INDEX

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

~~March 31,~~June 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number 000-30205

CABOT MICROELECTRONICS CORPORATION

(Exact name of registrant as specified in its charter)


Delaware			36-4324765
(State of Incorporation)			(I.R.S. Employer Identification No.)


870 North Commons Drive		60504
Aurora	Illinois	(Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area code: (630) 375-6631

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	CCMP	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

☐

☒

As of ~~April 30,~~July 31, 2020, the Company had ~~29,063,259~~29,055,268 shares of Common Stock, par value $0.001 per share, outstanding.

INDEX

CABOT MICROELECTRONICS CORPORATION

INDEX

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CABOT MICROELECTRONICS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited and in thousands, except per share amounts)


		Three Months Ended March 31,						Six Months Ended March 31,							Three Months Ended June 30,				Nine Months Ended June 30,
		2020		2019		2020		2019			2020		2019		2020		2019
Revenue	Revenue	$	284,193	$	265,391	$	567,336	$	487,169	Revenue	$	274,727	$	271,882	$	842,063	$	759,051

Cost of sales	Cost of sales	163,091		150,571		317,552		273,016		Cost of sales	152,973		156,492		470,525		429,508

Gross profit	Gross profit	121,102		114,820		249,784		214,153		Gross profit	121,754		115,390		371,538		329,543

Operating expenses:	Operating expenses:									Operating expenses:
Research, development and technical	Research, development and technical	13,230		12,778		26,041		26,818		Research, development and technical	12,165		12,191		38,206		39,009
Selling, general and administrative	Selling, general and administrative	56,209		50,328		110,648		111,456		Selling, general and administrative	51,847		50,959		162,495		162,415
Total operating expenses	Total operating expenses	69,439		63,106		136,689		138,274		Total operating expenses	64,012		63,150		200,701		201,424

Operating income	Operating income	51,663		51,714		113,095		75,879		Operating income	57,742		52,240		170,837		128,119

Interest expense	Interest expense	10,753		13,331		22,673		20,221		Interest expense	10,406		12,757		33,079		32,978

Interest income	Interest income	143		568		458		1,587		Interest income	131		417		589		2,004

Other income (expense), net	Other income (expense), net	(1,010)		(1,014)		(1,407)		(2,425)		Other income (expense), net	(201)		(472)		(1,608)		(2,897)
Income before income taxes	Income before income taxes	40,043		37,937		89,473		54,820		Income before income taxes	47,266		39,428		136,739		94,248

Provision for income taxes	Provision for income taxes	7,144		10,800		18,025		14,240		Provision for income taxes	12,741		20,550		30,766		34,790

Net income	Net income	$	32,899	$	27,137	$	71,448	$	40,580	Net income	$	34,525	$	18,878	$	105,973	$	59,458

Basic earnings per share (in dollars per share)	Basic earnings per share (in dollars per share)	$	1.12	$	0.94	$	2.45	$	1.45	Basic earnings per share (in dollars per share)	$	1.19	$	0.65	$	3.63	$	2.09

Diluted earnings per share (in dollars per share)	Diluted earnings per share (in dollars per share)	$	1.11	$	0.92	$	2.41	$	1.42	Diluted earnings per share (in dollars per share)	$	1.17	$	0.64	$	3.58	$	2.06

Weighted average basic shares outstanding	Weighted average basic shares outstanding	29,287		28,998		29,183		28,066		Weighted average basic shares outstanding	29,079		29,064		29,157		28,399

Weighted average diluted shares outstanding	Weighted average diluted shares outstanding	29,725		29,479		29,666		28,607		Weighted average diluted shares outstanding	29,456		29,568		29,603		28,924

The accompanying notes are an integral part of these Consolidated Financial Statements.

INDEX

CABOT MICROELECTRONICS CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

(Unaudited and in thousands)


		Three Months Ended March 31,						Six Months Ended March 31,							Three Months Ended June 30,				Nine Months Ended June 30,
		2020		2019		2020		2019			2020		2019		2020		2019
Net income	Net income	$	32,899	$	27,137	$	71,448	$	40,580	Net income	$	34,525	$	18,878	$	105,973	$	59,458
Other comprehensive income, net of tax:	Other comprehensive income, net of tax:									Other comprehensive income, net of tax:
Foreign currency translation adjustments	Foreign currency translation adjustments	(19,725)		(992)		(3,874)		1,433		Foreign currency translation adjustments	9,086		2,699		5,212		4,132

Minimum pension liability adjustment		—		251		—		—

Net unrealized loss on cash flow hedges	Net unrealized loss on cash flow hedges	(17,307)		(6,474)		(13,048)		(6,474)		Net unrealized loss on cash flow hedges	(334)		(9,044)		(13,382)		(15,518)
Other comprehensive income, net of tax	Other comprehensive income, net of tax	(37,032)		(7,215)		(16,922)		(5,041)		Other comprehensive income, net of tax	8,752		(6,345)		(8,170)		(11,386)
Comprehensive income (loss)		$	(4,133)	$	19,922	$	54,526	$	35,539
Comprehensive income										Comprehensive income	$	43,277	$	12,533	$	97,803	$	48,072

The accompanying notes are an integral part of these Consolidated Financial Statements.

INDEX

CABOT MICROELECTRONICS CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited and in thousands, except per share ~~amounts)~~amount)


		March 31, 2020		September 30, 2019			June 30, 2020		September 30, 2019
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	340,702	$	188,495	Cash and cash equivalents	$	354,708	$	188,495
Accounts receivable, less allowance for doubtful accounts of $2,718 at March 31, 2020 and $2,377 at September 30, 2019		151,959		146,113
Accounts receivable, less allowance for doubtful accounts of $2,404 at June 30, 2020 and $2,377 at September 30, 2019						Accounts receivable, less allowance for doubtful accounts of $2,404 at June 30, 2020 and $2,377 at September 30, 2019	137,736		146,113
Inventories	Inventories	157,872		145,278		Inventories	161,805		145,278
Prepaid expenses and other current assets	Prepaid expenses and other current assets	25,768		28,670		Prepaid expenses and other current assets	24,623		28,670
Total current assets	Total current assets	676,301		508,556		Total current assets	678,872		508,556

Property, plant and equipment, net	Property, plant and equipment, net	320,846		276,818		Property, plant and equipment, net	356,022		276,818
Goodwill	Goodwill	709,823		710,071		Goodwill	713,880		710,071
Other intangible assets, net	Other intangible assets, net	708,659		754,044		Other intangible assets, net	690,417		754,044
Deferred income taxes	Deferred income taxes	6,607		6,566		Deferred income taxes	6,686		6,566
Other long-term assets	Other long-term assets	37,724		5,711		Other long-term assets	39,496		5,711
Total assets	Total assets	$	2,459,960	$	2,261,766	Total assets	$	2,485,373	$	2,261,766

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	58,803	$	54,529	Accounts payable	$	50,211	$	54,529
Short-term debt	Short-term debt	150,000		—		Short-term debt	150,000		—
Current portion of long-term debt	Current portion of long-term debt	10,650		13,313		Current portion of long-term debt	13,313		13,313
Accrued expenses, income taxes payable and other current liabilities	Accrued expenses, income taxes payable and other current liabilities	109,389		103,618		Accrued expenses, income taxes payable and other current liabilities	126,399		103,618
Total current liabilities	Total current liabilities	328,842		171,460		Total current liabilities	339,923		171,460

Long-term debt, net of current portion, less prepaid debt issuance costs of $16,420 at March 31, 2020 and $17,900 at September 30, 2019		914,617		928,463
Long-term debt, net of current portion, less prepaid debt issuance costs of $15,684 at June 30, 2020 and $17,900 at September 30, 2019						Long-term debt, net of current portion, less prepaid debt issuance costs of $15,684 at June 30, 2020 and $17,900 at September 30, 2019	912,691		928,463
Deferred income taxes	Deferred income taxes	112,780		121,993		Deferred income taxes	110,930		121,993
Other long-term liabilities	Other long-term liabilities	94,311		59,473		Other long-term liabilities	96,795		59,473
Total liabilities	Total liabilities	1,450,550		1,281,389		Total liabilities	1,460,339		1,281,389

Commitments and contingencies (Note 13)	Commitments and contingencies (Note 13)					Commitments and contingencies (Note 13)

Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common Stock Authorized: 200,000,000 shares, $0.001 par value; Issued: 39,854,529 shares at March 31, 2020, and 39,592,468 shares at September 30, 2019		40		40
Common Stock Authorized: 200,000 shares, $0.001 par value; Issued: 39,867 shares at June 30, 2020, and 39,592 shares at September 30, 2019						Common Stock Authorized: 200,000 shares, $0.001 par value; Issued: 39,867 shares at June 30, 2020, and 39,592 shares at September 30, 2019	40		40
Capital in excess of par value of common stock	Capital in excess of par value of common stock	1,008,311		988,980		Capital in excess of par value of common stock	1,012,131		988,980
Retained earnings	Retained earnings	508,126		461,501		Retained earnings	529,786		461,501
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(40,648)		(23,238)		Accumulated other comprehensive income (loss)	(31,896)		(23,238)
Treasury stock at cost, 10,672,652 shares at March 31, 2020, and 10,491,252 shares at September 30, 2019		(466,419)		(446,906)
Treasury stock at cost, 10,833 shares at June 30, 2020, and 10,491 shares at September 30, 2019						Treasury stock at cost, 10,833 shares at June 30, 2020, and 10,491 shares at September 30, 2019	(485,027)		(446,906)
Total stockholders’ equity	Total stockholders’ equity	1,009,410		980,377		Total stockholders’ equity	1,025,034		980,377

Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	2,459,960	$	2,261,766	Total liabilities and stockholders’ equity	$	2,485,373	$	2,261,766

The accompanying notes are an integral part of these Consolidated Financial Statements.

INDEX

CABOT MICROELECTRONICS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and amounts in thousands)


		Six Months Ended March 31,							Nine Months Ended June 30,
		2020		2019			2020		2019
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	71,448	$	40,580	Net income	$	105,973	$	59,458
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	64,192		43,889		Depreciation and amortization	95,516		70,476
Accretion on Asset Retirement Obligations - Liabilities		255		—
Accretion on Asset Retirement Obligations						Accretion on Asset Retirement Obligations	406		—
Provision for doubtful accounts	Provision for doubtful accounts	185		(314)		Provision for doubtful accounts	366		(75)
Share-based compensation expense	Share-based compensation expense	8,997		11,708		Share-based compensation expense	12,191		15,048

Deferred income tax expense (benefit)		(7,117)		(13,811)
Non-cash foreign exchange (gain) loss		325		354
Loss (Gain) on disposal of property, plant and equipment		(69)		(58)
Deferred income tax benefit						Deferred income tax benefit	(9,469)		(16,760)
Non-cash foreign exchange loss						Non-cash foreign exchange loss	146		907
Gain on disposal of property, plant and equipment						Gain on disposal of property, plant and equipment	(338)		(59)

Non-cash charge on inventory step up of acquired inventory sold	Non-cash charge on inventory step up of acquired inventory sold	—		14,827		Non-cash charge on inventory step up of acquired inventory sold	—		14,869
Amortization of debt issuance costs	Amortization of debt issuance costs	1,565		1,286		Amortization of debt issuance costs	2,345		2,086
Other	Other	959		2,337		Other	(63)		2,201
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(6,386)		9,445		Accounts receivable	8,130		6,187
Inventories	Inventories	(13,103)		(21,100)		Inventories	(16,442)		(19,477)
Prepaid expenses and other assets	Prepaid expenses and other assets	5,020		5,415		Prepaid expenses and other assets	9,786		10,831
Accounts payable	Accounts payable	(1,102)		(429)		Accounts payable	(5,591)		(1,558)
Accrued expenses, income taxes payable and other liabilities	Accrued expenses, income taxes payable and other liabilities	(12,830)		(40,601)		Accrued expenses, income taxes payable and other liabilities	1,127		(27,089)
Net cash provided by operating activities	Net cash provided by operating activities	112,339		53,528		Net cash provided by operating activities	204,083		117,045

Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Additions to property, plant and equipment	Additions to property, plant and equipment	(59,192)		(19,472)		Additions to property, plant and equipment	(107,015)		(32,691)
Proceeds from sales of property, plant and equipment	Proceeds from sales of property, plant and equipment	1,587		1,210		Proceeds from sales of property, plant and equipment	1,587		1,210

Acquisition of a business, net of cash acquired	Acquisition of a business, net of cash acquired	—		(1,182,186)		Acquisition of a business, net of cash acquired	—		(1,182,186)
Cash settlement of life insurance policy	Cash settlement of life insurance policy	—		3,959		Cash settlement of life insurance policy	—		3,959		��

Net cash used in investing activities	Net cash used in investing activities	(57,605)		(1,196,489)		Net cash used in investing activities	(105,428)		(1,209,708)

Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Repayment of long-term debt	Repayment of long-term debt	(17,988)		(45,000)		Repayment of long-term debt	(17,988)		(102,663)
Repurchases of common stock	Repurchases of common stock	(19,513)		(4,695)		Repurchases of common stock	(38,121)		(9,468)
Proceeds from issuance of long-term debt	Proceeds from issuance of long-term debt	—		1,062,337		Proceeds from issuance of long-term debt	—		1,062,337
Proceeds from revolving line of credit	Proceeds from revolving line of credit	150,000		—		Proceeds from revolving line of credit	150,000		—
Debt issuance costs	Debt issuance costs	—		(18,745)		Debt issuance costs	—		(18,745)
Principal payments under financing lease obligations		(4)		—
Proceeds from issuance of stock	Proceeds from issuance of stock	10,334		10,361		Proceeds from issuance of stock	10,960		11,349
Dividends paid	Dividends paid	(24,752)		(21,934)		Dividends paid	(37,527)		(34,132)
Other financing activities						Other financing activities	(123)		—
Net cash provided by financing activities	Net cash provided by financing activities	98,077		982,324		Net cash provided by financing activities	67,201		908,678

Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	(604)		(24)		Effect of exchange rate changes on cash	357		(258)
Increase (decrease) in cash and cash equivalents	Increase (decrease) in cash and cash equivalents	152,207		(160,661)		Increase (decrease) in cash and cash equivalents	166,213		(184,243)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	188,495		352,921		Cash and cash equivalents at beginning of period	188,495		352,921
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	340,702	$	192,260	Cash and cash equivalents at end of period	$	354,708	$	168,678

Supplemental Cash Flow Information:	Supplemental Cash Flow Information:					Supplemental Cash Flow Information:
Purchases of property, plant and equipment in accrued liabilities and accounts payable at the end of the period	Purchases of property, plant and equipment in accrued liabilities and accounts payable at the end of the period	$	13,841	$	2,425	Purchases of property, plant and equipment in accrued liabilities and accounts payable at the end of the period	$	9,609	$	3,085
Equity consideration related to the acquisition of KMG Chemicals, Inc	Equity consideration related to the acquisition of KMG Chemicals, Inc	—		331,048		Equity consideration related to the acquisition of KMG Chemicals, Inc	—		331,048
Cash paid during the period for lease liabilities	Cash paid during the period for lease liabilities	3,825		—		Cash paid during the period for lease liabilities	5,647		—
Right of use asset obtained in exchange for lease liabilities	Right of use asset obtained in exchange for lease liabilities	3,334		—		Right of use asset obtained in exchange for lease liabilities	6,351		—

The accompanying notes are an integral part of these Consolidated Financial Statements.

