The following discussion provides an analysis of the Company's financial condition and results of operations and should be read in conjunction with the 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, 2011.

Recent Developments

On June 27, 2012, we acquired 100% of the capital stock of NEPTCO, Inc. ("NEPTCO") a private company based in Pawtucket, RI, whose core products are sold primarily into the broadband communications and electronics packaging industries. NEPTCO operates three manufacturing facilities in the United States and one in China, as well as utilizing distribution facilities in Rotterdam, Netherlands and Mississauga, Ontario to assist in supply chain management. As part of this transaction, we also acquired NEPTCO's 50% ownership stake in a joint venture. The purchase price on a debt free, cash free basis was $67,000,000, excluding any working capital adjustments and acquisition related costs. The acquisition was funded through term debt bank financing led and arranged by Bank of America, with participation from RBS Citizens.

Overview

Revenue and net income in the third quarter exceeded the prior year quarter as we benefitted from increased royalties and sales of higher margin products. This coupled with our ability to leverage manufacturing and administrative overhead offset incremental transaction expenses related to our acquisition of NEPTCO, ongoing transition costs related to our Randolph plant move and pension settlement costs on our qualified defined benefit pension plan which accelerated recognition of expense due to the timing of lump sum distributions to plan participants.

Through nine months of fiscal 2012 revenues surpassed the same period in fiscal 2011 while net income compared unfavorably to the prior year period. The decrease in net income is due to the aforementioned incremental expenses as well as moving expenses which in total were $1.8 million through the first three quarters of fiscal 2012. Additionally, unfavorable product mix seen in the first part of fiscal 2012 has had an impact on our profitability for the year to date period.

Revenue for the Industrial Materials segment increased over the prior year primarily due to the wire and cable product line as a result of continued high demand in the power cable and communication cable markets. Additionally, the third quarter saw increased sales from our electronic coatings product line as we had greater demand for export sales into Asia. The increased revenues in fiscal 2012 were partially offset by decreased sales in our aerospace and transportation product markets.

Revenues for the Construction Materials segment increased over the prior year to date primarily due to sales of our pipeline products as well as improvement in construction product sales in the current quarter over the prior year period. Overall demand in fiscal 2012 is ahead of fiscal 2011 for our key private label customers. The increased revenues in fiscal 2012 were partially offset by decreased sales in our coating and lining system products.

We will continue with our strategic plans to improve and enhance our facilities and equipment. These plans will include the on-going renovations of our facility in Oxford, MA as we continue with the move of our Randolph, MA operations to this facility by December 2012. Additionally, we believe that our strategic plans for investments in efficiency improvements, long-term consolidation, R&D, technology and marketing will allow us to improve the business in future years.

We have two reportable segments as summarized below:

Segment                       Product Lines      Manufacturing Focus and Products
Industrial Materials         †  Wire & Cable     Protective coatings and tape
                             †  Electronic       products including insulating and
                             Coatings            conducting materials for wire and
                             †  Custom           cable manufacturers, moisture
                             Products            protective coatings for
                                                 electronics and printing
                                                 services, laminated durable
                                                 papers, and flexible composites
                                                 and laminates for the aerospace,
                                                 packaging and industrial laminate
                                                 markets.
                             †
Construction Materials       †  Pipeline         Protective coatings and tape
                             †  Construction     products including coating and
                             Products            lining systems for use in liquid
                             †  Private Label    storage and containment
                                                 applications, protective coatings
                                                 for pipeline and general
                                                 construction applications, high
                                                 performance polymeric asphalt
                                                 additives, and expansion and
                                                 control joint systems for use in
                                                 the transportation and
                                                 architectural markets.

