The following discussion provides an analysis of our financial condition and results of operations and should be read in conjunction with the Consolidated Financial Statements and notes thereto included in Item 8 of this Annual Report on Form 10-K.

Selected Relationships within the Consolidated Statements of Operations

                                                            Years Ended August 31,
                                                        2012         2011        2010
                                                            (Dollars in thousands)
Revenues from continuing operations                   $ 148,919    $ 123,040   $ 118,743

Income from continuing operations, net of taxes       $   9,264    $  10,931   $  10,726
Income from discontinued operations, net of taxes             -            -       1,790

Net income                                                9,264       10,931      12,516
Add: net loss attributable to non-controlling
interest, net of taxes                                       74            -           -

Net income attributable to Chase Corporation          $   9,338    $  10,931   $  12,516

Increase in revenues from continuing operations
from prior year
Amount                                                $  25,879    $   4,297   $  27,507
Percentage                                                   21 %          4 %        30 %
Increase/(Decrease) in net income from continuing
operations, net of taxes from prior year
Amount                                                $  (1,667 )  $     205   $   5,411
Percentage                                                  (15 )%         2 %       102 %
Percentage of revenues from continuing operations:
Revenues from continuing operations                         100 %        100 %       100 %
Expenses:
Cost of products and services sold                           68 %         65 %        63 %
Selling, general and administrative expenses                 21           22          23
Acquisition related costs                                     2            -           -

Income from continuing operations before income
taxes                                                         9           13          14
Income taxes                                                  3            4           5

Income from continuing operations, net of taxes               6            9           9
Income from discontinued operations, net of taxes             -            -           2

Net income                                                    6 %          9 %        11 %

Recent Developments

On June 27, 2012, we acquired 100% of the capital stock of NEPTCO Incorporated ("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 for the acquisition, net of cash received, was $62,217,000, subject to the finalization of purchase accounting, which is nearly complete pending the final working capital true up and deferred tax positions.

Overview

We completed the largest acquisition in the Company's history in June 2012. That coupled with continued strong demand for our wire and cable products contributed to increased revenues. Net income fell below prior year results primarily due to the expenses related to our acquisition of NEPTCO as well as defined benefit pension settlement costs and continued plant transition expenses related to our Randolph plant closing. Adjusting for these noted expenses, net income for the year exceeded prior year results. Increased revenue from the Industrial Materials

segment was due to our acquisition of NEPTCO which contributed $14.8 million in fiscal 2012 as well as increased sales of our wire and cable products and greater demand for our laminated paper products. These increased revenues in fiscal 2012 were partially offset by decreased sales in our aerospace and transportation product markets. Additionally, the European Union economy continues to have a negative impact on the results of our European operations.

Revenues from our Construction Materials segment surpassed the prior year primarily due to sales of our pipeline products as well as increased sales of highway construction products over the final half of the fiscal year. Additionally, there was increased demand from our key private label customers in fiscal 2012 over the prior fiscal year.

In the upcoming fiscal year, our key objectives continue to be focused on our marketing and R&D efforts, and integrating the recently acquired NEPTCO operations. We will also be completing the move of our Randolph operations to our Oxford and Blawnox manufacturing plants. Our balance sheet continues to remain strong, with cash on hand of $15.2 million and a current ratio of 2.8. Our $15 million line of credit is fully available, while the balance of our unsecured term debt is $70 million.

The Company has two reportable segments summarized below:

Segment                     Product Lines         Manufacturing Focus and Products
Industrial Materials       •                    Protective coatings and tape products
                           Wire and Cable       including insulating and conducting
                           •                    materials for wire and cable
                           Electronic           manufacturers, moisture protective
                           Coatings             coatings for electronics and printing
                           •                    services, laminated durable papers,
                           Custom Products      flexible composites and laminates for
                           •                    the aerospace, packaging and
                           NEPTCO Products      industrial laminate markets, pulling
                                                and detection tapes used in the
                                                installation, measurement and
                                                location of fiber optic cables, water
                                                and natural gas lines, and cover
                                                tapes essential to delivering
                                                semiconductor components via tape and
                                                reel packaging; the joint venture
                                                also produces fiber optic strength
                                                elements designed to allow fiber
                                                optic cables to withstand mechanical
                                                and environmental strain and stress.
Construction Materials     •                    Protective coatings and tape products
                           Pipeline             including coating and lining systems
                           •                    for use in liquid storage and
                           Construction         containment applications, protective
                           Products             coatings for pipeline and general
                           •                    construction applications, high
                           Private Label        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:

                                                       Income from
                                                  Continuing Operations         % of
                                      Revenues     Before Income Taxes        Revenues
                                           (Dollars in thousands)
Fiscal 2012
Industrial Materials                  $  95,988     $            17,203  (a)         18 %
Construction Materials                   52,931                   4,393               8 %