INDEX

CABOT MICROELECTRONICS CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited and amounts in thousands)


		Common Stock		Capital In Excess of Par		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total			Common Stock		Capital In Excess of Par		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
Balance at September 30, 2019	Balance at September 30, 2019	$	40	$	988,980	$	461,501	$	(23,238)	$	(446,906)	$	980,377	Balance at September 30, 2019	$	40	$	988,980	$	461,501	$	(23,238)	$	(446,906)	$	980,377

Share-based compensation expense	Share-based compensation expense			4,763								4,763		Share-based compensation expense			4,763								4,763

Repurchases of common stock - other, at cost	Repurchases of common stock - other, at cost									(2,897)		(2,897)		Repurchases of common stock - other, at cost									(2,897)		(2,897)
Exercise of stock options	Exercise of stock options			1,298								1,298		Exercise of stock options			1,298								1,298
Issuance of Cabot Microelectronics restricted stock under Deposit Share Program	Issuance of Cabot Microelectronics restricted stock under Deposit Share Program			150								150		Issuance of Cabot Microelectronics restricted stock under Deposit Share Program			150								150

Net income	Net income					38,549						38,549		Net income					38,549						38,549
Dividends ($0.42 per share in dollars)	Dividends ($0.42 per share in dollars)					(12,351)						(12,351)		Dividends ($0.42 per share in dollars)					(12,351)						(12,351)
Effect of the adoption of the stranded tax effect accounting standards						488		(488)				—
Effect of the adoption of the stranded tax effect accounting standard														Effect of the adoption of the stranded tax effect accounting standard					488		(488)				—
Foreign currency translation adjustment	Foreign currency translation adjustment							15,851				15,851		Foreign currency translation adjustment							15,851				15,851

Cash flow hedges	Cash flow hedges							4,259				4,259		Cash flow hedges							4,259				4,259

Balance at December 31, 2019	Balance at December 31, 2019	$	40	$	995,191	$	488,187	$	(3,616)	$	(449,803)	$	1,029,999	Balance at December 31, 2019	$	40	$	995,191	$	488,187	$	(3,616)	$	(449,803)	$	1,029,999

Share-based compensation expense	Share-based compensation expense			4,234								4,234		Share-based compensation expense			4,234								4,234
Repurchases of common stock under Share Repurchase Program, at cost	Repurchases of common stock under Share Repurchase Program, at cost									(16,414)		(16,414)		Repurchases of common stock under Share Repurchase Program, at cost									(16,414)		(16,414)
Repurchases of common stock - other, at cost	Repurchases of common stock - other, at cost									(202)		(202)		Repurchases of common stock - other, at cost									(202)		(202)
Exercise of stock options	Exercise of stock options			6,350								6,350		Exercise of stock options			6,350								6,350

Issuance of Cabot Microelectronics stock under Employee Stock Purchase Plan	Issuance of Cabot Microelectronics stock under Employee Stock Purchase Plan			2,536								2,536		Issuance of Cabot Microelectronics stock under Employee Stock Purchase Plan			2,536								2,536
Net income	Net income					32,899						32,899		Net income					32,899						32,899
Dividends ($0.44 per share in dollars)	Dividends ($0.44 per share in dollars)					(12,960)						(12,960)		Dividends ($0.44 per share in dollars)					(12,960)						(12,960)
Foreign currency translation adjustment	Foreign currency translation adjustment							(19,725)				(19,725)		Foreign currency translation adjustment							(19,725)				(19,725)

Cash flow hedges	Cash flow hedges							(17,307)				(17,307)		Cash flow hedges							(17,307)				(17,307)

Balance at March 31, 2020	Balance at March 31, 2020	$	40	$	1,008,311	$	508,126	$	(40,648)	$	(466,419)	$	1,009,410	Balance at March 31, 2020	$	40	$	1,008,311	$	508,126	$	(40,648)	$	(466,419)	$	1,009,410

Share-based compensation expense														Share-based compensation expense			3,194								3,194
Repurchases of common stock under Share Repurchase Program, at cost														Repurchases of common stock under Share Repurchase Program, at cost									(18,595)		(18,595)
Repurchases of common stock - other, at cost														Repurchases of common stock - other, at cost									(13)		(13)
Exercise of stock options														Exercise of stock options			626								626

Net income														Net income					34,525						34,525
Dividends ($0.44 per share in dollars)														Dividends ($0.44 per share in dollars)					(12,865)						(12,865)
Foreign currency translation adjustment														Foreign currency translation adjustment							9,086				9,086

Cash flow hedges														Cash flow hedges							(334)				(334)

Balance at June 30, 2020														Balance at June 30, 2020	$	40	$	1,012,131	$	529,786	$	(31,896)	$	(485,027)	$	1,025,034

The accompanying notes are an integral part of these Consolidated Financial Statements.

INDEX

CABOT MICROELECTRONICS CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited and amounts in thousands)


		Common Stock		Capital In Excess of Par		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total			Common Stock		Capital In Excess of Par		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
Balance at September 30, 2018	Balance at September 30, 2018	$	36	$	622,498	$	471,673	$	4,539	$	(432,054)	$	666,692	Balance at September 30, 2018	$	36	$	622,498	$	471,673	$	4,539	$	(432,054)	$	666,692

Share-based compensation expense	Share-based compensation expense			8,170								8,170		Share-based compensation expense			8,170								8,170
Repurchases of common stock - other, at cost	Repurchases of common stock - other, at cost									(4,001)		(4,001)		Repurchases of common stock - other, at cost									(4,001)		(4,001)
Exercise of stock options	Exercise of stock options			3,097								3,097		Exercise of stock options			3,097								3,097
Issuance of common stock in connection with acquisition of KMG Chemicals, Inc.	Issuance of common stock in connection with acquisition of KMG Chemicals, Inc.	3		331,045								331,048		Issuance of common stock in connection with acquisition of KMG Chemicals, Inc.	3		331,045								331,048
Issuance of Cabot Microelectronics restricted stock under Deposit Share Program	Issuance of Cabot Microelectronics restricted stock under Deposit Share Program			75								75		Issuance of Cabot Microelectronics restricted stock under Deposit Share Program			75								75
Net income	Net income					13,443						13,443		Net income					13,443						13,443
Dividends ($0.40 per share in dollars)	Dividends ($0.40 per share in dollars)					(11,598)						(11,598)		Dividends ($0.40 per share in dollars)					(11,598)						(11,598)
Effect of the adoption of the revenue recognition accounting standards	Effect of the adoption of the revenue recognition accounting standards					(933)						(933)		Effect of the adoption of the revenue recognition accounting standards					(933)						(933)
Foreign currency translation adjustment	Foreign currency translation adjustment							2,425				2,425		Foreign currency translation adjustment							2,425				2,425
Minimum pension liability adjustment	Minimum pension liability adjustment							(251)				(251)		Minimum pension liability adjustment							(251)				(251)

Balance at December 31, 2018	Balance at December 31, 2018	$	39	$	964,885	$	472,585	$	6,713	$	(436,055)	$	1,008,167	Balance at December 31, 2018	$	39	$	964,885	$	472,585	$	6,713	$	(436,055)	$	1,008,167

Share-based compensation expense	Share-based compensation expense			3,538								3,538		Share-based compensation expense			3,538								3,538
Repurchases of common stock - other, at cost	Repurchases of common stock - other, at cost									(694)		(694)		Repurchases of common stock - other, at cost									(694)		(694)
Exercise of stock options	Exercise of stock options			5,080								5,080		Exercise of stock options			5,080								5,080
Issuance of Cabot Microelectronics stock under Employee Stock Purchase Plan	Issuance of Cabot Microelectronics stock under Employee Stock Purchase Plan			2,109								2,109		Issuance of Cabot Microelectronics stock under Employee Stock Purchase Plan			2,109								2,109
Net income	Net income					27,137						27,137		Net income					27,137						27,137
Dividends ($0.42 per share in dollars)	Dividends ($0.42 per share in dollars)					(12,255)						(12,255)		Dividends ($0.42 per share in dollars)					(12,255)						(12,255)
Foreign currency translation adjustment	Foreign currency translation adjustment							(992)				(992)		Foreign currency translation adjustment							(992)				(992)
Interest rate swap								(6,474)				(6,474)
Cash flow hedges														Cash flow hedges							(6,474)				(6,474)
Minimum pension liability adjustment	Minimum pension liability adjustment							251				251		Minimum pension liability adjustment							251				251

Balance at March 31, 2019	Balance at March 31, 2019	$	39	$	975,612	$	487,467	$	(502)	$	(436,749)	$	1,025,867	Balance at March 31, 2019	$	39	$	975,612	$	487,467	$	(502)	$	(436,749)	$	1,025,867

Share-based compensation expense														Share-based compensation expense			3,340								3,340
Repurchases of common stock under share repurchase plans, at cost														Repurchases of common stock under share repurchase plans, at cost									(5,001)		(5,001)
Repurchases of common stock - other, at cost														Repurchases of common stock - other, at cost									(58)		(58)
Exercise of stock options														Exercise of stock options			988								988
Net income														Net income					18,878						18,878
Dividends ($0.42 per share in dollars)														Dividends ($0.42 per share in dollars)					(12,336)						(12,336)
Foreign currency translation adjustment														Foreign currency translation adjustment							2,699				2,699
Cash flow hedges														Cash flow hedges							(9,044)				(9,044)

Balance at June 30, 2019														Balance at June 30, 2019	$	39	$	979,940	$	494,009	$	(6,847)	$	(441,808)	$	1,025,333

`The accompanying notes are an integral part of these Consolidated Financial Statements.

INDEX

CABOT MICROELECTRONICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited and in thousands, except ~~share and~~ per share amounts)

1. BACKGROUND AND BASIS OF PRESENTATION

Cabot Microelectronics Corporation (“Cabot Microelectronics”, “the Company”, “us”, “we”, or “our”) is a leading global supplier of consumable materials to semiconductor manufacturers and pipeline companies. The Company's products play a critical role in the production of advanced semiconductor devices, helping to enable the manufacture of smaller, faster and more complex devices by its customers. On November 15, 2018 (the “Acquisition Date”), we completed our acquisition of KMG Chemicals, Inc. (“KMG”), which produces and distributes specialty chemicals and performance materials for the semiconductor industry, pipeline and adjacent industries, and industrial wood preservation industry (the “Acquisition”). The Acquisition extended and strengthened our position as one of the leading suppliers of consumable materials to the semiconductor industry and expanded our portfolio with the addition of KMG’s businesses, which we believe enables us to be a leading global provider of performance materials to pipeline operators. The Consolidated Financial Statements included in this Report on Form 10-Q include the financial results of KMG ~~from~~Chemicals, Inc. (“KMG”) since the ~~Acquisition Date. Since~~Company's acquisition of 100% of the ~~Acquisition, we now~~outstanding stock of KMG (the "Acquisition") on November 15, 2018 (the “Acquisition Date”). We operate our business within 2 reportable segments: Electronic Materials and Performance Materials. The Electronic Materials segment consists of our heritage ~~CMP~~Chemical Mechanical Planarization ("CMP") slurries and polishing pads businesses, as well as the KMG electronic chemicals business. The Performance Materials segment includes KMG’s heritage pipeline performance and wood treatment businesses, and our heritage QED business. For additional information, refer to Item 1 of Part I of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

The unaudited Consolidated Financial Statements have been prepared by Cabot Microelectronics pursuant to the rules of the Securities and Exchange Commission ~~(SEC)~~("SEC") and accounting principles generally accepted in the United States of America ~~(U.S. GAAP)~~("U.S. GAAP" or "GAAP"). In the opinion of management, these unaudited Consolidated Financial Statements include all adjustments, consisting of normal recurring adjustments, necessary for the fair statement of Cabot Microelectronics’ financial position as of ~~March 31,~~June 30, 2020, cash flows for the ~~six~~nine months ended ~~March 31,~~June 30, 2020 and ~~March 31,~~June 30, 2019, and results of operations for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2020 and ~~March 31,~~June 30, 2019. The Consolidated Balance Sheets as of September 30, 2019 were derived from audited financial statements. The results of operations for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2020 may not be indicative of results to be expected for future periods, including the fiscal year ending September 30, 2020. This Report on Form 10-Q does not contain all of the ~~footnote~~note disclosures from our annual financial statements and should be read in conjunction with the Consolidated Financial Statements and related notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

The Consolidated Financial Statements include the accounts of Cabot Microelectronics and its subsidiaries. All intercompany transactions and balances between the companies have been ~~eliminated as of March 31, 2020.~~eliminated.

USE OF ESTIMATES

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. The accounting estimates that require management's most challenging and subjective judgments include, but are not limited to, those estimates related to impairment of long-lived assets, business combinations, asset retirement obligations, goodwill, other intangible assets, income taxes and contingencies. We base our estimates on historical experience, current conditions and on various other assumptions that we believe are reasonable under the circumstances. However, future events are subject to change and estimates and judgments routinely require adjustment. Actual results may differ from these estimates under different assumptions or conditions.

INDEX

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS

Significant Accounting Policies and Estimates

There have been no material changes, except for those disclosed below, made to the Company’s significant accounting policies disclosed in Note 2 of "Notes to the Consolidated Financial Statements" included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued ~~ASU~~Accounting Standards Update ("ASU") No. 2016-02, “Leases” (ASC 842) to change the criteria for recognizing leasing transactions. The provisions of this guidance require a lessee to recognize a right of use asset and a corresponding lease liability for operating leases. Under this guidance, rental expense for operating leases, continues to be recognized on a straight-line basis over the non-cancelable lease term. As of October 1, 2019, the Company began applying the provisions of this standard prospectively for all lease transactions as of and after the effective date. Upon adoption, the Company recorded a lease liability of $30,881 and a right of use asset of $30,115. The difference between the right of use asset and lease liability primarily relates to deferred rent recorded prior to adoption. The new guidance did not have a material impact on our results of operations or cash flows for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2020. Refer to Note 11 of this Report on Form 10-Q for additional information regarding the Company’s lease transactions.

In February 2018, the FASB issued ASU No. 2018-02 “Income Statement – Reporting Comprehensive Income” (Topic 220). The amendments in this standard allow for an optional one-time reclassification of the stranded tax effects resulting from the change in the U.S. federal corporate income tax rate under the Tax Cuts and Jobs Act (the "Tax Act") from Accumulated other comprehensive income to Retained earnings. The Company adopted this standard effective October 1, 2019, which resulted in an increase of $488 to both Retained earnings and Accumulated other comprehensive loss.

Accounting Pronouncements Issued But Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments” (Topic 326). ~~The provisions of this~~This standard ~~require~~requires financial assets measured at amortized cost to be presented at the net amount expected to be ~~collected. An~~collected using an allowance ~~account would be established to present the net carrying value at the amount expected to be collected.~~account. ASU 2016-13 also provides that credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. The guidance was amended through various ASU's subsequent to ASU 2016-13, all of which will be effective for the Company beginning October 1, 2020. We are ~~currently evaluating~~assessing the impact of ~~implementing~~ this ~~standard on our financial statements.~~guidance and currently do not expect it to have a material impact.

In August 2018, the FASB issued ASU No. 2018-13 “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. The ASU provides specific guidance on various disclosure requirements in Topic 820, including removal, modification and addition to current disclosure requirements. ASU 2018-13 will be effective for us beginning October 1, 2020. We are ~~currently evaluating~~finalizing the impact of ~~implementing~~ this standard on our ~~disclosures.~~disclosures and do not expect the adoption to have a material impact.

In December 2019, the FASB issued ASU No. 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. The ASU was issued to simplify Topic 740 through improving consistency and removing certain exceptions to general principles. ASU 2019-12 will be effective for us beginning October 1, ~~2021, but early adoption is permitted.~~2021. We are currently evaluating the impact of implementing this standard on our financial statements.

In March 2020, the FASB issued ASU No. 2020-04 "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The standard provides optional guidance for accounting for contracts, hedging relationships, and other transactions affected by the reference rate reform, if certain criteria are met. The provisions of this standard are available for election through December 31, 2022. We are currently evaluating the impact of the reference rate reform on our contracts and the resulting impact of adopting this standard on our financial statements.

3. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregated Revenue

The Company disaggregates revenue by product area and segment as it best depicts the nature and amount of the Company’s revenue. See Note 18 of this Report on Form 10-Q for more information.

INDEX

Contract Balances

The following table provides information about contract liability balances:

March 31, 2020 September 30, 2019
Contract liabilities (current) $ 7,293 $ 5,008
Contract liabilities (noncurrent) 1,580 1,130


	June 30, 2020		September 30, 2019
Contract liabilities (current)	$	9,410	$	5,008
Contract liabilities (noncurrent)	1,019		1,130

At ~~March 31,~~June 30, 2020, the current portion of contract liabilities of ~~$7,293~~$9,410 is included in Accrued expenses, income taxes payable and other current liabilities, and the non-current portion of ~~$1,580~~$1,019 is included in Other long-term liabilities in the Consolidated Balance Sheets. The amount of revenue recognized during the three and ~~six~~nine months ended ~~March 31,~~June 30, 2020 that was included in the opening current contract liability balances in our Performance Materials segment were ~~$769~~$400 and ~~$3,027,~~$3,427, respectively. The amount of revenue recognized during the three and ~~six~~nine months ended ~~March 31,~~June 30, 2020 that was included in our opening contract liability balances in our Electronic Materials segment was not material.

Transaction Price Allocated to Remaining Performance Obligations

The table below discloses (1) the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period for contracts with an original duration of greater than one year and (2) when the Company expects to recognize this revenue.