Results of Operations



Revenues and Operating Profit by Segment are as follows (Dollars in Thousands):



                                              % of                                % of                                  % of                               % of
                     Three Months Ended      Total       Three Months Ended      Total       Nine Months Ended         Total       Nine Months Ended      Total
                        May 31, 2012        Revenues        May 31, 2011        Revenues       May 31, 2012           Revenues       May 31, 2011        Revenues

Revenues from
external
customers
Industrial
Materials           $             21,612      62%       $             19,894      61%       $            59,584         62%       $            55,596      62%
Construction
Materials                         13,527      38%                     12,732      39%                    37,105         38%                    34,558      38%
Total               $             35,139                $             32,626                $            96,689                   $            90,154




                                                % of                               % of                                      % of                               % of
                     Three Months Ended       Segment     Three Months Ended     Segment      Nine Months Ended            Segment      Nine Months Ended     Segment
                        May 31, 2012          Revenues       May 31, 2011        Revenues       May 31, 2012               Revenues       May 31, 2011        Revenues
Income before
income taxes
Industrial
Materials            $             5,368        25%       $             4,239      21%       $            12,332             21%       $            11,774      21%
Construction
Materials                          1,913        14%                     1,338      11%                     2,036              5%                     2,719       8%
Total for
reportable
segments                           7,281        21%                     5,577      17%                    14,368             15%                    14,493      16%
Corporate and
Common Costs                      (2,252 )(b)                          (1,387 )                           (3,918 )(a), (c)                          (3,514 )
Total                $             5,029        14%       $             4,190      13%       $            10,450             11%       $            10,979      12%

(b) Includes expenses of $600 related to the acquisition of NEPTCO and $413 of pension related settlement costs due to the timing of lump sum distributions.

(c) Includes expenses of $700 related to the acquisition of NEPTCO and $413 of pension related settlement costs due to the timing of lump sum distributions.

Total Revenues

Total revenues increased $2,513,000 or 8% to $35,139,000 for the quarter ended May 31, 2012 compared to $32,626,000 in the same quarter of the prior year. Total revenues increased $6,535,000 or 7% to $96,689,000 in the fiscal year to date period compared to $90,154,000 in the same period in fiscal 2011.

Revenues in our Industrial Materials segment increased $1,718,000 and $3,988,000 in the current quarter and year to date periods, respectively, compared to the prior year periods. The increase in revenues from our Industrial Materials segment compared to the prior year periods is primarily due to the following for the current quarter and year to date periods, respectively: (a) increased sales of $746,000 and $4,235,000 from our wire & cable product line as we continue to benefit from strong demand in the power cable and communication cable markets; and (b) increased sales of $684,000 and $944,000 from our laminated durable paper products. We also experienced increased sales of $1,099,000 in the current quarter from our electronic coatings products. These increases were partially offset by decreased sales in the aerospace

and transportation market of $696,000 and $1,171,000 in the current quarter and year to date period, respectively.

Revenues from our Construction Materials segment increased $795,000 and $2,547,000 in the current quarter and year to date periods, respectively, compared to the prior year periods. The increase in sales from our Construction Materials segment in the current quarter as compared to the prior year period was primarily due to increased sales of $919,000 from highway construction products which was partially offset by decreased sales of $184,000 from our private label products. The increase in sales from our Construction Materials segment in the year to date period compared to the prior year period is primarily due to increased sales of $2,597,000 from our pipeline products as well as increased sales of $822,000 from our private label products due to increased demand from some of our key customers. Sales from our coating and lining systems decreased $876,000 through the first nine months of fiscal 2012 compared to the prior year.

Cost of Products and Services Sold

Cost of products and services sold increased $980,000 or 5% to $22,210,000 for the quarter ended May 31, 2012 compared to $21,230,000 in the prior year quarter. Cost of products and services sold increased $6,499,000 or 11% to $65,231,000 in the fiscal year to date period compared to $58,732,000 in the same period in fiscal 2011.