                                      $ 148,919                  21,596              15 %

Less corporate and common costs                                  (7,600 )(b)

Income from continuing operations
before income taxes                                 $            13,996

Fiscal 2011
Industrial Materials                  $  75,744     $            16,450  (c)         22 %
Construction Materials                   47,296                   3,972               8 %

                                      $ 123,040                  20,422              17 %

Less corporate and common costs                                  (4,249 )

Income from continuing operations
before income taxes                                 $            16,173

Fiscal 2010
Industrial Materials                  $  64,645     $            16,328  (d)         25 %
Construction Materials                   54,098                   6,367  (e)         12 %

                                      $ 118,743                  22,695              19 %

Less corporate and common costs                                  (6,239 )

Income from continuing operations
before income taxes                                 $            16,456

º (b)
º Includes $3,206 in acquisition related expenses

º (c)
º Includes idle facility costs of $706 from our Paterson, NJ and Oxford, MA facilities

º (d)
º Includes idle facility costs of $392 from our Paterson, NJ and Oxford, MA facilities

º (e)
º Includes $434 in acquisition related expenses

Total Revenues

Total revenues in fiscal 2012 increased $25,879,000 or 21% to $148,919,000 from $123,040,000 in the prior year. Revenues in our Industrial Materials segment increased $20,244,000 or 27% to $95,988,000 for the year ended August 31, 2012 compared to $75,744,000 in fiscal 2011. The increase in revenues from our Industrial Materials segment in fiscal 2012 was primarily due to:
(a) sales of $14,826,000 from NEPTCO operations which we acquired in June 2012;
(b) increased sales of $4,912,000 from our wire & cable product line as we continue to benefit from strong demand in the power cable and communication cable markets; and (c) increased sales of $1,492,000 from our laminated durable paper products. These increases were partially offset by decreased sales in the aerospace and transportation market of $1,948,000.

Revenues from our Construction Materials segment increased $5,635,000 or 12% to $52,931,000 for the year ended August 31, 2012 compared to $47,296,000 for fiscal 2011. The increased sales from our Construction Materials segment in fiscal 2012 was primarily due to increased sales of: (a) $2,923,000 from our pipeline products due to greater demand for products produced at our UK facility; (b) $1,805,000 from our highway construction products; and
(c) $767,000 from our private label products due to increased demand from some of our key customers.

Royalties and commissions in the Industrial Materials segment were $2,425,000, $2,122,000 and $1,664,000 for the years ended August 31, 2012, 2011 and 2010, respectively. The increase in royalties and commissions in fiscal 2012 over the prior two fiscal years was due to increased sales of electronic coatings by our licensed manufacturer in Asia.

Export sales from domestic operations to unaffiliated third parties were $21,204,000, $19,715,000 and $17,946,000 for the years ended August 31, 2012, 2011 and 2010, respectively. The growth in our export sales in fiscal 2012 was due to $3,328,000 in export sales from our recent NEPTCO acquisition.

Total revenues in fiscal 2011 increased $4,297,000 or 4% to $123,040,000 from $118,743,000 in the prior year. Revenues in our Industrial Materials segment increased $11,099,000 or 17% to $75,744,000 for the year ended August 31, 2011 compared to $64,645,000 in fiscal 2010. The increase in revenues from our Industrial Materials segment in fiscal 2011 was primarily due to increased sales of: (a) $6,967,000 from our wire & cable product line as we benefitted from increased demand in the electrical cable market; (b) $2,219,000 in the electronic coatings product line, primarily due to increased demand in the industrial controls and automotive markets; and (c) $1,793,000 from our custom products product lines. Revenues from our Construction Materials segment decreased $6,802,000 or 13% to $47,296,000 for the year ended August 31, 2011 compared to $54,098,000 for fiscal 2010. The reduced sales from our Construction Materials segment in fiscal 2011 were primarily due to decreased sales of:
(a) $4,603,000 from our private label products due to less demand for these products; (b) $1,230,000 from pipeline products produced at our UK facility as we experienced production challenges in meeting heavy Middle East demand in the latter half of fiscal 2011; and (c) $999,000 from our construction product lines as a result of decreased demand in the transportation and architectural markets.

Cost of Products and Services Sold

    Cost of products and services sold increased $20,932,000 or 26% to
$101,249,000 for the fiscal year ended August 31, 2012 compared to $80,317,000
in fiscal 2011. As a percentage of revenues, cost of products and services sold
increased to 68% in fiscal 2012 compared to 65% for fiscal 2011.