Less Than 1 Year 1-3 Years Total
Revenue expected to be recognized on contract liability amounts as of March 31, 2020 $ 1,182 $ 1,580 $ 2,762


	Less Than 1 Year		1-3 Years		Total
Revenue expected to be recognized on contract liability amounts as of June 30, 2020	$	1,426	$	1,019	$	2,445

4. BUSINESS COMBINATION

On the Acquisition Date, the Company completed its acquisition of 100% of the outstanding stock of KMG, which was a publicly-held company headquartered in Fort Worth, Texas. KMG specialized in producing, processing, and distributing electronic chemicals for the semiconductor industry and performance materials for the pipeline and adjacent industries, and industrial wood preservation industry. We acquired KMG to extend and strengthen our position as one of the leading suppliers of consumable materials to the semiconductor industry and to expand our portfolio with the addition of KMG’s performance materials businesses, which we believe enables us to become a leading global provider of performance materials to pipeline operators. The purchase consideration was $1,513,235, including consideration transferred of $1,536,452, less cash acquired of $23,217. The consideration was comprised of cash consideration to KMG common stockholders and equity award holders, stock consideration to KMG common stockholders and equity award holders, and cash consideration in the form of the retirement of KMG’s preexisting debt obligations. Under the terms of the definitive agreement to acquire KMG, each share of KMG common stock was converted into the right to receive $55.65 in cash and 0.2000 of a share of Cabot Microelectronics common stock. As a result, we issued 3,237,005 shares of our common stock to KMG’s common stockholders, with a stock price of $102.27 on the Acquisition ~~Date. In connection with the Acquisition, we entered into a credit agreement which provided a~~ ~~seven-year, $1,065.0 million term loan facility. Refer to Note 10~~and KMG’s results of ~~this Report on Form 10-Q for additional information. See below for a summary of the different components that comprise the total consideration.~~


	~~Amount~~
~~Total cash consideration paid for KMG outstanding common stock and equity awards~~	$	~~900,756~~
~~Cash provided to payoff KMG debt~~	~~304,648~~
~~Total cash consideration paid~~	~~1,205,404~~
~~Fair value of Cabot Microelectronics common stock issued for KMG outstanding common stock and equity awards~~	~~331,048~~
~~Total consideration transferred~~	$	~~1,536,452~~

~~INDEX~~

~~The following table summarizes the allocation of fair values of assets acquired and liabilities assumed as of the Acquisition Date.~~


	~~Amount~~
~~Cash~~	$	~~23,217~~
~~Accounts receivable~~	~~63,950~~
~~Inventories~~	~~68,087~~
~~Prepaid expenses and other current assets~~	~~14,694~~
~~Property, plant and equipment~~	~~147,170~~
~~Intangible assets~~	~~844,800~~
~~Other long-term assets~~	~~5,805~~
~~Accounts payable~~	~~(28,835)~~
~~Accrued expenses and other current liabilities~~	~~(44,216)~~
~~Deferred income taxes liabilities~~	~~(156,474)~~
~~Other long-term liabilities~~	~~(15,080)~~
~~Total identifiable net assets acquired~~	~~923,118~~
~~Goodwill~~	~~613,334~~
~~Total consideration transferred~~	$	~~1,536,452~~

The Acquisition was accounted for using the acquisition method of accounting. Tangible and identifiable intangible assets acquired and liabilities assumed are recorded at fair value as of the Acquisition Date. We believe that the information we used provides a reasonable basis for estimating the fair value of assets acquired and liabilities assumed. The Company finalized the purchase price allocation during the fourth quarter of fiscal 2019. During the first quarter of fiscal 2020, the Company made adjustments to the purchase price allocation to correct immaterial errors.

The fair values of identifiable assets and liabilities acquired were developed with the assistance of a third-party valuation firm. The fair value of acquired property, plant and equipment is primarily valued at its “value-in-use.” The fair value of acquired identifiable intangible assets was determined using the “income approach” on an individual asset basis. The key assumptions used in the calculation of the discounted cash flows include projected revenue, operating expenses, discount rates terminal growth rates, and customer attrition rates. The valuations and the underlying assumptionsoperations have been ~~deemed reasonable by the Company’s management. There are inherent uncertainties and management judgment required~~included in ~~these determinations.~~

~~The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the Acquisition Date:~~

Fair Value Estimated Useful Life
(years)
Customer relationships - Flowchem $ 315,000 20
Customer relationships - Electronic chemicals 280,000 19
Customer relationships - all other 109,000 15-16
Technology and know-how 85,500 9-11
Trade name - Flowchem 46,000 Indefinite
Trade name - all other 7,000 1-15
EPA product registration rights 2,300 15
Total intangible assets $ 844,800

Customer relationships represent the estimated fair value of the underlying relationships and agreements with KMG’s customers, and are being amortized on an accelerated basis in order for the expense to most accurately match the periods of highest cash flows attributable to the identified relationships. Technology and know-how represent the estimated fair value of KMG’s technology, processes and knowledge regarding its product offerings, and are being amortized on a straight-line basis. Trade names represent the estimated fair value of the brand and name recognition associated with the marketing of KMG’s product offerings and are being amortized on a straight-line basis, except for the Flowchem trade name, which we believe has an indefinite life. The intangible assets subject to amortization have a weighted average useful life of 17.9 years. For intangible assets related to the wood treatment business, the remaining useful lives were limited to the end of the calendar year 2021.

~~INDEX~~

~~As discussed in~~ our Annual Report on Form 10-K for the fiscal year ended September 30, 2019, the Company recognized asset impairment charges of $67,372, net for the wood treatment asset group due to triggering events that occurred in the fourth quarter of fiscal 2019. The Company continues to monitor the wood treatment asset group for indicators of long-lived asset or goodwill impairment. As the Company approaches the announced closure date of the facilities and there are lower estimated future cash flows, there is a potential for further impairments of long-lived assets and goodwill absent a sale of the business. While the timing and amounts of any further impairments are unknown, they could be material to the Company’s Consolidated Balance Sheets and to the Consolidated Statements of Income ~~but they will not affect the Company’s reported Net cash provided by operating activities.~~and Consolidated Statements of Comprehensive Income (Loss) from that date. Refer to Note 104 of "Notes to the Consolidated Financial Statements" included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019 for additional ~~information.~~

~~The excess of consideration transferred over~~information on the fair value of net assets acquired was recorded as goodwill, and is not deductible for income tax purposes. The goodwill is primarily attributable to anticipated revenue growth from the combined company product portfolio, expected synergies of the combined company, and the assembled workforce of KMG. The allocation of goodwill to each of the Electronic Materials and Performance Materials segments as a result of the Acquisition was $259,859 and $353,475, respectively.

For the three and six months ended March 31, 2020, we recorded $2,285 and $5,050, respectively, in Acquisition and integration-related expenses, including professional fees and retention costs. These items are included within Selling, general and administrative in the Consolidated Statements of Income.

KMG’s results of operations have been included in our unaudited Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Loss) from the Acquisition Date. Net sales of the acquired KMG businesses for the three and six months ended March 31, 2020 were $137,996 and $271,429, respectively. KMG’s Net income for the three and six months ended March 31, 2020 were $16,604 and $31,290, respectively, which include Acquisition-related costs of $117 and $323, respectively. Further, additional amortization and depreciation expense associated with recording KMG’s net assets at fair value decreased KMG’s Net income post-Acquisition.Acquisition.

The following unaudited supplemental pro forma information summarizes the combined results of operations for Cabot Microelectronics and KMG as if the Acquisition had occurred on October 1, 2017.

Three Months Ended
March 31, 2019 Six Months Ended
March 31, 2019
Revenue $ 265,391 $ 549,147
Net income 26,871 64,473
Earnings per share - basic 0.93 2.23
Earnings per share - diluted 0.91 2.19


	Nine Months Ended June 30, 2019
Revenue	$	821,029
Net income	80,618
Earnings per share - basic	2.79
Earnings per share - diluted	2.74

The following costs are included in the ~~three and six~~nine months ended ~~March 31,~~June 30, 2019:

•Non-recurring transaction costs of ~~$621 and $1,436, respectively.~~$1,568.

•Non-recurring transaction-related employee costs, such as accelerated stock compensation expense, retention and severance expense of ~~$51 and $154, respectively.~~$283.

INDEX

The historical financial information has been adjusted by applying the Company’s accounting policies and giving effect to the pro forma adjustments, which consist of (i) amortization expense associated with identified intangible assets; (ii) depreciation of fixed asset step-up (for pre-Acquisition periods only); (iii) accretion of inventory step-up value; (iv) the elimination of Interest expense on pre-Acquisition KMG debt and replacement of Interest expense related to the Acquisition-related financing; (v) transaction-related costs; (vi) accelerated share-based compensation expense (pre-Acquisition periods only); (vii) retention and severance expense incurred as a direct result of the Acquisition; and (viii) an adjustment to tax-effect the aforementioned unaudited pro forma adjustments using an estimated weighted-average effective income tax rate of each entity and the jurisdictions to which the above adjustments relate. The pro forma consolidated results are not necessarily indicative of what the consolidated results actually would have been had the Acquisition been completed on October 1, 2017. The pro forma consolidated results do not purport to project future results of combined operations, nor do they reflect the expected realization of any revenue or cost synergies associated with the Acquisition.

~~INDEX~~

Quarter over quarter and year over year numbers may not always roll forward when comparing to prior period pro forma reported results. Variances can be attributed to: changes in Purchase Price Allocation values and useful lives, differences in the allocation between Cost of sales and Selling, general and administrative expenses, transaction expenses that had not been incurred, tax rate assumptions and interest rate calculations.

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The FASB established a three-level hierarchy for disclosure based on the extent and level of judgment used to estimate fair value. Level 1 inputs consist of valuations based on quoted market prices in active markets for identical assets or liabilities. Level 2 inputs consist of valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in an inactive market, or other observable inputs. Level 3 inputs consist of valuations based on unobservable inputs that are supported by little or no market activity.

The following table presents financial instruments, other than debt, that we measured at fair value on a recurring basis at ~~March 31,~~June 30, 2020 and September 30, 2019. See Note 10 of this Report on Form 10-Q for a ~~detailed~~ discussion of our debt. We have classified the following assets and liabilities in accordance with the fair value hierarchy set forth in the applicable standards. In instances where the inputs used to measure the fair value of an asset fall into more than one level of the hierarchy, we have classified them based on the lowest-level input that is significant to the determination of the fair value.


March 31, 2020		Level 1		Level 2		Level 3		Total Fair Value
June 30, 2020										June 30, 2020	Level 1		Level 2		Level 3		Total Fair Value
Assets:	Assets:									Assets:
Cash and cash equivalents	Cash and cash equivalents	$	340,702	$	—	$	—	$	340,702	Cash and cash equivalents	$	354,708	$	—	$	—	$	354,708
Other long-term investments	Other long-term investments	1,036		—		—		1,036		Other long-term investments	1,147		—		—		1,147

Total assets	Total assets	$	341,738	$	—	$	—	$	341,738	Total assets	$	355,855	$	—	$	—	$	355,855

Liabilities:	Liabilities:									Liabilities:
Derivative financial instruments	Derivative financial instruments	—		41,452		—		41,452		Derivative financial instruments	—		41,692		—		41,692
Total liabilities	Total liabilities	$	—	$	41,452	$	—	$	41,452	Total liabilities	$	—	$	41,692	$	—	$	41,692


September 30, 2019	Level 1		Level 2		Level 3		Total Fair Value
Assets:
Cash and cash equivalents	$	188,495	$	—	$	—	$	188,495
Other long-term investments	980		—		—		980

Total assets	$	189,475	$	—	$	—	$	189,475

Liabilities:
Derivative financial instruments	—		24,244		—		24,244
Total liabilities	$	—	$	24,244	$	—	$	24,244

1412

INDEX

Our cash and cash equivalents consist of various bank accounts used to support our operations and investments in institutional money-market funds that are traded in active markets. We invest only in AAA-rated, prime institutional money market funds, comprised of high quality, short-term fixed income securities. Our other long-term investments represent the fair value of investments under the Cabot Microelectronics Supplemental Employee Retirement Plan ~~(SERP)~~("SERP"), which is a non-qualified supplemental savings plan. The fair value of the investments is determined through quoted market prices within actively traded markets. Although the investments are allocated to individual participants and investment decisions are made solely by those participants, the SERP is a non-qualified plan. Consequently, the Company owns the assets and the related offsetting liability for disbursement until such time as a participant makes a qualifying withdrawal. ~~The long-term asset was adjusted to $1,036 in the second quarter of fiscal 2020 to reflect its fair value as of March 31, 2020.~~

Our derivative financial instruments include foreign exchange contracts and an interest rate swap contract. During the second quarter of fiscal 2019, we entered into a floating-to-fixed interest rate swap contract to hedge the variability in LIBOR-based interest payments on a portion of our outstanding variable rate debt. The fair value of our derivative instruments is estimated using standard valuation models and market-based observable inputs over the contractual term, including one-month ~~LIBOR-based~~London Inter-bank Offered Rate ("LIBOR") based yield curves for the interest rate swap, and forward rates and/or the Overnight Index Swap ~~(OIS)~~ curve for forward foreign exchange contracts, among others. We consider the risk of nonperformance, including counterparty credit risk, in the calculation of the fair value of derivative financial instruments. See Note 12 of this Report on Form 10-Q for more information on our use of derivative financial instruments.

6. INVENTORIES

Inventories consisted of the following:


		March 31, 2020		September 30, 2019			June 30, 2020		September 30, 2019
Raw materials	Raw materials	$	63,296	$	60,157	Raw materials	$	64,028	$	60,157
Work in process	Work in process	17,915		12,940		Work in process	17,706		12,940
Finished goods	Finished goods	76,661		72,181		Finished goods	80,071		72,181
Total	Total	$	157,872	$	145,278	Total	$	161,805	$	145,278

7. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill activity for each of the Company’s reportable segments ~~which carry goodwill, Electronic Materials and Performance Materials,~~ for the ~~six~~nine months ended ~~March 31, 2020.~~June 30, 2020:


		Electronic Materials		Performance Materials		Total			Electronic Materials		Performance Materials		Total
Balance at September 30, 2019	Balance at September 30, 2019	$	352,797	$	357,274	$	710,071	Balance at September 30, 2019	$	352,797	$	357,274	$	710,071

Foreign currency translation impact	Foreign currency translation impact	465		(1,918)		(1,453)		Foreign currency translation impact	3,448		(844)		2,604
Other	Other	—		1,205		1,205		Other	—		1,205		1,205

Balance at March 31, 2020		$	353,262	$	356,561	$	709,823
Balance at June 30, 2020								Balance at June 30, 2020	$	356,245	$	357,635	$	713,880

1513

INDEX

The components of other intangible assets are:


		March 31, 2020						September 30, 2019							June 30, 2020				September 30, 2019
		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Other intangible assets subject to amortization:	Other intangible assets subject to amortization:									Other intangible assets subject to amortization:
Product technology, trade secrets and know-how	Product technology, trade secrets and know-how	$	121,579	$	42,230	$	123,948	$	37,993	Product technology, trade secrets and know-how	$	121,979	$	45,722	$	123,948	$	37,993
Acquired patents and licenses	Acquired patents and licenses	9,023		8,558		9,023		8,397		Acquired patents and licenses	9,023		8,636		9,023		8,397
Customer relationships, trade names, and distribution rights	Customer relationships, trade names, and distribution rights	685,061		103,386		684,764		64,471		Customer relationships, trade names, and distribution rights	687,976		121,373		684,764		64,471

Total other intangible assets subject to amortization	Total other intangible assets subject to amortization	815,663		154,174		817,735		110,861		Total other intangible assets subject to amortization	818,978		175,731		817,735		110,861

Other intangible assets not subject to amortization:	Other intangible assets not subject to amortization:									Other intangible assets not subject to amortization:
Other indefinite-lived intangibles*	Other indefinite-lived intangibles*	47,170				47,170				Other indefinite-lived intangibles*	47,170				47,170
Total other intangible assets not subject to amortization	Total other intangible assets not subject to amortization	47,170				47,170				Total other intangible assets not subject to amortization	47,170				47,170

Total other intangible assets	Total other intangible assets	$	862,833	$	154,174	$	864,905	$	110,861	Total other intangible assets	$	866,148	$	175,731	$	864,905	$	110,861

*Other indefinite-lived intangible assets not subject to amortization consist primarily of trade names.

Amortization expense was ~~$22,014~~$20,788 and ~~$43,378~~$64,166 for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2020, respectively, and was ~~$16,960~~$16,926 and ~~$26,318~~$43,244 for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2019, respectively. Estimated future amortization expense for the five succeeding fiscal years is as follows:

Fiscal Year Estimated
Amortization
Expense
Remainder of 2020 $ 42,429
2021 90,474
2022 80,974
2023 68,480
2024 60,528

Goodwill and indefinite-lived intangible assets are tested for impairment annually in the fourth quarter of our fiscal year or more frequently if indicators of potential impairment exist, using a fair-value-based approach. The recoverability of goodwill is measured at the reporting unit level, which is defined as either an operating segment or one level below an operating segment. An entity has the option to assess the fair value of a reporting unit either using a qualitative analysis ("step zero") or a quantitative analysis ("step one"). Similarly, an entity has the option to use a step zero or a step one approach to determine the recoverability of indefinite-lived intangible assets. In fiscal year 2019, we chose to use a step one analysis for both goodwill impairment and for indefinite-lived intangible asset impairment, with the exception of our CMP slurries and QED reporting units, for which we chose to use a step zero analysis for fiscal year 2019.