The following table summarizes our costs of products and services sold as a percentage of revenues for each of our reporting segments:

                                      Three Months Ended May 31,       Nine Months Ended May 31,
Cost of products and services sold       2012             2011           2012             2011

Industrial Materials                     62%              64%            65%              64%
Construction Materials                   65%              66%            71%              67%
Total                                    63%              65%            67%              65%

Cost of products and services sold in our Industrial Materials segment was $13,395,000 and $38,789,000 in the current quarter and year to date periods compared to $12,800,000 and $35,489,000 in the comparable periods in the prior year. As a percentage of revenues, cost of products and services sold in the Industrial Materials segment decreased in the third quarter primarily due to increased sales of higher margin products as well as our ability to leverage fixed overhead costs on a higher revenue base. For the year to date period, the cost of products and services sold as a percentage of revenues increased due to the following items: (a) moving expenses of $324,000 related to our plant transition from Webster to Oxford and Camberley to Winnersh; (b) accrued transition costs of $400,000 related to our move from our Randolph plant; and
(c) certain supplier inconsistencies that resulted in excess waste and incremental expenses of $345,000 related to the utilization of specialized testing facilities for analyzing incoming raw materials for proper specifications. Due to the increasing number of capital expenditure projects associated with our long-term plant consolidation plans and the increased internal time and effort spent on these projects, we recently developed a labor and material tracking process to review our internal project costs. This review resulted in the capitalization of $388,000 in the current quarter of costs that were expensed in the first six months of fiscal 2012. We will continue to review, track and monitor internal project costs for potential capitalization in future periods.

Cost of products and services sold in our Construction Materials segment was $8,815,000 and $26,442,000 in the current quarter and year to date periods compared to $8,430,000 and $23,243,000 in the comparable periods in the prior year. As a percentage of revenues, cost of products and services sold in the Construction Materials segment for the year to date period increased primarily due to higher raw material costs, increased sales of lower margin products, and decreased sales of higher margin products.

We have implemented price increases for certain products in this segment that have positively impacted our margins and helped offset raw material cost increases. We will continue to closely monitor raw material pricing across all product lines in an effort to preserve margins. While we saw improvements from our Rye, UK plant through the first nine months of fiscal 2012, compared to the production issues noted in the latter half of fiscal 2011, we had incremental costs related to some residual issues of $67,000 in the current quarter and $526,000 in the current fiscal year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $394,000 or 5% to $7,603,000 for the quarter ended May 31, 2012 compared to $7,209,000 in the prior year quarter. As a percentage of revenues, selling, general and administrative expenses remained relatively flat at 22% in the current fiscal quarter compared to the same period in fiscal 2011. Selling, general and administrative expenses increased $647,000 or 3% to $21,108,000 in the fiscal year to date period compared to $20,461,000 in the same period in fiscal 2011. In fiscal 2012 year to date, selling, general and administrative expenses as a percentage of revenues decreased to 22% compared to 23% in the same period in fiscal 2011. The dollar increase in the current quarter and year to date periods over the prior year periods is primarily attributable to incremental expenses of $700,000 related to our acquisition of NEPTCO and $413,000 in pension related settlement costs which accelerated expense in our qualified defined benefit plan due to the timing of lump sum distributions made from the plan in the current quarter. These increases were partially offset by our continued emphasis on controlling costs and leveraging fixed overhead.

Interest Expense

Interest expense decreased $14,000 or 31% to $31,000 for the quarter ended May 31, 2012 compared to $45,000 in the prior year quarter. Interest expense decreased $51,000 or 33% to $103,000 for the fiscal year to date period compared to $154,000 in the same period in fiscal 2011. The decrease in interest expense for both the current quarter and year to date period is primarily due to the capitalization of imputed interest on construction in process projects related to our Oxford, MA and Pittsburgh, PA facilities, as well as continued favorable interest rates on lower overall term debt balances.

Other Income (Expense)

Other expense of $266,000 in the quarter ended May 31, 2012 compared unfavorably to other income of $48,000 in the same period in fiscal 2011. Other income (expense) primarily includes interest income and foreign exchange gains and losses caused by changes in exchange rates on transactions or balances denominated in currencies other than the functional currency of our subsidiaries. The decrease in other income (expense) in the current quarter is primarily due to foreign exchange losses caused by the weakening of both the sterling and euro, and the subsequent revaluation of some of our European sales transactions completed in other functional currencies (and subsequently translated to the sterling and the euro).