    The following table summarizes the relative percentages of costs of products
and services sold to revenues for both of our operating segments:

                                                    Fiscal Years Ended
                                                        August 31,
             Cost of products and services sold    2012      2011    2010
             Industrial Materials                  67%       64%     61%
             Construction Materials                69%       67%     66%

             Total                                 68%       65%     63%

Cost of products and services sold in our Industrial Materials segment was $64,539,000 for the fiscal year ended August 31, 2012 compared to $48,474,000 in fiscal 2011. As a percentage of revenues, cost of products and services sold in this segment increased due to the following items: (a) expense of $828,000 due to the fair value inventory step up related to the NEPTCO acquisition;
(b) moving expenses of $324,000 related to our plant transition from Webster to Oxford and Camberley to Winnersh; (c) accrued transition costs of $550,000 related to our move from our Randolph plant; and (d) 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.

Cost of products and services sold in our Construction Materials segment was $36,710,000 for the fiscal year ended August 31, 2012 compared to $31,843,000 in fiscal 2011. As a percentage of revenues, cost of products and services sold in the Construction Materials segment increased primarily due to higher raw material costs, increased sales of lower margin products, and decreased sales of higher margin products.

In fiscal 2011, cost of products and services sold increased $5,489,000 or 7% to $80,317,000 compared to $74,828,000 in the prior fiscal year. As a percentage of revenues, cost of products and services sold increased to 65% in fiscal 2011 compared to 63% for fiscal 2010. Cost of products and services sold in our Industrial Materials segment were $48,474,000 for the fiscal year ended August 31, 2011 compared to $39,340,000 in fiscal 2010. The percentage of revenues increase in the cost of products and services sold for the Industrial Materials segment was primarily due to rising prices in certain commodity and petroleum based raw materials impacting many of our

product lines throughout the year. Additionally, we incurred incremental one-time expenses in the latter half of fiscal 2011 related to the transition of our Webster, MA production processes over to the Oxford, MA facility. Cost of products and services sold in our Construction Materials segment were $31,843,000 for the fiscal year ended August 31, 2011 compared to $35,488,000 in fiscal 2010. The increase in cost of products and services sold as a percentage of revenues in the Construction Materials segment during fiscal 2011 was primarily due to higher raw material costs which were partially offset by increased sales of our higher margin products and the resulting lower share of total sales that were made up of lower margin products.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $3,392,000 or 13% to $30,172,000 during fiscal 2012 compared to $26,780,000 in fiscal 2011. As a percentage of revenues, selling, general and administrative expenses decreased to 21% in fiscal 2012 compared to 22% for fiscal 2011. The percentage decrease is attributable to our continued emphasis on controlling costs and leveraging fixed overhead.

During fiscal 2011, selling, general and administrative expenses increased $63,000 to $26,780,000, compared to $26,717,000 in fiscal 2010. As a percentage of revenues, selling, general and administrative expenses decreased to 22% in fiscal 2011 compared to 23% for fiscal 2010. This decrease was primarily due to lower stock based compensation expense in fiscal 2011 as compared to fiscal 2010. This decrease was partially offset by increased research and development, sales commissions and other selling related expenses resulting from increased revenues in fiscal 2011.

In fiscal 2012, bad debt expense, net of recoveries, increased $28,000 or 22% to $155,000, compared to $127,000 in fiscal 2011. The increase in bad debt expense in fiscal 2012 was primarily due to financial difficulties for some of our international customers as well as overall increased receivable balances due to higher sales. During fiscal 2011, bad debt expense, net of recoveries, decreased $51,000 or 29% to $127,000, compared to $178,000 in fiscal 2010. We continue with our strict adherence to our established credit policies and continue to closely monitor the accounts receivable function while taking a proactive approach to the collections process.

Acquisition related costs

In fiscal 2012, we incurred $3,206,000 of acquisition costs related to our acquisition of NEPTCO. This acquisition was accounted for as a business combination in accordance with the appropriate accounting standards, as such all related professional service fees (i.e., banking, legal, accounting, actuarial, etc.) were expensed as they were incurred during the year ended August 31, 2012. In fiscal 2010, we incurred $434,000 of acquisition costs related to our acquisitions of CIM and ServiWrap.

Interest Expense

Interest expense increased $202,000 to $398,000 in fiscal 2012 compared to $196,000 in fiscal 2011. The increase in interest expense in fiscal 2012 compared to fiscal 2011 is a direct result of the $70,000,000 term note related to the acquisition of NEPTCO. Interest expense decreased $164,000 to $196,000 in fiscal 2011 compared to $360,000 in fiscal 2010. The decrease in interest expense in fiscal 2011 compared to the prior fiscal year was primarily due to the capitalization of imputed interest on construction in process projects related to our Oxford, MA and Blawnox, PA facilities.

Other Income

Other income decreased $324,000 to $102,000 in fiscal 2012 compared to $426,000 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. 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. We took back control and ownership of this leased asset which was previously sold by us under a seller financing arrangement (see Note 3 to the consolidated financial statements). The increase in other income is partially offset by the foreign exchange losses caused by the continued weakening of both the sterling and euro.