Fiscal Year	Estimated Amortization Expense
Remainder of 2020	$	21,293
2021	89,952
2022	80,479
2023	68,039
2024	60,144

We continue to actively monitor the industries in which we operate and our businesses' performance for indicators of potential impairment. ~~As of March 31, 2020, we have determined that a triggering event had not occurred that would require an interim impairment test to be performed.~~ If current global macroeconomic conditions related to the ~~COVID 19~~COVID-19 pandemic ("Pandemic") persist and adversely impact our Company, we may have future impairments of goodwill ~~of the underlying businesses.~~or other intangible assets. Potential future impairments could be material to the Company’s Consolidated Balance Sheets and to the Consolidated Statements of Income, but ~~they will~~we do not expect them to affect the Company’s reported Net cash provided by operating activities.

During the fiscal year ended September 30, 2019, the Company recognized asset impairment charges of $67,372 for the wood treatment asset group due to the previously announced planned closure of the Company's wood treatment business' facilities by approximately the end of calendar year 2021. The Company continues to monitor the wood treatment asset group, which is also a reporting unit, for further indicators of long-lived asset and goodwill impairment and determined that as of June 30, 2020, the wood treatment business had a triggering event, which required interim impairment tests to be performed. For the quarter ended June 30, 2020, the estimated future cash flows of the asset group and fair value of the reporting unit exceeded the carrying value by approximately 8% and 1%, respectively, and there was 0 impairment recognized for the wood treatment asset group or reporting unit. The fair value of the wood treatment reporting unit was determined using an income approach based upon an estimate of discounted future cash flows of the business through the expected closure date. As the Company approaches the closure date of the facilities and there are lower estimated future cash flows, it is probable that the carrying value of the wood treatment asset group and reporting unit will not be recoverable, resulting in future impairments. The carrying value of the wood treatment business includes $35 million and $8 million of goodwill and intangible assets, respectively. Absent a sale of the wood treatment business, the amount of impairments that we expect to recognize as we approach the closure date could be material.

1614

INDEX

8. OTHER LONG-TERM ASSETS

Other long-term assets consisted of the following:


		March 31, 2020		September 30, 2019			June 30, 2020		September 30, 2019
Long-term right of use asset	Long-term right of use asset	$	29,715	$	—	Long-term right of use asset	$	31,241	$	—
Long-term contract assets		3,776		1,164
Long-term vendor contract assets						Long-term vendor contract assets	3,346		1,164
Long-term SERP investment	Long-term SERP investment	1,036		980		Long-term SERP investment	1,147		980
Prepaid unamortized debt issuance cost - revolver	Prepaid unamortized debt issuance cost - revolver	623		709		Prepaid unamortized debt issuance cost - revolver	580		709
Other long-term assets	Other long-term assets	2,574		2,858		Other long-term assets	3,182		2,858
Total	Total	$	37,724	$	5,711	Total	$	39,496	$	5,711

9. ACCRUED EXPENSES, INCOME TAXES PAYABLE AND OTHER CURRENT LIABILITIES

Accrued expenses, income taxes payable and other current liabilities consisted of the following:


		March 31, 2020		September 30, 2019			June 30, 2020		September 30, 2019
Accrued compensation	Accrued compensation	$	33,833	$	33,809	Accrued compensation	$	43,414	$	33,809
Income taxes payable	Income taxes payable	16,470		15,725		Income taxes payable	16,954		15,725
Dividends payable	Dividends payable	13,510		12,953		Dividends payable	13,521		12,953
Interest rate swap liability	Interest rate swap liability	12,410		5,351		Interest rate swap liability	12,595		5,351
Contract liabilities (current)	Contract liabilities (current)	7,293		5,008		Contract liabilities (current)	9,410		5,008
Current portion of operating lease liability	Current portion of operating lease liability	5,498		—		Current portion of operating lease liability	6,313		—
Goods and services received, not yet invoiced						Goods and services received, not yet invoiced	4,885		3,075
Taxes, other than income taxes	Taxes, other than income taxes	5,330		6,281		Taxes, other than income taxes	4,744		6,281
Goods and services received, not yet invoiced		3,950		3,075
Accrued interest						Accrued interest	2,144		3,739
KMG - Bernuth warehouse fire-related (See Note 13)	KMG - Bernuth warehouse fire-related (See Note 13)	—		7,998		KMG - Bernuth warehouse fire-related (See Note 13)	866		7,998
Accrued interest		—		3,739
Other	Other	11,095		9,679		Other	11,553		9,679
Total	Total	$	109,389	$	103,618	Total	$	126,399	$	103,618

10. DEBT

~~In connection with~~Total debt consisted of the ~~Acquisition, we entered into a~~ ~~seven-year~~following:


	June 30, 2020		September 30, 2019
Senior Secured Term Loan Facility, one-month LIBOR plus 2.00% and one-month LIBOR plus 2.25%, respectively	$	941,688	$	959,676
Revolving Credit Facility, one-month LIBOR plus 1.50%	150,000		—
Total debt	1,091,688		959,676
Less: Unamortized debt issuance costs	(15,684)		(17,900)
Total debt, excluding unamortized debt issuance costs	1,076,004		941,776
Less: Current maturities and short-term debt	(163,313)		(13,313)
Total long-term debt excluding current maturities	$	912,691	$	928,463

During the first quarter of fiscal year 2020, the Company amended its credit agreement ~~(the "Credit~~("Amended Credit Agreement") ~~by and among~~to reduce the ~~Company, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, which provides for senior secured financing of up to $1,265.0 million, consisting of a~~interest rate on term loan facility in an aggregate principal amount of $1,065.0 million (the "Term Loan Facility") and a revolving credit facility in an aggregate principal amount of up to $200.0 million (the "Revolving Credit Facility"), including a letter of credit sub-facility of up to $50.0 million. Theborrowings, which are defined as the Senior Secured Term Loan Facility ~~and~~under the Revolving Credit Facility are referred to as the “Credit Facilities". The Revolving Credit Facility requires that the Company maintain a maximum first lien secured net leverage ratio, as defined in theAmended Credit Agreement of 4.00 to 1.00 as of the last day of each fiscal quarter if any borrowing under the Revolving Credit Facility is outstanding, commencing with the first full fiscal quarter after the Acquisition Date. As of March 31, 2020, our maximum first lien secured net leverage ratio was 2.02 to 1.00.

~~The~~("Term Loan Facility"). Term Loan Facility ~~matures on November 15, 2025, the~~ ~~seven~~-year anniversary of the Acquisition Date, and amortizes in equal quarterly installments of 0.25% of the initial principal amount, starting with the first full fiscal quarter after the Acquisition Date. The Revolving Facility matures on November 15, 2023, the ~~five-year anniversary of the Acquisition Date. In addition, the Company is required to prepay outstanding loans~~borrowings under the ~~Term Loan Facility,~~Amended Credit Agreement bear an interest rate equal to, at the Company's option, either (a) a LIBOR, subject to ~~certain exceptions, with up to 50%~~a 0.00% floor, or (b) a base rate in each case, plus an applicable margin of ~~the Company’s annual excess cash flow, as defined under the Credit Agreement,~~2.00% for LIBOR loans and ~~100% of the net cash proceeds of certain recovery events and non-ordinary course asset sales.~~1.00% for base rate loans.

1715

INDEX

~~At March 31, 2020,~~During the ~~fair value~~second quarter of the Term Loan Facility, using level 2 inputs, approximated its carrying value of $941,687 as the loans bears a floating market rate of interest. As of March 31, 2020, $10,650 of the Term Loan Facility was classified as short-term, and $16,420 of debt issuance costs related to our Term Loan Facility were presented as a reduction of long-term debt.

~~On March 13,~~fiscal year 2020, the Company drew $150.0 million under the Amended Credit Agreement's revolving credit facility ("Revolving Credit ~~Facility~~Facility") as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of uncertain global economic conditions resulting from the Pandemic. ~~Prior to this, the Company had not drawn any amounts under the Revolving Credit Facility. As of March 31, 2020, $150.0 million was outstanding under the~~The Revolving Credit Facility ~~and~~borrowing remains outstanding as of June 30, 2020. As of June 30, 2020, our available credit under the Revolving Credit Facility was ~~$50.0 million, including~~$50,000, which includes our letter of credit sub-facility. ~~Borrowings under~~The interest rate on the Revolving Credit Facility are classified as short-term debt. Proceeds from the Revolving Credit Facility are included in Cash and cash equivalents in the Company's Consolidated Balance Sheet as of March 31, 2020. Due to the short-term nature of the borrowing under the Revolving Credit Facility, its carrying value approximates fair value.

During the first quarter of fiscal year 2020, the Company amended the Credit Agreement to reduce the interest rate on term loan borrowings. The amended Term Loan Facility and amended Credit Facilities are referred to as "Amended Term Loan Facility" and "Amended Credit Facilities", respectively. Borrowings under the Amended Credit Facilities bear interest at a rate per annum equal to, at the Company’s option,is either (a) a LIBOR, subject to a 0.00% floor, or (b) a base rate in each case, plus an applicable margin of ~~in the case of borrowings under the Amended Term Loan Facility, 2.00% for LIBOR loans and 1.00% for base rate loans and, in the case of borrowings under the Revolving Credit Facility, initially,~~ 1.50% for LIBOR loans and 0.50% for base rate loans. The applicable margin for borrowings under the Revolving Credit Facility varies depending on the Company’s first lien secured net leverage ratio. ~~The Company is also required to pay a commitment fee currently equal to 0.25% per annum to the lenders~~Borrowings under the Revolving Credit Facility are classified as short-term debt and the proceeds are included in ~~respect~~Cash and cash equivalents in the Company's Consolidated Balance Sheet as of June 30, 2020.

At June 30, 2020 and September 30, 2019, the fair value of the ~~unutilized commitments thereunder. The commitment fee~~Term Loan Facility, using level 2 inputs, approximated its carrying value as the loan bears a floating market rate of interest. Due to the short-term nature of the borrowing under the Revolving Credit Facility, ~~varies depending on the Company’s first lien secured net leverage ratio.~~

~~Principal repayments of the Term Loan Facility are generally made on the last calendar day of each quarter if that day is considered a business day.~~ its carrying value approximates fair value.

As of ~~March 31,~~June 30, 2020, scheduled principal repayments of the Term Loan Facility were:


Fiscal Year	Fiscal Year	Principal Repayments		Fiscal Year	Principal Repayments
Remainder of 2020	Remainder of 2020	$	5,325	Remainder of 2020	$	5,325
2021	2021	10,650		2021	10,650
2022	2022	10,650		2022	10,650
2023	2023	10,650		2023	10,650
2024	2024	10,650		2024	10,650
Greater than 5 years	Greater than 5 years	893,762		Greater than 5 years	893,763
Total	Total	$	941,687	Total	$	941,688

11. LEASES

Effective October 1, 2019, the Company adopted the new lease accounting guidance which requires the recognition of a right of use asset and a corresponding lease liability for operating leases. As part of the adoption, the Company elected to apply provisions of the guidance to operating leases with terms of more than twelve months for all lease classes except for real estate leases for which the guidance is applied to all leases. Additionally, the Company elected to account for non-lease components and lease components together as a single lease component for all asset classes. The Company’s lease transactions primarily consist of leases for facilities, equipment and vehicles under operating leases. The Company does not have any material finance leases. The weighted average remaining lease term for operating leases included in the lease liability was approximately ~~seven~~six years as of ~~March 31,~~June 30, 2020. Certain of the Company’s leases have an option to extend the lease term and the renewal period is included in determining the lease term for leases where the renewal option is reasonably certain to be exercised.

~~INDEX~~

Total lease cost for the Company for the three months ended ~~March 31,~~June 30, 2020 was ~~$2,320,~~$2,221, which included ~~$1,903~~$1,868 related to operating lease cost and ~~$417~~$353 related to short-term and variable lease costs. Total lease cost for the Company for the ~~six~~nine months ended ~~March 31,~~June 30, 2020 was ~~$4,806,~~$7,027, which included ~~$3,886~~$5,754 related to operating lease cost and ~~$920~~$1,273 related to short-term and variable lease costs. The right of use asset related to operating leases as of March 31, 2020 was $29,715 and was recorded in Other long-term assets. As of March 31, 2020, the current portion of the lease liability for operating leases was $5,498 and was included in Accrued expenses, income taxes payable and other current liabilities, and the long-term portion was $25,390 and was included in Other long-term liabilities. The weighted average discount rate for operating leases as of ~~March 31,~~June 30, 2020 was ~~3.02%~~3.06%, and was determined based on the secured incremental borrowing rate of the Company and its subsidiaries as the implicit rate is not readily determinable.

INDEX

Future maturities of operating lease liabilities for the years ended September 30 are as follows:


Fiscal Year	Fiscal Year	Amount		Fiscal Year	Amount
Remainder of 2020	Remainder of 2020	$	3,356	Remainder of 2020	$	1,865
2021	2021	5,538		2021	6,709
2022	2022	5,185		2022	6,234
2023	2023	4,728		2023	5,263
2024	2024	4,068		2024	4,179
2025 and future years	2025 and future years	11,544		2025 and future years	11,626
Total future lease payments	Total future lease payments	34,419		Total future lease payments	35,876
Less: Imputed interest	Less: Imputed interest	3,531		Less: Imputed interest	3,197
Operating lease liability	Operating lease liability	30,888		Operating lease liability	32,679
Less: Current portion of operating lease liability	Less: Current portion of operating lease liability	5,498		Less: Current portion of operating lease liability	6,313
Long-term portion of operating lease liability		$	25,390
Long-term portion of operating lease liability recorded in Other long-term liabilities				Long-term portion of operating lease liability recorded in Other long-term liabilities	$	26,366

As of September 30, 2019, minimum lease payments under operating leases with noncancelable terms in excess of one are as follows:


Fiscal Year	Amount
2020	$	6,984
2021	4,941
2022	4,291
2023	4,122
2024	3,710
Thereafter	12,010
Total future minimum lease payments	$	36,058

12. DERIVATIVE FINANCIAL INSTRUMENTS

We are exposed to various market risks, including risks associated with interest rates and foreign currency exchange rates. We enter into certain derivative transactions to mitigate the volatility associated with these exposures. We have policies in place that define acceptable instrument types we may enter into and we have established controls to limit our market risk exposure. We do not use derivative financial instruments for trading or speculative purposes. In addition, all derivatives, whether designated in hedging relationships or not, are required to be recorded on the Consolidated Balance Sheets at fair value on a gross basis.

Cash Flow Hedges - Interest Rate Swap Contract

During the second quarter of fiscal 2019, we entered into a floating-to-fixed interest rate swap contract to hedge the variability in LIBOR-based interest payments on a portion of our outstanding variable rate debt. As of ~~March 31,~~June 30, 2020, the notional value of the interest rate swap was $652,000. This value is scheduled to decrease bi-annually and will expire on January 31, 2024.

~~INDEX~~

We have designated this swap contract as a cash flow ~~hedge pursuant to ASC 815, "Derivatives and Hedging".~~hedge. Based on certain quantitative and qualitative assessments, we have determined that the hedge is highly effective and qualifies for hedge accounting. Accordingly, unrealized gains and losses on the hedge are recorded in other comprehensive income. Realized gains and losses are recorded on the same financial statement line as the hedged item, which is Interest expense.

INDEX

Foreign Currency Contracts Not Designated as Hedges

On a regular basis, we enter into forward foreign exchange contracts in an effort to mitigate the risks associated with currency fluctuations on certain foreign currency balance sheet exposures. These foreign exchange contracts do not qualify for hedge accounting; therefore, the gains and losses resulting from the impact of currency exchange rate movements on our forward foreign exchange contracts are recognized as Other income (expense), net in the accompanying Consolidated Statements of Income in the period in which the exchange rates change. As of ~~March 31,~~June 30, 2020 and September 30, 2019, the notional amounts of the forward contracts we held to purchase U.S. dollars in exchange for foreign currencies were ~~$5,746~~$6,419 and $6,239, respectively, and the notional amounts of forward contracts we held to sell U.S. dollars in exchange for foreign currencies were ~~$24,800~~$26,800 and $24,270, respectively.