Other income increased $31,000 or 18% to $203,000 for the fiscal year to date period compared to $172,000 in the same period in the prior year. In fiscal 2012, other income includes a gain of $425,000 recognized on deposit payments previously received on the sale of our Evanston, IL property. The Company took back control and ownership of this leased asset which was previously sold by us under a seller financing arrangement (see Note 11 to the consolidated financial statements). The increase in other income in the year to date period is partially offset by the foreign exchange losses previously mentioned.

Income Taxes

The effective tax rate was 32.9% in the quarter ended May 31, 2012 compared to 29.2% in the prior year quarter. The effective tax rate was 34.0% for the fiscal year to date period compared to 33.4% in the same period in fiscal 2011. The increased effective tax rate in fiscal 2012 is primarily due to non-deductible acquisition expenses related to our June 2012 acquisition of NEPTCO, Inc. offset by a continued favorable effective state income tax rate.

Net Income

Consolidated net income increased $407,000 or 14% to $3,373,000 in the quarter ended May 31, 2012 compared to $2,966,000 in the prior year quarter. The increase in net income in the current quarter is primarily a result of additional revenue as discussed previously. Consolidated net income decreased $414,000 or 6% to $6,897,000 for the fiscal year to date period compared to $7,311,000 in the same period in fiscal 2011. The decrease in consolidated net income compared to the prior year is due to the factors discussed previously including (a) $700,000 in expenses related to our acquisition of NEPTCO;
(b) increased plant transition and moving expenses of $724,000; (c) accelerated pension settlement charges of $413,000 resulting from the timing of lump sum distributions; and (d) unfavorable product mix experienced earlier in the current fiscal year.

Liquidity and Sources of Capital

Our overall cash balance decreased $1,793,000 to $13,189,000 at May 31, 2012, from $14,982,000 at August 31, 2011. The reduced cash balance is primarily attributable to principal payments on outstanding debt, equipment purchases, and payment of our annual dividend. We will continue to review our current cash balances denominated in foreign currency in light of current tax guidelines, working capital requirements, infrastructure improvements and potential acquisitions.

Cash flow provided by operations was $8,959,000 in the first nine months of fiscal year 2012 compared to $5,918,000 in the prior year period. Cash provided by operations during the first nine months of fiscal 2012 was primarily due to operating income offset by decreased accrued expenses and increased raw materials purchases as a result of higher sales volumes. The lower balance of cash provided by operations during the prior year period was primarily due to increased inventory balances as a result of bulk purchases of key raw materials in order to take advantage of favorable pricing terms.

The ratio of current assets to current liabilities was 2.8 as of May 31, 2012, compared to 2.9 as of August 31, 2011. The decrease in our current ratio at May 31, 2012 was primarily attributable to increased accrued expenses due to costs associated with our June 2012 acquisition of NEPTCO, Inc., as well as decreases in cash and accounts receivable. This was partially offset by increased inventory resulting from increased demand and overall sales volume, as well as decreased accrued payroll and other compensation due to the payment of our annual incentive program.

Cash flow used in investing activities of $3,780,000 was primarily due to cash paid for purchases of machinery and equipment at our manufacturing locations during fiscal 2012, which was partially offset by the net proceeds of $1,006,000 from the sale of our Webster, MA property.

Cash flow used in financing activities of $6,715,000 was primarily due to our annual dividend payment and payments made on the bank loans used to finance our past acquisitions of CIM and ServiWrap. Additionally, we paid the second of three scheduled promissory note payments of $1,000,000 to the CIM shareholders in accordance with the CIM stock purchase agreement, described in more detail below.

On October 13, 2011, we announced a cash dividend of $0.35 per share (totaling $3,165,000). The dividend was paid on December 5, 2011 to shareholders of record on October 31, 2011.

As of May 31, 2012 we had long-term unsecured credit available up to $10,000,000 with Bank of America at the bank's base lending rate or, at our option, at the effective London Interbank Offered Rate (LIBOR) plus 150 basis points. The entire amount of $10,000,000 was available for use under this credit facility as of that date.

Under the terms of our credit facility, we were required to comply with certain debt covenants related to (a) the ratio of total liabilities to tangible net worth and (b) the ratio of operating cash flow to debt service on a rolling twelve month basis. We were in compliance with our debt covenants as of May 31, 2012. This facility was replaced with a new facility in June 2012, as described below.