Other income increased $374,000 to $426,000 in fiscal 2011 compared to $52,000 in fiscal 2010. The increase in other income in fiscal 2011 from the prior year was primarily due to foreign exchange gains (losses)

caused by the volatility of the pound sterling and the euro, and the subsequent revaluation of some of our European sales transactions completed in other functional currencies (and subsequently translated to the pound sterling and the euro).

Income Taxes

The effective tax rate for fiscal 2012 was 33.8% compared to 32.4% and 34.8% in fiscal 2011 and 2010, respectively. In all three years, we have received the benefit of the domestic production deduction and foreign rate differential. The increased effective tax rate in fiscal 2012 is primarily due to non-deductible acquisition related expenses offset by a continued favorable effective state income tax rate. The effective tax rate of 32.4% for fiscal 2011 compares favorably to 2010 due to an increase in the applicable domestic production deduction for the year to 9% (increased from 6% in fiscal 2010) and a more favorable effective state income tax rate in 2011.

Non-controlling Interest

The income (loss) from non-controlling interest relates to a joint venture in which we have, through our NEPTCO subsidiary, a 50% ownership stake. The joint venture, between NEPTCO and the joint venture partner (an otherwise unrelated party), is managed and operated on a day-to-day basis by NEPTCO. The purpose of this joint venture was to combine the elements of each member's fiber optic strength businesses.

Net Income

Consolidated net income in fiscal 2012 decreased $1,593,000 or 15% to $9,338,000 compared to $10,931,000 in fiscal 2011. The decrease in consolidated net income in fiscal 2012 was a result of the following factors: (a) $3,206,000 in acquisition related expenses; (b) expenses of $828,000 in inventory fair value step up related to the NEPTCO acquisition; and (c) acceleration of defined benefit plan settlement costs of $550,000 resulting from the timing of lump sum distributions to participants. In addition, there was an increase in plant transition and moving expenses of $874,000 during fiscal 2012.

Consolidated net income in fiscal 2011 decreased $1,585,000 or 13% to $10,931,000 compared to $12,516,000 in fiscal 2010. Income from continuing operations increased $205,000 or 2% to $10,931,000 for the year ended August 31, 2011 compared to $10,726,000 in fiscal 2010. The increase in net income from continuing operations in fiscal 2011 was a result of increased revenues offset by increased raw material costs. Income from discontinued operations of $1,790,000 for the year ended August 31, 2010 was from our Chase EMS business which was sold in June 2010.

Other Important Performance Measures

We believe that adjusted net income is a useful performance measure and is used by our executive management team and board of directors as a measure of operating performance, to allocate resources to enhance the financial performance of our business, to evaluate the effectiveness of our business strategies and in communications with our board of directors and investors concerning our financial performance. Adjusted net income is a non-GAAP financial measure.

We define adjusted net income as follows: net income attributable to Chase Corporation before costs related to our acquisitions, expenses related to inventory step-up to fair value, and settlement (gains) or losses resulting from lump sum distributions to participants from our defined benefit plan. Our definition of adjusted net income includes the current tax expense/(benefit) that would be payable/(realized) on our income tax return.

The use of adjusted net income has limitations and this performance measure should not be considered in isolation from, or as an alternative to, U.S. GAAP measures such as net income.

The following unaudited table provides a reconciliation of net income attributable to Chase Corporation, the most directly comparable financial measure presented in accordance with U.S. GAAP, to adjusted net income for the periods presented:

                                                        Years Ended August 31,
                                                      2012       2011       2010
     Net income attributable to Chase Corporation   $  9,338   $ 10,931   $ 12,516

     Acquisition related costs (a)                     3,206          -        434
     Expense related to inventory step-up (b)            828          -        347
     Defined benefit plan settlement costs (c)           550          -          -
     Tax effect of adjustments (d)                    (1,377 )        -       (282 )

     Total adustments                                  3,207          -        499

     Adjusted net income                            $ 12,545   $ 10,931   $ 13,015

º (b)
º Represents expenses related to the step-up in fair value of inventory through purchase accounting from the June 2012 acquisition of NEPTCO and September 2009 acquisition of CIM

º (c)
º Represents pension related settlement costs due to the timing of lump sum distributions

º (d)
º Represents the theoretical current income tax associated with the adjustments presented above. The theoretical current income tax was calculated by multiplying each adjustment, which relate to the jurisdictions where such items would provide tax expense/(benefit), by the applicable tax rates

Liquidity and Sources of Capital

Our overall cash balance increased $198,000 to $15,180,000 at August 31, 2012 from $14,982,000 at August 31, 2011. The increased cash balance at August 31, 2012 was a result of cash flows generated from operations during the fiscal year and $7,268,000 in cash acquired as part of the NEPTCO acquisition, offset by principal payments on outstanding debt, equipment purchases, and . . .