The fair value of our derivative instruments included in the Consolidated Balance Sheets ~~which was determined using level 2 inputs,~~ was as follows:


			Derivative Assets						Derivative Liabilities								Derivative Assets				Derivative Liabilities
		Consolidated Balance Sheet Location	March 31, 2020		September 30, 2019		March 31, 2020		September 30, 2019			Consolidated Balance Sheet Location	June 30, 2020		September 30, 2019		June 30, 2020		September 30, 2019
Derivatives designated as hedging instruments	Derivatives designated as hedging instruments										Derivatives designated as hedging instruments
Interest rate swap contract	Interest rate swap contract	Accrued expenses, income taxes payable and other current liabilities	$	—	$	—	$	12,410	$	5,351	Interest rate swap contract	Accrued expenses, income taxes payable and other current liabilities	$	—	$	—	$	12,595	$	5,351
		Other long-term liabilities	$	—	$	—	$	28,585	$	18,841		Other long-term liabilities	$	—	$	—	$	28,832	$	18,841
Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments										Derivatives not designated as hedging instruments

Foreign exchange contracts	Foreign exchange contracts	Accrued expenses, income taxes payable and other current liabilities	$	—	$	—	$	458	$	52	Foreign exchange contracts	Accrued expenses, income taxes payable and other current liabilities	$	—	$	—	$	265	$	52

The following table summarizes the effect of our derivative instruments on our Consolidated Statements of Income for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2020 and 2019:


			Gain (Loss) Recognized in Statement of Income																Gain (Loss) Recognized in Statement of Income
			Three Months Ended March 31,						Six Months Ended March 31,								Three Months Ended June 30,				Nine Months Ended June 30,
		Statement of Income Location	2020		2019		2020		2019			Consolidated Statement of Income Location	2020		2019		2020		2019
Derivatives designated as hedging instruments											Derivatives designated as hedging instruments
Interest rate swap contract											Interest rate swap contract	Interest expense	$	(3,262)	$	39	$	(5,799)	$	40
Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments										Derivatives not designated as hedging instruments
Foreign exchange contracts	Foreign exchange contracts	Other income (expense), net	$	(268)	$	(348)	$	(262)	$	(38)	Foreign exchange contracts	Other income (expense), net	$	(128)	$	(29)	$	(390)	$	(67)

~~The interest rate swap contract has been deemed to be effective, and we realized a loss of $1,366 and $2,537 in Interest expense during the three and six months ended March 31, 2020, respectively.~~ We recorded an unrealized loss of ~~$18,367~~$2,868 and ~~$15,017,~~$17,885, net of tax, in Accumulated other comprehensive income during the three and ~~six~~nine months ended ~~March 31,~~June 30, 2020, respectively, for ~~this~~the interest rate swap. As of ~~March 31,~~June 30, 2020, during the next 12twelve months, we expect approximately ~~$12,410~~$12,595 to be reclassified from Accumulated other comprehensive income (loss) ~~income~~ into Interest expense related to our interest rate swap based on projected rates of the LIBOR forward curve as of ~~March 31,~~June 30, 2020.

2018

INDEX

13. COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS AND OTHER CONTINGENCIES

We periodically become a party to legal proceedings, arbitrations, and regulatory proceedings (“contingencies”) arising in the ordinary course of our business operations. The ultimate resolution of these contingencies is subject to significant uncertainty, and should we fail to prevail in any of them or should several of them be resolved against us in the same reporting period, these matters could, individually or in the aggregate, be material to our consolidated financial statements. One of these contingencies, related to Star Lake Canal, which we assumed in connection with the Acquisition, is discussed below. The ultimate outcome of these matters, however, cannot be determined at this time, nor can the amount of any potential loss be reasonably estimated, and as a result except where indicated no amounts have been recorded in our consolidated financial statements. The Company records legal costs associated with loss contingencies as expenses in the period in which they are incurred.

On May 31, 2019, a fire occurred at the warehouse of the wood treatment facility of KMG’s subsidiary, KMG-Bernuth, in Tuscaloosa, Alabama, which processes pentachlorophenol ("penta") for sale to customers in the United States and Canada. The warehouse fire, which we believe originated from non-hazardous waste materials temporarily stored in the warehouse for recycling purposes, caused no injuries and was extinguished in less than an hour. Company personnel investigated the incident, and KMG-Bernuth commenced cleanup with oversight from certain local, state and federal authorities. The carrying value of the warehouse and the affected inventory are not material. Applying the accounting guidance under ASC 410-30, Environmental Obligations and ASC 450, Contingencies, we determined that since we have environmental obligations as of the date of the fire, costs for the fire waste cleanup and disposal should be recognized to the extent they are probable and reasonably estimable. We recorded expense of $9,494 in fiscal year 2019 and ~~$593~~$1,688 during the ~~six~~nine months ended ~~March 31, 2020.~~June 30, 2020, of which $866 remains accrued as a loss contingency. These disposal costs were charged to Cost of sales. Although we believe we have completed cleanup efforts related to the fire incident and the assessment of materials in the warehouse that had been impacted by the incident, there are potential additional disposal and other costs that cannot be reasonably estimated as of this time related to these materials ~~in the warehouse impacted by the incident~~ due to the nature of federally-regulated penta-related requirements. ~~The~~We incurred significant fire waste cleanup and disposal costs ~~were significant~~and certain other costs related to the assessment of the impacted warehouse material due to these requirements, and we may incur additional significant disposal costs related to ~~the impacted warehouse~~such materials. We ~~will~~intend to continue to update the estimated losses as new information becomes available.

In addition, we are working with our insurance carriers on possible recovery of losses and costs ~~but at~~related to the fire incident. We received $468 of insurance recovery during the three months ended June 30, 2020 which was recorded in Cost of sales. At this point we cannot reasonably estimate whether we will receive any ~~potential~~additional insurance recoveries, or if so, the amount of any such recoveries. As such, no additional insurance recoveries have been recognized as of ~~March 31,~~June 30, 2020.

Separately, in 2014, prior to the Acquisition, the United States Environmental Protection Agency (“EPA”) had notified KMG-Bernuth, that the EPA considered it to be a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, ~~(“CERCLA”)~~ by virtue of its relationship with certain alleged predecessor companies, including Idacon, Inc (f/k/a Sonford Chemical Company) in connection with the Star Lake Canal Superfund Site near Beaumont, Texas. The EPA has estimated that the remediation will cost approximately $22.0 million. KMG-Bernuth and approximately 7 other parties entered into an agreement with the EPA in September 2016 to complete a remedial design phase of the remediation of the site. The remediation work will be performed under a separate future agreement. Although KMG-Bernuth has not conceded liability, a reserve in connection with the remedial design was established, and as of ~~March 31,~~June 30, 2020, the reserve remaining was $553.

We also may face other governmental or third-party claims, or otherwise incur costs, relating to cleanup of, or for injuries resulting from, contamination at sites associated with this or other past and present operations. We accrue for environmental liabilities when a determination can be made that they are probable and reasonably estimable. Other than as described herein, we are not involved in any legal proceedings that we believe could have a material impact on our consolidated financial position, results of operations or cash flows.

In addition, our Company is subject to extensive federal, state and local laws, regulations and ordinances in the United States and in other countries. These regulatory requirements relate to the use, generation, storage, handling, emission, transportation and discharge of certain hazardous materials, substances and waste into the environment. The Company, including its KMG entities, manage Environmental, Health and Safety (“EHS”) matters related to protection of the environment and human health, the cleanup of contaminated sites, the treatment, storage and disposal of wastes, and the emission of substances into the air or waterways, among other EHS concerns. Governmental authorities can enforce compliance with their regulations, and violators may be subject to fines, injunctions or both. The Company devotes significant financial resources to compliance, including costs for ongoing compliance.

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Certain licenses, permits and product registrations are required for the Company’s products and operations in the United States, Mexico and other countries in which it does business. The licenses, permits and product registrations are subject to revocation, modification and renewal by governmental authorities. In the United States in particular, producers and distributors of penta, which is a product manufactured and sold by KMG-Bernuth as part of the wood treatment business, are subject to registration and notification requirements under the Federal Insecticide, Fungicide and Rodenticide Act (“FIFRA”) and comparable state law in order to sell this product in the United States. Compliance with these requirements may have a significant effect on our business, financial condition and results of operations.

We are subject to contingencies, including litigation relating to EHS laws and regulations, commercial disputes and other matters. Certain of these contingencies are discussed above and below. The ultimate resolution of these contingencies is subject to significant uncertainty, and should we fail to prevail in any of them or should several of them be resolved against us in the same reporting period, these matters could, individually or in the aggregate, be material to the consolidated financial statements. The ultimate outcome of these matters cannot be determined at this time, nor can the amount of any potential loss be reasonably estimated, and as a result except where indicated no amounts have been recorded in our consolidated financial statements.

INDEMNIFICATION

In the normal course of business, we are a party to a variety of agreements pursuant to which we may be obligated to indemnify the other party with respect to certain matters. Generally, these obligations arise in the context of agreements entered into by us, under which we customarily agree to hold the other party harmless against losses arising from items such as a breach of certain representations and covenants including title to assets sold, certain intellectual property rights and certain environmental matters. These terms are common in the industries in which we conduct business. In each of these circumstances, payment by us is subject to certain monetary and other limitations and is conditioned on the other party making an adverse claim pursuant to the procedures specified in the particular agreement, which typically allow us to challenge the other party's claims.

We evaluate estimated losses for such indemnifications under the accounting standards related to contingencies and guarantees. We consider such factors as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. To date, we have not experienced material costs as a result of such obligations and, as of ~~March 31,~~June 30, 2020, have not recorded any liabilities related to such indemnifications in our financial statements as we do not believe the likelihood of such obligations is probable.

Refer to Note 20 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019, for additional information regarding commitments and contingencies.

POSTRETIREMENT OBLIGATIONS IN FOREIGN JURISDICTIONS

We have defined benefit plans covering employees in certain foreign jurisdictions as required by local law ~~which~~that are unfunded. Net service costs are recorded as fringe benefit expense under Cost of sales and Operating expenses, and all other costs are recorded in the Other income (expense), net in our Consolidated Statements of Income. The projected benefit obligations and accumulated benefit obligations under all such unfunded plans are updated annually during the fourth quarter of ~~the~~our fiscal year. Benefit payments under all such unfunded plans to be paid over the next ten years are expected to be approximately $7,872. For more information regarding these plans, refer to Note 20 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

PURCHASE OBLIGATIONS

Purchase obligations include take-or-pay arrangements with suppliers, and purchase orders and other obligations entered into in the normal course of business regarding the purchase of goods and services. We have been operating under an abrasive particle supply agreement with Cabot Corporation, our former parent company which is not a related party, the current term of which now runs through December 2022. As of ~~March 31,~~June 30, 2020, purchase obligations include ~~$27,497~~$24,729 of contractual commitments related to this agreement. In addition, we have a purchase commitment of ~~$10,216~~$7,863 to purchase non-water based carrier ~~fluid, and have another purchase contract to purchase $3,638 of abrasive particles.~~fluid.

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14. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The table below summarizes the components of Accumulated other comprehensive income (loss) (AOCI), net of Provision for income taxes/(benefit), for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2020 and 2019:


		Three Months Ended March 31,						Six Months Ended March 31,							Three Months Ended June 30,				Nine Months Ended June 30,
		2020		2019		2020		2019			2020		2019		2020		2019
Beginning Balance	Beginning Balance	$	(3,616)	$	6,713	$	(23,238)	$	4,539	Beginning Balance	$	(40,648)	$	(502)	$	(23,238)	$	4,539

Foreign currency translation adjustment	Foreign currency translation adjustment	(19,752)		(1,621)		(3,935)		1,412		Foreign currency translation adjustment	9,048		3,284		5,113		4,696
Income taxes	Income taxes	27		629		61		21		Income taxes	38		(585)		99		(564)
Foreign currency translation adjustment, net of tax	Foreign currency translation adjustment, net of tax	(19,725)		(992)		(3,874)		1,433		Foreign currency translation adjustment, net of tax	9,086		2,699		5,212		4,132

Change in pension and other postretirement		—		251		—		—


Unrealized gain loss on cash flow hedges:	Unrealized gain loss on cash flow hedges:									Unrealized gain loss on cash flow hedges:
Change in fair value	Change in fair value	(23,655)		(8,352)		(19,340)		(8,352)		Change in fair value	(3,694)		(11,635)		(23,034)		(19,987)
Reclassification adjustment into earnings	Reclassification adjustment into earnings	1,366		(1)		2,537		(1)		Reclassification adjustment into earnings	3,262		(39)		5,799		(40)
Income taxes	Income taxes	4,982		1,879		3,755		1,879		Income taxes	98		2,630		3,853		4,509
Unrealized loss on cash flow hedges, net of tax	Unrealized loss on cash flow hedges, net of tax	(17,307)		(6,474)		(13,048)		(6,474)		Unrealized loss on cash flow hedges, net of tax	(334)		(9,044)		(13,382)		(15,518)

Effect of the adoption of the stranded tax effect accounting standards		—		—		(497)		—
Effect of the adoption of the stranded tax effect accounting standard										Effect of the adoption of the stranded tax effect accounting standard	—		—		(497)		—
Income taxes	Income taxes	—		—		9		—		Income taxes	—		—		9		—
Effect of the adoption of the stranded tax effect accounting standards, net of tax		—		—		(488)		—
Effect of the adoption of the stranded tax effect accounting standard, net of tax										Effect of the adoption of the stranded tax effect accounting standard, net of tax	—		—		(488)		—

Net Change	Net Change	(37,032)		(7,215)		(17,410)		(5,041)		Net Change	8,752		(6,345)		(8,658)		(11,386)

Ending Balance	Ending Balance	$	(40,648)	$	(502)	$	(40,648)	$	(502)	Ending Balance	$	(31,896)	$	(6,847)	$	(31,896)	$	(6,847)

The before tax amount reclassified from AOCI to Net income during the three and ~~six~~nine months ended ~~March 31,~~June 30, 2020 and 2019, related to cash flow hedges, were recorded as Interest expense on our Consolidated Statements of Income.

During the first quarter of fiscal 2020, the Company adopted ASU No. 2018-02 regarding the reclassification of stranded tax effects resulting from the change in the U.S. federal corporate income tax rate under the Tax Act and as a result, we reclassified $488 of stranded tax effects from Accumulated other comprehensive income to Retained earnings.

15. SHARE-BASED COMPENSATION PLANS

We issue share-based awards under the following programs: our Cabot Microelectronics Corporation 2012 Omnibus Incentive Plan, as amended effective March 7, 2017 ~~(OIP)~~("OIP"); our Cabot Microelectronics Corporation 2007 Employee Stock Purchase Plan, as Amended and Restated January 1, 2010 ~~(ESPP)~~("ESPP"); and, pursuant to the OIP, our Directors' Deferred Compensation Plan, as amended September 23, 2008, ~~(DDCP),~~ and our 2001 Executive Officer Deposit Share ~~Program (DSP).~~Program. In March 2017, our stockholders approved the material terms of performance-based awards under the OIP for purposes of complying with Section 162(m) of the Internal Revenue Code of 1986, as amended. For additional information regarding these programs, refer to Note 16 of "Notes to the Consolidated Financial Statements" included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

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We record share-based compensation expense for all share-based awards, including stock option grants, and restricted stock, restricted stock unit ("RSU") and performance share unit ("PSU") awards, and ~~employee stock purchase plan~~ESPP purchases. We calculate share-based compensation expense using the straight-line approach based on awards ultimately expected to vest, which requires the use of an estimated forfeiture rate. Our estimated forfeiture rate is primarily based on historical experience, but may be revised in future periods if actual forfeitures differ from the estimate. We use the Black-Scholes option-pricing model to estimate the grant date fair value of our stock options and ~~employee stock purchase plan~~ESPP purchases. This model requires the input of highly subjective assumptions, including the price volatility of the underlying stock, the expected term of our stock options, expected dividend yield and the risk-free interest rate. We estimate the expected volatility of our stock options based on a combination of our stock's historical volatility and the implied volatilities from actively-traded options on our stock. We calculate the expected term of our stock options using historical stock option exercise data, and for stock option grants made prior to December 2017, we have added a slight premium to this expected term for employees who meet the definition of retirement-eligible pursuant to their stock option grants during the contractual term of the grant. As of December 2017, the provisions of stock option grants and ~~restricted stock unit~~RSU awards stated that, except in certain circumstances, including termination for cause, once an employee meets the retirement eligibility requirements, any remaining unvested share-based awards will continue to vest regardless of termination of service. Consequently, the requisite service period for the award is satisfied upon retirement eligibility. Therefore, we record the total share-based compensation expense upon award for those employees who have met the retirement eligibility at the grant date. The expected dividend yield represents our annualized dividend in dollars divided by the stock price on the date of grant. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the time of grant.