We borrowed $10,000,000 from Bank of America in September 2009 in order to fund our acquisition of CIM. This borrowing involved an unsecured, three year term note (the "Term Note") with interest and principal payments due monthly. Interest was calculated at the applicable LIBOR rate plus a margin of 175 basis points, with interest payments due on the last day of each month. In addition to monthly interest payments, we were repaying the principal in equal installments of $167,000 per month, beginning on September 30, 2009, and on the last day of each month thereafter until maturity. At May 31, 2012, the applicable interest rate was 1.99% per annum and the outstanding principal amount was $4,500,000. The Term Note was subject to the same debt covenants as our line of credit discussed above. Prepayment of the Term Note was allowed at any time during the term of the loan. In November 2011, we executed an amendment to this Term Note, extending the maturity from August 31, 2012 to August 31, 2014. The Term Note was retired in June 2012, as described below

As part of the CIM acquisition in September 2009, we also delivered $3,000,000 in non-negotiable promissory notes (the "Notes") payable to five CIM shareholders, who were the holders of all of the issued and outstanding shares of capital stock of CIM as of the acquisition date. The principal of the Notes will be paid in three consecutive annual installments of $1,000,000 each, with the initial payment due on September 4, 2010. Interest on the unpaid principal balance of the Notes is accruing at a rate per annum equal to the applicable Federal rate, and will be paid annually with each principal payment. At May 31, 2012, the applicable interest rate was 0.84% per annum. The third and final installment on the Notes is scheduled to be paid in September 2012.

In December 2009, we borrowed $7,000,000 from RBS Citizens in order to fund our acquisition of the ServiWrap product lines. This borrowing involved an unsecured, three year term note (the "Term Loan") with interest and principal payments due monthly. Interest was calculated at the applicable LIBOR rate plus a margin of 190 basis points, with interest payments due on the last day of each month. In addition to monthly interest payments, we were repaying the principal in equal installments of $117,000 each, beginning on January 15, 2010, and on the 15th day of each month thereafter until maturity. At May 31, 2012, the applicable interest rate was 2.14% per annum, and the outstanding principal amount was approximately $3,617,000. The Term Loan was subject to the same debt covenants as our line of credit discussed above. Prepayment of the Term Loan was allowed at any time. In February 2012, we executed an amendment to this Term Loan, extending the maturity from December 15, 2012 to December 15, 2014. The Term Loan was retired in June 2012, as described below.

In June 2012, as part of our acquisition of NEPTCO, Inc., we borrowed $70,000,000 under a five year term debt financing arrangement led and arranged by Bank of America, with participation from RBS Citizens. The applicable interest rate is based on the effective London Interbank Offered Rate (LIBOR) plus a range of 1.75% to 2.25%, depending on the consolidated leverage ratio of Chase Corporation. As part of the financing for this acquisition, the Company retired all of its pre-existing debt (Term Note and Term Loan noted above) with Bank of America and RBS Citizens. Additionally, the Company obtained a

new revolving line of credit totaling $15,000,000 which replaces the existing $10,000,000 line The revolving line of credit bears interest at LIBOR plus a range of 1.75% to 2.25%, depending on the consolidated leverage ratio of Chase Corporation, or, at our option, at the bank's base lending rate. This revolving line of credit allows for increased flexibility for working capital requirements going forward, and we plan to use this availability to help finance our cash needs, including potential acquisitions, in the remainder of fiscal 2012 and future periods.

The credit facility contains customary affirmative and negative covenants that, among other things, restrict our ability to incur additional indebtedness. It also requires us to maintain a ratio of consolidated indebtedness to consolidated EBITDA (each as defined in the facility) of no more than 3.00 to 1.00, and to maintain a consolidated fixed charge coverage ratio (as calculated in the facility) of at least 1.25 to 1.00. We are required to repay the principal amount of the term loan in quarterly installments of $1.4 million beginning in September 2012 through June 2014, increasing to $1.75 million per quarter thereafter through June 2015, and to $2.1 million per quarter thereafter . . .