' demands and to address our
elevated backlog caused in part by macroeconomic supply chain challenges.
The ratio of current assets to current liabilities was 4.1 as of November 30,
2022 compared to 12.4 (or 7.3 excluding the $180,000,000 cash drawn from our
revolving credit facility to fund the NuCera acquisition) as of August 31, 2022.
The decrease in the ratio of current assets to current liabilities is primarily
due to the cash outflow of $250,000,000 to fund the acquisition of NuCera
mentioned above.
Cash flow used in investing activities of $251,133,000 was primarily due to the
purchase of NuCera, which occurred on the first day of fiscal 2023.
Cash flows used in financing activities of $15,229,000 was due to principal
payments on our long-term debt related to the funding of the NuCera acquisition
mentioned above.
On July 27, 2021 (the fourth quarter of fiscal 2021), the Company entered into
the Second Amended and Restated Credit Agreement (the "Credit Agreement") by and
among the Company and NEPTCO Incorporated ("NEPTCO"), each as borrowers, the
guarantor subsidiaries party thereto, the financial institutions party thereto
as Lenders, and Bank of America, N.A., as administrative agent, with
participation from Wells Fargo Bank, N.A., PNC Bank, N.A. and JPMorgan Chase
Bank, N.A. The Credit Agreement is used to provide for additional liquidity to
finance acquisitions, working capital and capital expenditures, and for other
general corporate purposes. The Credit Agreement includes a revolving credit
loan (the "Revolving Facility"), with borrowing capabilities not to exceed
$200,000,000 at any time, with the ability to request an increase in this amount
by an additional $100,000,000 at the individual or collective option of any of
the Lenders. The applicable interest rate for the Revolving Facility and Term
Loan (defined below) is based on the effective London Interbank Offered Rate
(LIBOR) plus a spread ranging from 1.00% to 1.75%, depending on the consolidated
net leverage ratio of Chase and its subsidiaries. As of November 30, 2022, the
Company had $165,000,000 in long-term debt attributed to the acquisition of
NuCera Solutions that closed on September 1, 2022. The long-term debt has a
weighted average interest rate of 6%.
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The Credit Agreement has a five-year term with interest payments due at the end
of the applicable LIBOR period (but in no event less frequently than the
three-month anniversary of the commencement of such LIBOR period) and principal
payment due at the expiration of the agreement, July 27, 2026. The Credit
Agreement contains provisions that may replace LIBOR as the benchmark index
under certain circumstances. In addition, the Company may elect a base rate
option for all or a portion of the Revolving Facility, in which case interest
payments shall be due with respect to such portion of the Revolving Facility on
the last business day of each quarter. Subject to certain conditions set forth
in the Credit Agreement, the Company may elect to convert all or a portion of
the outstanding Revolving Facility into a new term loan twice during the term of
the Revolving Facility (each, a "Term Loan", and collectively with the Revolving
Facility, the "Credit Facility"), which Term Loan shall be payable quarterly in
equal installments sufficient to amortize the original principal amount of such
Term Loan on a ten year amortization schedule.
The outstanding balance on the Credit Facility is guaranteed by all of Chase's
direct and indirect domestic subsidiaries, which collectively had a carrying
value of approximately $76,078,000 at November 30, 2022. The Credit Facility is
subject to restrictive covenants under the Credit Agreement, and financial
covenants that require Chase and its subsidiaries to maintain certain financial
ratios on a consolidated basis, including a consolidated net leverage ratio of
3.25 to 1.00 and a consolidated interest coverage ratio of 3.50 to 1.00 (both
defined in the Credit Agreement). Chase Corporation was in compliance with the
debt covenants as of November 30, 2022. The Credit Agreement requires lender
approval for acquisitions over a certain size and allows for a temporary step-up
in the allowed consolidated leverage ratio for the four fiscal quarters ending
after certain designated acquisitions. Prepayment is allowed by the Credit
Agreement at any time during the term of the agreement, subject to customary
notice requirements and the payment of customary LIBOR breakage fees.
The Company has several ongoing capital projects, including upgrading the
Company's ERP system, as well as its facility rationalization and consolidation
initiative, which are important to its long-term strategic goals. Machinery and
equipment may be added as needed to increase capacity or enhance operating
efficiencies in the Company's production facilities.
We may acquire companies or other assets in future periods which are
complementary to our business. The Company believes that its existing resources,
including cash on hand and the Credit Agreement, together with cash generated
from operations and additional bank borrowings, will be sufficient to fund its
cash flow requirements through at least the next twelve months. However, there
can be no assurance that additional financing, if needed, will be available on
favorable terms, if at all.
To the extent that interest rates increase in future periods, 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, 2022 for a complete discussion of the
Company's 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 U.S. GAAP. 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, 2022 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, 2022.
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