The PSUs that have been awarded may be subject to downward or upward adjustment depending on the total shareholder return achieved by the Company during the particular performance period related to the PSUs, relative to the total shareholder return of an established market index. We use a third-party service provider to estimate the fair value of the PSUs at grant date by using a Monte Carlo simulation model. This model simulates the stock price movements of the Company and Index constituents using certain assumptions, including the stock price of the Company and index constituents, the risk-free interest rate and stock price volatility. Subsequent to the Acquisition, the performance metrics of the PSUs awarded in December 2017 were modified to reflect the performance metrics expected due to the Acquisition for the post-Acquisition time period subject to the PSUs.

KMG awards granted subsequent to the entry into the definitive agreement for the Acquisition, but prior to the Acquisition Date, were converted to our ~~restricted stock units~~RSUs (“Replacement Awards”), with vesting in 3 equal installments on the first three anniversaries of the original award date. If the recipient iswas terminated without cause or ~~resigns~~resigned with good reason during the 18 months following the Acquisition Date, the Replacement Award will ~~vest~~have vested as of such termination date in a number of shares equal to 150% of the Replacement Award.

The share-based compensation expense of $3,253 related to the Replacement Awards, including accelerated vesting, for the first quarter of fiscal 2019 is included in the table below. The expense for the second ~~quarter~~and third quarters of fiscal 2019 ~~and~~as well as the first, second, and ~~second~~third quarters of fiscal 2020 included in the table below is not material.

Share-based compensation expense for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2020 and 2019, was as follows:


		Three Months Ended March 31,						Six Months Ended March 31,							Three Months Ended June 30,				Nine Months Ended June 30,
		2020		2019		2020		2019			2020		2019		2020		2019
Cost of sales	Cost of sales	$	617	$	574	$	1,529	$	1,629	Cost of sales	$	625	$	540	$	2,154	$	2,169
Research, development and technical	Research, development and technical	403		442		1,207		1,343		Research, development and technical	411		390		1,618		1,733
Selling, general and administrative	Selling, general and administrative	3,214		2,522		6,261		8,736		Selling, general and administrative	2,158		2,410		8,419		11,146
Total share-based compensation expense	Total share-based compensation expense	4,234		3,538		8,997		11,708		Total share-based compensation expense	3,194		3,340		12,191		15,048
Tax benefit	Tax benefit	(833)		(761)		(1,771)		(2,452)		Tax benefit	(609)		(670)		(2,380)		(3,121)
Total share-based compensation expense, net of tax	Total share-based compensation expense, net of tax	$	3,401	$	2,777	$	7,226	$	9,256	Total share-based compensation expense, net of tax	$	2,585	$	2,670	$	9,811	$	11,927

For additional information regarding our share-based compensation plans and the estimation of fair value, refer to Note 16 of "Notes to the Consolidated Financial Statements" included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

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16. INCOME TAXES

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted by the United States in March 2020. The CARES Act includes provisions to support individuals and businesses in the form of loans, grants, and tax changes, among other types of relief. ~~We are currently assessing the impact of this law, however it~~The CARES Act did not have a material impact on our ~~provision~~Provision for income taxes for the three and nine months ended ~~March 31,~~June 30, 2020. We ~~did~~have not ~~and do not intend to take~~taken any loans or grants pursuant to the CARES Act or other ~~U.S.~~United States Pandemic-related legislation.

The Company’s effective income tax rate was ~~17.8%~~27.0% and ~~20.1%~~22.5% for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2020, respectively, compared to an effective income tax rate of ~~28.5%~~52.1% and ~~26.0%~~36.9% for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2019, respectively. The decrease in our effective tax rate for the ~~six~~nine months ended ~~March 31,~~June 30, 2020 compared to the prior year is primarily attributable to athe absence of discrete charge recorded in Q3 of FY19 related to the final regulations issued under the 2017 Tax Act, higher tax benefit related to share based compensation, and the ~~favorable impact from the~~ absence of non-deductible ~~KMG acquisition-related costs.~~costs related to the Acquisition.

17. EARNINGS PER SHARE

Basic earnings per share ~~(EPS)~~ is calculated by dividing Net income available to common stockholders by the weighted-average number of common shares outstanding during the period, excluding the effects of unvested restricted stock awards with a right to receive non-forfeitable dividends, which are considered participating securities as prescribed by the two-class method under ASC 260 “Earnings per Share”. Diluted ~~EPS~~earnings per share is calculated in a similar manner, but the weighted-average number of common shares outstanding during the period is increased to include the weighted-average dilutive effect of “in-the-money” stock options and unvested restricted stock shares and units using the treasury stock method.

~~The standards of accounting for earnings per share require companies to provide a reconciliation of the numerator and denominator of the basic and diluted earnings per share computations.~~ Basic and diluted earnings per share were calculated as follows:


		Three Months Ended March 31,						Six Months Ended March 31,							Three Months Ended June 30,				Nine Months Ended June 30,
		2020		2019		2020		2019			2020		2019		2020		2019
Numerator:	Numerator:									Numerator:
Net income available to common shares	Net income available to common shares	$	32,899	$	27,137	$	71,448	$	40,580	Net income available to common shares	$	34,525	$	18,878	$	105,973	$	59,458

Denominator:	Denominator:									Denominator:
Weighted average common shares	Weighted average common shares	29,287,211		28,997,632		29,182,528		28,065,759		Weighted average common shares	29,079		29,064		29,157		28,399
(Denominator for basic calculation)	(Denominator for basic calculation)									(Denominator for basic calculation)
Weighted average effect of dilutive securities	Weighted average effect of dilutive securities	437,968		481,482		483,908		541,274		Weighted average effect of dilutive securities	377		504		446		525
Diluted weighted average common shares	Diluted weighted average common shares	29,725,179		29,479,114		29,666,436		28,607,033		Diluted weighted average common shares	29,456		29,568		29,603		28,924
(Denominator for diluted calculation)	(Denominator for diluted calculation)									(Denominator for diluted calculation)

Earnings per share:	Earnings per share:									Earnings per share:

Basic	Basic	$	1.12	$	0.94	$	2.45	$	1.45	Basic	$	1.19	$	0.65	$	3.63	$	2.09

Diluted	Diluted	$	1.11	$	0.92	$	2.41	$	1.42	Diluted	$	1.17	$	0.64	$	3.58	$	2.06

Approximately ~~111 thousand~~124 and ~~79 thousand~~96 shares for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2020, respectively, and ~~216 thousand~~144 and ~~110 thousand~~204 shares for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2019, respectively, attributable to outstanding stock options were excluded from the calculation of Diluted earnings per share ~~because the exercise price of the options was greater than the average market price of our common stock and, therefore,~~as their inclusion would have been anti-dilutive.

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18. SEGMENT REPORTING

We identify our segments based on our management structure and the financial information used by our chief executive officer, who is our chief operating decision maker, to assess segment performance and allocate resources among our operating units. We historically had operated predominantly in 1 industry segment – the development, manufacture and sale of Chemical Mechanical Planarization (CMP) consumables products. In connection with the Acquisition, we reassessed our operating and reportable segments, and determined that we have the following 2 reportable segments:

Electronic Materials

Electronic Materials includes products and solutions for the semiconductor industry. We manufacture and sell CMP consumables, including CMP slurries and polishing pads, and high-purity process chemicals used to etch and clean silicon wafers in the production of semiconductors, photovoltaics (solar cells) and flat panel displays.

Performance Materials

Performance Materials includes pipeline performance products and services, wood treatment products, and products and equipment used in the precision optics industry.

~~Beginning in fiscal 2019 and with the Acquisition, our~~Our chief operating decision maker evaluates segment performance based upon revenue and segment adjusted EBITDA. Segment adjusted EBITDA is defined as earnings before interest, income taxes, depreciation and amortization, adjusted for certain items that affect comparability from period to period. These adjustments include items related to the Acquisition, such as ~~expenses incurred to complete the~~ Acquisition and integration-related expenses, ~~and~~ the impact of fair value adjustments to inventory acquired from KMG, ~~and~~ certain costs related to the KMG-Bernuth warehouse fire, ~~asset impairment and~~net of insurance recovery, net restructuring charges related to the wood treatment reporting ~~unit.~~unit, and costs related to the Pandemic, net of grants received. We exclude these items from earnings when presenting our adjusted EBITDA measure because we believe they will be incurred infrequently and/or are otherwise not indicative of a segment's regular, ongoing operating performance. Adjusted EBITDA is also the basis of a performance metric for our fiscal 2020 Short-Term Incentive Program ~~(STIP)~~("STIP"). In addition, our chief operating decision maker does not use assets by segment to evaluate performance or allocate resources. Therefore, we do not disclose assets by segment.

Revenue from external customers by segment are as follows:


		Three Months Ended March 31,						Six Months Ended March 31,							Three Months Ended June 30,				Nine Months Ended June 30,
		2020		2019		2020		2019			2020		2019		2020		2019
Segment Revenue:	Segment Revenue:									Segment Revenue:
Electronic Materials:	Electronic Materials:									Electronic Materials:
CMP Slurries	CMP Slurries	$	119,822	$	110,299	$	242,148	$	236,627	CMP Slurries	$	117,680	$	108,617	$	359,828	$	345,244
Electronic Chemicals	Electronic Chemicals	78,497		78,549		156,079		118,371		Electronic Chemicals	78,614		80,103		234,693		198,474
CMP Pads	CMP Pads	20,590		23,998		41,403		48,464		CMP Pads	24,073		23,403		65,476		71,868
Total Electronic Materials	Total Electronic Materials	218,909		212,846		439,630		403,462		Total Electronic Materials	220,367		212,123		659,997		615,586

Performance Materials	Performance Materials	65,284		52,545		127,706		83,707		Performance Materials	54,360		59,759		182,066		143,465

Total	Total	$	284,193	$	265,391	$	567,336	$	487,169	Total	$	274,727	$	271,882	$	842,063	$	759,051

Capital expenditures by segment are as follows:


		Three Months Ended March 31,						Six Months Ended March 31,							Three Months Ended June 30,				Nine Months Ended June 30,
		2020		2019		2020		2019			2020		2019		2020		2019
Capital Expenditures:	Capital Expenditures:									Capital Expenditures:
Electronic Materials	Electronic Materials	$	5,094	$	10,150	$	13,579	$	16,549	Electronic Materials	$	6,141	$	11,293	$	19,720	$	27,842
Performance Materials	Performance Materials	29,328		1,363		45,697		1,623		Performance Materials	33,550		1,286		79,247		2,909
Corporate	Corporate	3,555		1,018		5,067		2,244		Corporate	3,900		852		8,967		3,096
Total	Total	$	37,977	$	12,531	$	64,343	$	20,416	Total	$	43,591	$	13,431	$	107,934	$	33,847

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Adjusted EBITDA by segment ~~are~~is as follows:


		Three Months Ended March 31,						Six Months Ended March 31,							Three Months Ended June 30,				Nine Months Ended June 30,
		2020		2019		2020		2019			2020		2019		2020		2019
Segment adjusted EBITDA:	Segment adjusted EBITDA:									Segment adjusted EBITDA:
Electronic Materials	Electronic Materials	$	69,603	$	74,910	$	150,807	$	149,735	Electronic Materials	$	76,855	$	70,859	$	227,662	$	220,594
Performance Materials	Performance Materials	29,932		22,660		57,411		35,727		Performance Materials	26,959		27,425		84,370		63,152
Unallocated corporate expenses	Unallocated corporate expenses	(13,604)		(12,052)		(26,453)		(23,094)		Unallocated corporate expenses	(11,773)		(12,527)		(38,226)		(35,621)
Interest expense	Interest expense	(10,753)		(13,331)		(22,673)		(20,221)		Interest expense	(10,406)		(12,757)		(33,079)		(32,978)
Interest income	Interest income	143		568		458		1,587		Interest income	131		417		589		2,004
Depreciation and amortization	Depreciation and amortization	(32,550)		(27,348)		(64,192)		(43,889)		Depreciation and amortization	(31,324)		(26,587)		(95,516)		(70,476)
Acquisition and integration-related expenses	Acquisition and integration-related expenses	(2,285)		(2,904)		(5,050)		(30,198)		Acquisition and integration-related expenses	(2,735)		(2,910)		(7,785)		(33,108)
Charge for fair value write-up of acquired inventory sold	Charge for fair value write-up of acquired inventory sold	—		(4,566)		—		(14,827)		Charge for fair value write-up of acquired inventory sold	—		(42)		—		(14,869)
Costs related to KMG-Bernuth warehouse fire (See Note 13) and restructuring of wood treatment business		(206)		—		(598)		—
Costs related to the Pandemic		(237)		—		(237)		—
Costs related to KMG-Bernuth warehouse fire, net of insurance recovery										Costs related to KMG-Bernuth warehouse fire, net of insurance recovery	(622)		(4,450)		(1,220)		(4,450)
Net costs related to restructuring of the wood treatment business										Net costs related to restructuring of the wood treatment business	293		—		293		—
Costs related to the Pandemic, net of grants received										Costs related to the Pandemic, net of grants received	(112)		—		(349)		—
Income before income taxes	Income before income taxes	$	40,043	$	37,937	$	89,473	$	54,820	Income before income taxes	$	47,266	$	39,428	$	136,739	$	94,248

We began to manage and report our results under the new organizational structure in conjunction with the Acquisition in fiscal 2019 and have reflected this change for all historical periods presented. Since theThe two segments operate independently and serve different markets and customers, as a result there are no sales between segments. The adjustments to segment EBITDA for the three and six months ended March 31, 2020 represent addbacks of the Acquisition and integration-related expenses, as well as costs related to KMG-Bernuth warehouse fire, restructuring of the wood treatment business, and the Pandemic. The adjustments to segment EBITDA for the three and six months ended March 31, 2019 represent addbacks of Acquisition and integration-related expenses, and a charge for the write-up of inventory acquired from KMG to fair value for inventory sold in the period. The unallocated portions of corporate functions, including finance, legal, human resources, information technology, and corporate development, are not directly attributable to a reportable segment.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following "Management's Discussion and Analysis of Financial Condition and Results of ~~Operations" (MD&A),~~Operations," as well as disclosures included elsewhere in this Report on Form 10-Q, include "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 ("the Act"). This Act provides a safe harbor for forward-looking statements to encourage companies to provide prospective information about themselves so long as they identify these statements as forward-looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results. All statements other than statements of historical fact we make in this Report on Form 10-Q are forward-looking and address a variety of subjects including, for example, future sales and operating results; growth or contraction, and trends in the industries and markets in which the Company ~~participates;~~participates such as the semiconductor, and oil and gas, industries; the acquisition of, investment in, or collaboration with other entities, including the Company’s acquisition of KMG, ~~Chemicals, Inc. (“KMG”),~~ and the expected benefits and synergies of such ~~acquisition,~~acquisitions; divestment or disposition, or cessation of investment in certain, of the Company’s businesses; new product introductions; development of new products, technologies and markets; product performance; the financial conditions of the Company's customers; the competitive landscape that relates to the Company's ~~businesses;~~business; the Company's supply chain; natural disasters; various economic or political factors and international or national events, including related to global public health crises such as the ~~COVID-19 pandemic ("Pandemic"),~~Pandemic, and the enactment of trade sanctions, tariffs, or other similar matters; the generation, protection and acquisition of intellectual property, and litigation related to such intellectual property or third party intellectual property; environmental, health and safety laws and regulations, and related compliance; the operation of facilities by Cabot Microelectronics; the Company's management; foreign exchange fluctuation; the Company's current or future tax rate, including the effects of the Tax ~~Cuts and Jobs Act in the United States (the “Tax Act”);~~Act; cybersecurity threats; financing facilities and related debt, pay off or payment of principal and interest, and compliance with covenants and other terms; and, uses and investment of the Company's cash balance, including dividends and share repurchases, which may be suspended, terminated or modified at any time for any reason by the Company, based on a variety of factors. Statements that are not historical facts, including statements about Cabot Microelectronics’ beliefs, plans and expectations, are forward-looking statements. Such statements are based on current expectations of Cabot Microelectronics’ management and are subject to a number of factors and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements. For information about factors that could cause actual results to differ materially from those described in the forward-looking statements, please refer to Cabot Microelectronics’ filings with the ~~Securities and Exchange Commission (“SEC”),~~SEC, including the risk factors contained in ~~our Annual Report on Form 10-K for the fiscal year ended September 30, 2019 and~~ this Report on Form 10-Q. Except as required by law, Cabot Microelectronics undertakes no obligation to update forward-looking statements made by it to reflect new information, subsequent events or circumstances. ~~The section entitled "Risk Factors" describes some, but not all, of the factors that could cause these differences.~~

This following discussion and analysis, should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended September 30, 2019, including the Consolidated Financial Statements and related notes thereto.

~~SECOND~~THIRD QUARTER OF FISCAL 2020 OVERVIEW

Cabot Microelectronics Corporation (“Cabot Microelectronics”, “the Company”, “us”, “we”, or “our”) is a leading global supplier of consumable materials to semiconductor manufacturers and pipeline companies. The Company's products play a critical role in the production of advanced semiconductor devices, helping to enable the manufacture of smaller, faster and more complex devices by its customers. As discussed above, on November 15, 2018 (the “Acquisition Date”), we completed our acquisition of KMG Chemicals, Inc. (“KMG”), which produces and distributes specialty chemicals and performance materials for the semiconductor industry, pipeline and adjacent industries, and industrial wood preservation industry (the “Acquisition”). The Acquisition extended and strengthened our position as one of the leading suppliers of consumable materials to the semiconductor industry and expanded our portfolio with the addition of KMG’s businesses, which we believe enables us to be a leading global provider of performance materials to pipeline operators. The Consolidated Financial Statements included in this Report on Form 10-Q include the financial results of KMG ~~from~~since the Acquisition Date. ~~Since the Acquisition, we now~~We operate our business within two reportable segments: Electronic Materials and Performance Materials. The Electronic Materials segment consists of our heritage CMP slurries and polishing pads businesses, as well as the KMG electronic chemicals business. The Performance Materials segment includes KMG’s heritage pipeline performance and wood treatment businesses, and our heritage QED business. For additional information, refer to Item 1 of Part I of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

~~INDEX~~

The global spread of the Pandemic has created significant uncertainty and economic disruption worldwide and in the countries and locations in which we and our customers and suppliers operate. Our primary focus has been and continues to be on the health and well-being of our employees and the ongoing operation of our facilities worldwide according to our business continuity plans, which we refine on an ongoing basis. ~~While we have continued to operate uninterrupted as an essential business at our manufacturing sites worldwide since the Pandemic began, and~~

INDEX

To date, we have not ~~experienced~~seen a meaningful impact from the Pandemic on our ability to manufacture orand deliver products to our customers, but the Pandemic has negatively impacted some of the industries we serve, primarily the oil and gas industry. The Pandemic has exacerbated the impact of the continued geopolitical factors within the oil and gas industry, resulting in lower demand for our pipeline performance products in our third fiscal quarter. Demand from our semiconductor customers, which represents approximately 80% of our revenue, remained stable in our third fiscal quarter as a transition to work-from-home environment benefited certain markets such as cloud, PCs and servers, offsetting weakness in industrial and automotive.

The extent to which the Pandemic may further impact our business, operations, results of operations and financial condition going forward is uncertain and difficult to ~~predict,~~estimate, and depends on numerous evolving and potentially unknown factors.

~~Revenue~~Third Quarter Key Financial Results

Our consolidated results of operations were as follows:


Dollars in thousands	Three Months Ended June 30,
	2020			2019
Revenue	$	274,727		$	271,882
Net income	$	34,525		$	18,878
Adjusted EBITDA	$	92,041		$	85,757
Adjusted EBITDA Margin	33.5		%	31.5		%

Our third quarter of 2020 consolidated results were not materially impacted by the Pandemic. Growth in demand for our ~~second quarter of fiscal 2020 was $284.2 million, which represented an increase of 7.1% from~~CMP slurries and pads in addition to higher revenue driven by pricing in the ~~same quarter of fiscal 2019, primarily due to stronger~~wood treatment business more than offset the decline in demand for ~~CMP slurries and~~our pipeline performance products as ~~well as increased revenue in wood treatment, offset by lower sales volume in CMP pads.~~

~~Net income was $32.9 million in~~ the second quarter of fiscal 2020, which represented an increase of 21.2% from the same quarter of fiscal 2019. Net income benefited from higher gross profit, lower Interest expense resulting from the prepayment of our term loan,business faced significantly softer oil and lower interest rate achieved from our first quarter fiscal 2020 refinancing of our credit facility, and lower Acquisition and integration-related costs, partially offset by increased amortization and depreciation associated with re-valuing KMG assets to fair value.

Adjusted EBITDA, a non-GAAP financial measure, was $85.9 million in the second quarter of fiscal 2020. This represents an increase of 0.5%, or $0.4 million, from the same quarter of fiscal 2019. Adjusted EBITDA benefited from higher sales in pipeline performance and wood treatment products, as well as CMP slurries, partially offset by lower sales of CMP pads compared to the same period of fiscal 2019. Refer to thegas industry conditions. See “Use of Certain GAAP and Non-GAAP Financial Information” section below for the definition of adjusted EBITDA and a reconciliation of adjusted EBITDA to Net income, the most comparable GAAP financial measure. Adjusted EBITDA margin, which represents adjusted EBITDA as a percentage of revenue, was 30.2% for the second quarter of fiscal 2020, compared to 32.2% for the same quarter of fiscal 2019.

In our Electronic Materials segment, demand for our products from our semiconductor industry customers remained generally stable this quarter, driven by demand for devices and bandwidth needed by many to transition into work-from-home environments, as well as the continued overall industry recovery coming off of a softer demand environmentlater in ~~calendar 2019. Demand for our solutions was driven by strength in foundry and logic, as well as a modest improvement in demand from memory customers.~~

In our Performance Materials segment, we are closely monitoring the oil and gas sector, which has seen an unprecedented drop in demand, especially in the United States, as transportation and travel have been heavily affected by the Pandemic, and the sector also has been adversely affected by geopolitical disputes between global players. We expect this drop in global oil demand to also affect our oil and gas materials and services business and are working closely with our customers in this dynamic environment.

In addition to the Pandemic, there are many factors that make it difficult for us to predict the future financial performance of our Company, including with respect to revenue trends, including those discussed in Part II, Item ~~1A entitled “Risk Factors”~~2 of this Report on Form ~~10-Q.~~10-Q for definitions and reconciliations of adjusted EBITDA and adjusted EBITDA margin.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES AND EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS

We discuss our critical accounting estimates and effects of recent accounting pronouncements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019. Except for the discussion in Note 2 of "Notes to the Consolidated Financial Statements" of this Report on Form 10-Q, no material changes have been made to the Company’s significant accounting policies during the first ~~six~~nine months of fiscal 2020. See Note 2 of "Notes to the Consolidated Financial Statements" of this Report on Form 10-Q for a discussion of new accounting pronouncements.

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RESULTS OF OPERATIONS

THREE MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2020, VERSUS THREE MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2019

REVENUE

Revenue was ~~$284.2~~$274.7 million for the three months ended ~~March 31,~~June 30, 2020, which ~~represented~~is an increase of ~~7.1%~~1.0%, or ~~$18.8~~$2.8 million, from the three months ended ~~March 31,~~June 30, 2019, primarily due to increased ~~sales in~~revenue from the Company's ~~pipeline performance~~CMP slurries, CMP pads, and wood treatment products, ~~as well as CMP slurries,~~ offset by lower ~~sales~~revenue in ~~CMP pads.~~pipeline performance products.

COST OF SALES

Cost of sales was ~~$163.1~~$153.0 million for the three months ended ~~March 31,~~June 30, 2020, which represented ~~an increase~~a decrease of ~~8.3%~~2.2%, or ~~$12.5~~$3.5 million, from the three months ended ~~March 31,~~June 30, 2019, primarily due to lower sales volume in the Company's pipeline materials and electronic chemicals products, partially offset by higher ~~sales volume.~~fixed costs.

GROSS MARGIN

Our gross margin was ~~42.6%~~44.3% for the three months ended ~~March 31,~~June 30, 2020, compared to ~~43.3%~~42.4% for the three months ended ~~March 31,~~June 30, 2019. The ~~decrease~~increase was primarily due to ~~unfavorable fixed manufacturing costs, partially offset by selected~~select price increases and higher value product ~~mix.~~

~~RESEARCH, DEVELOPMENT AND TECHNICAL~~

Total research, development and technical expenses were $13.2 million for the three months ended March 31, 2020, which represented an increase of 3.5%, or $0.5 million, from the three months ended March 31, 2019. The increase was primarily due to higher staffing-related costs of $1.0 million, including incentive compensation costs,mix, partially offset by ~~a net gain of $0.4 million on the sale of assets.~~unfavorable fixed manufacturing costs.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses were ~~$56.2~~$51.8 million for the three months ended ~~March 31,~~June 30, 2020, which ~~represented~~is an increase of ~~11.7%~~1.7%, or ~~$5.9~~$0.9 million, from the three months ended ~~March 31,~~June 30, 2019. The increase was primarily due to ~~$5.2~~$4.0 million of higher amortization expense associated with re-valuing KMG assets to fair value $2.0 million of higher staffing-related costs, including incentive compensation costs, primarily resulting from higher accrual of STIP, and $0.6 million of higher allocated overhead expenses. These increases were partiallyduring fiscal year 2019 offset by ~~$1.1~~$1.7 million of lower ~~professional fees, $0.7 million of lower travel costs, and $0.6 million of lower Acquisition and integration-related~~staffing-related costs.

INTEREST EXPENSE

Interest expense was ~~$10.8~~$10.4 million for the three months ended ~~March 31,~~June 30, 2020, which ~~represented~~is a decrease of ~~$2.6~~$2.4 million from the three months ended ~~March 31,~~June 30, 2019. The decrease was primarily due to a decline in the LIBOR rate for the unhedged portion of the Company's Term Loan Facility, a lower outstanding ~~Term Loan~~term loan balance due to repayments, and a lower interest rate on our borrowings resulting from the refinancing of our ~~credit facility~~Amended Credit Agreement in the first quarter of fiscal 2020.

~~INTEREST INCOME~~

Interest income was $0.1 million for the three months ended March 31, 2020, which represented a decrease of 74.8%, or $0.4 million, from the three months ended March 31, 2019 due to lower average cash balances during the period compared to the same period last year.

~~INDEX~~

~~OTHER INCOME (EXPENSE), NET~~

Other expense was $1.0 million for the three months ended March 31, 2020, compared to Other expense of $1.0 million for the three months ended March 31, 2019. Other expense remained relatively flat due to higher losses on foreign currency transactions offset by higher non-operating income compared to the same quarter last year.

PROVISION FOR INCOME TAXES

The Company’s effective income tax rate for the ~~second~~third quarter of fiscal 2020 was ~~17.8%~~27.0%, compared to ~~28.5%~~52.1% in the same quarter last year. The decrease is primarily driven by ~~favorable tax treatment from the higher benefit related to share based compensation and favorable impact from~~ the absence of ~~non-deductible Acquisition-related costs.~~a discrete charge recorded in the three months ended June 30, 2019 related to the financial regulations issued under the Tax Act.

NET INCOME

Net income was ~~$32.9~~$34.5 million for the three months ended ~~March 31,~~June 30, 2020, which ~~represented~~is an increase of ~~21.2%~~82.9%, or ~~$5.8~~$15.6 million, from the three months ended ~~March 31,~~June 30, 2019. Net income benefited from higher gross ~~profit,~~margin, lower Interest expense, ~~resulting from the prepayment of our Term Loan~~ and a lower interest rate achieved from the refinancing of our credit facility, and lower Acquisition and integration-related costs, partially offset by increased amortization and depreciation associated with re-valuing KMG assets to fair value.Provision for income taxes.

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~~SIX~~NINE MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2020, VERSUS ~~SIX~~NINE MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2019

REVENUE

Revenue was ~~$567.3~~$842.1 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2020, which represented an increase of ~~16.5%~~10.9%, or ~~$80.2~~$83.0 million, from the ~~six~~nine months ended ~~March 31,~~June 30, 2019. The increase was primarily due to the addition of the KMG businesses for the full period in fiscal 2020, selected price increases, and increased ~~sales of~~revenue from CMP slurries, offset by lower ~~sales in~~revenue from CMP pads.

COST OF SALES

Total cost of sales was ~~$317.6~~$470.5 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2020, which ~~represented~~is an increase of ~~16.3%~~9.5%, or ~~$44.5~~$41.0 million, from the ~~six~~nine months ended ~~March 31,~~June 30, 2019. The increase in Cost of sales was primarily due to the ~~higher sales volume.~~addition of the KMG businesses for the full period in fiscal 2020.

GROSS MARGIN

Our gross margin was ~~44.0%~~44.1% for the ~~six~~nine months ended ~~March 31,~~June 30, 2020, ~~which was flat~~ compared to ~~44.0%~~43.4% for the ~~six~~nine months ended ~~March 31, 2019.~~

~~RESEARCH, DEVELOPMENT AND TECHNICAL~~

Total research, development and technical expenses were $26.0 million for the six months ended March 31, 2020, which represented a decrease of 2.9%, or $0.8 million, from the six months ended March 31,June 30, 2019. The ~~decrease~~increase was primarily due to a net gain of $0.4 million on the sale of assets, $0.3 million of lower allocated overhead expenses, and $0.3 million in lower professional fees, partially offset by higher staffing-related costs of $0.5 million, including incentive compensation costs.select price increases.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses were ~~$110.6~~$162.5 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2020, which ~~represented a decrease of 0.7%, or $0.8 million,~~was flat from the ~~six~~nine months ended ~~March 31,~~June 30, 2019. ~~The decrease~~This was primarily due to ~~$25.1~~$25.3 million of lower Acquisition and integration-related costs, ~~and $1.0 million of lower travel expense,~~ partially offset by ~~$16.2~~$20.2 million of higher amortization expense associated with re-valuing KMG assets to fair value ~~$5.3~~during fiscal year 2019 and $3.6 million of higher staffing-related costs, including incentive compensation costs primarily resulting from higher ~~accrual of STIP, $1.3 million of higher IT expenses, and $0.7 million of higher allocated overhead expenses.~~expense from the STIP.

INTEREST EXPENSE

Interest expense was ~~$22.7~~$33.1 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2020, which ~~represented~~is an increase of ~~$2.5~~$0.1 million from the ~~six~~nine months ended ~~March 31,~~June 30, 2019. The increase was primarily due to the longer period of time covered within the ~~six~~nine months ended ~~March 31,~~June 30, 2020 compared to the ~~six~~nine months ended ~~March 31,~~June 30, 2019 under the ~~new~~ debt borrowing to finance the Acquisition in November 2018.

~~INTEREST INCOME~~

~~Interest income~~ The increase was ~~$0.5 million~~partially offset by a lower interest rate on our borrowings resulting from refinancing our Amended Credit Agreement during the first quarter of fiscal 2020, as well as the decrease in LIBOR rate for the ~~six months ended March 31, 2020, which represented a decrease~~unhedged portion of ~~71.1%, or $1.1 million, from~~ the ~~six months ended March 31, 2019 due to lower average cash balances during the period compared to the same period last year.~~

~~INDEX~~

~~OTHER INCOME (EXPENSE), NET~~

Other expense was $1.4 million for the six months ended March 31, 2020, compared to Other expense of $2.4 million for the six months ended March 31, 2019. The change was primarily due to a lower loss on foreign currency transactions in the six months ended March 31, 2020 compared to the same period last year.Term Loan Facility.

PROVISION FOR INCOME TAXES

The Company’s effective income tax rate was ~~20.1%~~22.5% for the ~~six~~nine months ended ~~March 31,~~June 30, 2020, compared to ~~26.0%~~36.9% for the ~~six~~nine months ended ~~March 31,~~June 30, 2019. The decrease in our effective income tax rate ~~for the six months ended March 31, 2020 compared to the prior year~~ is primarily attributable to the absence of discrete charge recorded in nine months ended June 30, 2019 related to the final regulations issued under the Tax Act, higher tax benefit related to ~~share-based~~share based compensation ~~and~~for the ~~favorable impact from~~nine months ended June 30, 2020, and the absence of non-deductible ~~Acquisition-related costs. See Note 16 of "Notes~~costs related to the ~~Consolidated Financial Statements" of this Report on Form 10-Q~~Acquisition for ~~more information on our income taxes.~~the nine months ended June 30, 2020.

NET INCOME

Net income was ~~$71.4~~$106.0 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2020, which ~~represented~~is an increase of ~~76.1%~~78.2%, or ~~$30.9~~$46.5 million, from the ~~six~~nine months ended ~~March 31,~~June 30, 2019. Net income benefited from the addition of the KMG businesses for the full period in fiscal 2020 and lower Acquisition and integration-related expenses, partially offset by increased amortization and depreciation associated with re-valuing KMG assets to fair ~~value and higher Interest expense resulting from the debt borrowing to finance the Acquisition.~~value.

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INDEX

SEGMENT ANALYSIS

~~Segment data is presented for our two reportable segments for the three and six months ended March 31, 2020 and 2019.~~ The segment data should be read in conjunction with our unaudited Consolidated Financial Statements and related notes included ~~elsewhere~~ in Part 1, Item 1 of this Report on Form 10-Q.

Revenue from external customers and adjusted ~~EBITDA/~~EBITDA and EBITDA Margin by segment are as follows:


Dollars in thousands	Dollars in thousands	Three Months Ended March 31,						Six Months Ended March 31,							Dollars in thousands	Three Months Ended June 30,				Nine Months Ended June 30,
		2020		2019		2020		2019			2020		2019			2020		2019
Segment Revenue:	Segment Revenue:									Segment Revenue:
Electronic Materials	Electronic Materials	$	218,909	$	212,846	$	439,630	$	403,462	Electronic Materials	$	220,367	$	212,123		$	659,997	$	615,586
Performance Materials	Performance Materials	65,284		52,545		127,706		83,707		Performance Materials	54,360		59,759			182,066		143,465
Total		$	284,193	$	265,391	$	567,336	$	487,169
Total Revenue										Total Revenue	$	274,727	$	271,882		$	842,063	$	759,051


Dollars in thousands	Dollars in thousands	Three Months Ended March 31,						Six Months Ended March 31,							Dollars in thousands	Three Months Ended June 30,				Nine Months Ended June 30,
		2020		2019		2020		2019			2020		2019			2020		2019
Segment Adjusted EBITDA:
Adjusted EBITDA:										Adjusted EBITDA:
Electronic Materials	Electronic Materials	$	69,603	$	74,910	$	150,807	$	149,735	Electronic Materials	$	76,855	$	70,859		$	227,662	$	220,594
Performance Materials	Performance Materials	29,932		22,660		57,411		35,727		Performance Materials	26,959		27,425			84,370		63,152
Unallocated Corporate Expenses	Unallocated Corporate Expenses	(13,604)		(12,052)		(26,453)		(23,094)		Unallocated Corporate Expenses	(11,773)		(12,527)			(38,226)		(35,621)
Total		$	85,931	$	85,518	$	181,765	$	162,368
Consolidated Adjusted EBITDA										Consolidated Adjusted EBITDA	$	92,041	$	85,757		$	273,806	$	248,125


		Three Months Ended March 31,						Six Months Ended March 31,							Three Months Ended June 30,				Nine Months Ended June 30,
		2020		2019		2020		2019			2020		2019		2020		2019
Adjusted EBITDA margin:	Adjusted EBITDA margin:									Adjusted EBITDA margin:
Electronic Materials	Electronic Materials	31.8	%	35.2	%	34.3	%	37.1	%	Electronic Materials	34.9	%	33.4	%	34.5	%	35.8	%
Performance Materials	Performance Materials	45.8	%	43.1	%	45.0	%	42.7	%	Performance Materials	49.6	%	45.9	%	46.3	%	44.0	%

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INDEX

THREE MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2020, VERSUS THREE MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2019

ELECTRONIC MATERIALS

The ~~$6.1~~$8.2 million increase in Electronic Materials revenue was driven by increased sales volume of CMP slurries, partially offset by lower ~~CMP pads demand.~~electronic chemicals sales volume. The ~~$5.3~~$6.0 million ~~decrease~~increase in Electronic Materials adjusted EBITDA and ~~3.4% decrease~~150 basis points increase in Electronic Materials adjusted EBITDA margin were primarily driven by ~~unfavorable~~product mix, partially offset by higher fixed manufacturing ~~costs and changes in the allocation of corporate expenses.~~costs.

PERFORMANCE MATERIALS

The ~~$12.7~~$5.4 million ~~increase~~decrease in Performance Materials revenue and ~~$7.3~~$0.5 million decrease in Performance Materials adjusted EBITDA were driven by lower sales for pipeline performance products driven by the decline in the oil and gas industry, partially offset by higher selling prices for wood treatment products. The 370 basis points increase in Performance Materials adjusted EBITDA margin were driven by increased sales for DRAs and higher selling prices for wood treatment products for all customers, offset by lower sales in our QED business due to timing of product deliveries. The 2.7% Performance Materials adjusted EBITDA margin increase was primarily driven by higher selling prices for wood treatment products.

~~SIX~~NINE MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2020, VERSUS ~~SIX~~NINE MONTHS ENDED ~~MARCH 31,~~JUNE 30, 2019

ELECTRONIC MATERIALS

The ~~$36.2~~$44.4 million increase in Electronic Materials revenue was driven by the addition of KMG’s electronic chemicals business since the Acquisition and increased sales volume of CMP ~~slurries.~~slurries, partially offset by lower CMP pads sales. The $7.1 million increase in Electronic Materials adjusted EBITDA was ~~essentially flat despite~~driven by the revenue ~~increase as a result of product mix.~~increases, partially offset by higher fixed manufacturing costs. The ~~2.8%~~130 basis points decrease in Electronic Materials adjusted EBITDA margin ~~decrease~~ was primarily due to ~~change in mix of products as a result of the Acquisition.~~product mix.

PERFORMANCE MATERIALS

The ~~$44.0~~$38.6 million increase in Performance Materials revenue and ~~$21.7~~$21.2 million increase in Performance Materials adjusted EBITDA were driven by ~~the addition~~a full year of KMG’s performance materials businesses post-Acquisition ~~as well as continued sales growth in DRAs~~ and higher selling prices for our wood treatment ~~products across all customers.~~products. The ~~2.3%~~230 basis points increase in Performance Materials adjusted EBITDA margin ~~increase~~ was primarily driven by higher selling prices for wood treatment products.

3531

INDEX

USE OF CERTAIN GAAP AND NON-GAAP FINANCIAL INFORMATION

We provide certain non-GAAP financial information, such as adjusted EBITDA and adjusted EBITDA margin, to complement reported GAAP results because we believe that analysis of our financial performance is enhanced by an understanding of these non-GAAP financial measures. We exclude certain items from earnings when presenting our adjusted EBITDA measure because we believe they will be incurred infrequently and/or are otherwise not indicative of a segment's regular, ongoing operating performance. Accordingly, we believe that they aid in evaluating the underlying operational performance of our business, and facilitate comparisons between periods. In addition, adjusted EBITDA is used as one of the performance goals of our fiscal 2020 ~~Short-Term Incentive Program (STIP).~~STIP. A similar adjusted EBITDA calculation is also used by our lenders for a key debt compliance ratio.

Adjusted EBITDA margin is defined as adjusted EBITDA as a percentage of revenue. Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation and amortization, adjusted for certain items that affect comparability from period to period. These adjustments include items related to the Acquisition, such as expenses incurred to complete the Acquisition and integration-related expenses, costs of restructuring related to the wood treatment business and related adjustments, costs related to the KMG-Bernuth warehouse fire net of insurance recovery, costs related to the Pandemic net of grants received, and impact of fair value adjustments to inventory acquired from KMG.

The non-GAAP financial information provided is a supplement to, and not a substitute for, the Company’s financial results presented in accordance with U.S. GAAP. Management strongly encourages investors to review the Company’s consolidated financial statements in their entirety and to not rely on any single financial measure. These non-GAAP financial measures are provided to enhance the investor's understanding about the Company's ongoing operations. Specifically, the Company believes the impact of Acquisition-related expenses and Acquisition-related amortization expenses are not indicative of its core operating results, and thus presents these certain metrics excluding these effects. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for results prepared and presented in accordance with U.S. GAAP. A reconciliation table of GAAP to non-GAAP financial measures is contained below.

Adjusted EBITDA for the Electronic Materials and Performance Materials segments is presented in conformity with Accounting Standards Codification Topic 280, Segment Reporting. This measure is reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance. For these reasons, this measure is excluded from the definition of non-GAAP financial measures under the SEC Regulation G and Item 10(e) of Regulation S-K.

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INDEX

RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA

The table below presents the reconciliation of Net income to adjusted EBITDA. Adjusted EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to Net income. Adjusted EBITDA may have limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.


Dollars in thousands										Dollars in thousands	Three Months Ended June 30,						Nine Months Ended June 30,
		Three Months Ended March 31,						Six Months Ended March 31,							2020		2019		2020	2019
		2020		2019		2020		2019
Segment Adjusted EBITDA:
Adjusted EBITDA:										Adjusted EBITDA:
Electronic Materials	Electronic Materials	$	69,603	$	74,910	$	150,807	$	149,735	Electronic Materials	$	76,855	$	70,859	$	227,662	$	220,594
Performance Materials	Performance Materials	29,932		22,660		57,411		35,727		Performance Materials	26,959		27,425		84,370		63,152
Unallocated Corporate Expenses	Unallocated Corporate Expenses	(13,604)		(12,052)		(26,453)		(23,094)		Unallocated Corporate Expenses	(11,773)		(12,527)		(38,226)		(35,621)
Total		$	85,931	$	85,518	$	181,765	$	162,368
Consolidated Adjusted EBITDA										Consolidated Adjusted EBITDA	$	92,041	$	85,757	$	273,806	$	248,125


		Three Months Ended March 31,						Six Months Ended March 31,
Dollars in thousands										Dollars in thousands	Three Months Ended June 30,						Nine Months Ended June 30,
		2020		2019		2020		2019			2020		2019		2020		2019
Net income	Net income	$	32,899	$	27,137	$	71,448	$	40,580	Net income	$	34,525	$	18,878	$	105,973	$	59,458
Interest expense	Interest expense	10,753		13,331		22,673		20,221		Interest expense	10,406		12,757		33,079		32,978
Interest income	Interest income	(143)		(568)		(458)		(1,587)		Interest income	(131)		(417)		(589)		(2,004)
Income taxes	Income taxes	7,144		10,800		18,025		14,240		Income taxes	12,741		20,550		30,766		34,790
Depreciation and amortization	Depreciation and amortization	32,550		27,348		64,192		43,889		Depreciation and amortization	31,324		26,587		95,516		70,476
EBITDA *	EBITDA *	83,203		78,048		175,880		117,343		EBITDA *	88,865		78,355		264,745		195,698
Acquisition and integration-related expenses	Acquisition and integration-related expenses	2,285		2,904		5,050		30,198		Acquisition and integration-related expenses	2,735		2,910		7,785		33,108
Charge for fair value write-up of acquired inventory sold	Charge for fair value write-up of acquired inventory sold	—		4,566		—		14,827		Charge for fair value write-up of acquired inventory sold	—		42		—		14,869
Costs related to KMG-Bernuth warehouse fire and restructuring of wood treatment business		206		—		598		—
Costs related to the Pandemic		237		—		237		—
Adjusted EBITDA **		$	85,931	$	85,518	$	181,765	$	162,368
Costs related to KMG-Bernuth warehouse fire, net of insurance recovery										Costs related to KMG-Bernuth warehouse fire, net of insurance recovery	622		4,450		1,220		4,450
Net costs related to restructuring of the wood treatment business**										Net costs related to restructuring of the wood treatment business**	(293)		—		(293)		—
Costs related to the Pandemic, net of grants received										Costs related to the Pandemic, net of grants received	112		—		349		—
Adjusted EBITDA ***										Adjusted EBITDA ***	$	92,041	$	85,757	$	273,806	$	248,125

* EBITDA represents earnings before interest, taxes, depreciation and amortization.

** Represents adjustments to previously recorded severance liability related to the wood treatment business.

*** Adjusted EBITDA is calculated by excluding items from EBITDA that are believed to be infrequent or not indicative of the company's continuing operating performance.

LIQUIDITY AND CAPITAL RESOURCES

~~We generated $112.3~~As of June 30, 2020, we had $354.7 million of cash and cash equivalents compared with $188.5 million as of September 30, 2019. On June 30, 2020, $134.6 million of cash and cash equivalents was held in ~~cash flows from operating activities in the first six months~~foreign subsidiaries. Our total liquidity as of ~~fiscal~~June 30, 2020 was $404.7 million compared to ~~$53.5~~$388.5 million ~~in cash from operating activities in the first six months~~as of ~~fiscal 2019.~~September 30, 2019 (including $50.0 million and $200.0 million, respectively, of borrowing availability under our Revolving Credit Facility, which includes our letter of credit sub-facility). The increase in liquidity reflects the cash flow provided by operating ~~cash flows of $58.8 million was due to an increase of Net income adjusted for non-cash reconciling items.~~

Inactivities, partially offset by the ~~first six months of fiscal 2020, cash flows used in investing activities were $57.6 million, compared to $1,196.5 million in~~ cash used ~~in investing activities in~~by additions of property, plant and equipment, the ~~first six months~~repurchases of ~~fiscal 2019. The decrease was driven by the use of $1,182.2 million for the Acquisition during the first quarter of fiscal 2019, with the issuance of~~our common stock ~~satisfying the remainder~~and payments of the purchase price. Capital expenditures in the first six months of fiscal 2020 were $59.2 million, compared to $19.5 million in the first six months of fiscal 2019. The increase was primarily driven by plant expansion in the United States related to our Performance Materials segment.quarterly cash dividends.

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In the first six months of fiscal 2020, cash flows provided by financing activities were $98.1 million, compared to $982.3 million provided by financing activities in the first six months of fiscal 2019. During the first quarter of fiscal 2019, the Company received $1,043.6 million inTotal debt, proceeds, net of $18.7 million in debt issuance costs and original issue discount fees, which was used for the Acquisition. During the first six months of fiscal 2020, the Company drew $150.0 million under its Revolving Credit Facility, which is discussed below. The Company made $18.0 million of repayments under the Term Loan Facility during the first six months of fiscal 2020, compared to $45.0 million of repayments made in the first six months of fiscal 2019. In addition, cash paid for repurchases of common stock increased from $4.7 million in the first six months of fiscal 2019 to $19.5 million in the first six months of fiscal 2020. Our dividend payments also increased from $21.9 million in the first six months of fiscal 2019 to $24.8 million in the first six months of fiscal 2020.

In March 2020, the Company drew $150.0 million under the Revolving Credit Facility as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of uncertain global economic conditions resulting from the Pandemic. Prior to this, the Company had not drawn any amounts under the Revolving Credit Facility. As of March 31, 2020, $150.0 million was outstanding under the Revolving Credit Facility, and our available credit under the Revolving Credit Facility was $50.0 million, including our letter of credit sub-facility. Borrowings under the Revolving Credit Facility are classified as short-term debt. Proceeds from the Revolving Credit Facility are included in Cash and cash equivalents in the Company's Consolidated Balance Sheet as of March 31, 2020.

On the Acquisition Date, we entered into a credit agreement by and among the Company, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (the “Credit Agreement”), which provides for senior secured financing of up to $1,265.0 million, consisting of ~~a term loan facility in an aggregate~~ principal amount of $1,065.0 million (the “Term Loan Facility”) and a revolving credit facility in an aggregate principal amount of up to $200.0 million, including a letter of credit sub-facility of up to $50.0 million (the “Revolving Credit Facility”). Theoutstanding on our Term Loan Facility and ~~the~~ Revolving Credit Facility, ~~are referred~~amounted to $1,076.0 million ($1,091.7 million in aggregate principal amount less $15.7 million of debt issuance costs) as the “Credit Facilities.” The Company may generally prepay outstanding loans under the Credit Facilities at any time, without prepayment premium or penalty, subject to customary “breakage” costs with respect to LIBOR rate loans. of June 30, 2020 and $941.8 million ($959.7 million in aggregate principal amount less $17.9 million of debt issuance costs) as of September 30, 2019.

The Revolving Credit Facility requires that the Company maintain a maximum first lien secured net leverage ratio, as defined in the Amended Credit Agreement, of 4.00 to 1.00 as of the last day of each fiscal ~~quarter if any borrowing under the Revolving Credit Facility is outstanding, commencing with the first full fiscal quarter after the Acquisition Date.~~quarter. As of ~~March 31,~~June 30, 2020, our maximum first lien secured net leverage ratio was ~~2.02~~1.96 to 1.00. Additionally, the Amended Credit Agreement contains certain affirmative and negative covenants that limit the ability of the Company, among other things and subject to certain significant exceptions, to incur debt or liens, make investments, enter into certain mergers, consolidations, asset sales and acquisitions, pay dividends and make other restricted payments and enter into transactions with affiliates. ~~The Credit Agreement also contains customary affirmative covenants and events of default.~~ We ~~believe we~~ are in compliance with these ~~covenants.~~ covenants as of June 30, 2020.

In the second quarter of fiscal 2019, we entered into a floating-to-fixed interest rate swap contract to hedge the variability in our LIBOR-based interest payments on approximately 70% of our Team Loan balance. During the first quarter of fiscalMarch 2020, the Company ~~amended~~drew $150.0 million under the Revolving Credit ~~Agreement~~Facility as a precautionary measure in order to ~~reduce~~increase its cash position and preserve financial flexibility in light of uncertain global economic conditions resulting from the ~~interest rate on term loan borrowings. See Note 10~~Pandemic. During the three months ended June 30, 2020, there were no additional borrowings under our Revolving Credit Facility and as of ~~"Notes to the Consolidated Financial Statements" of this Report on Form 10-Q for additional information regarding the Amended Credit Agreement.~~June 30, 2020, $150.0 million was outstanding.

In January 2016, our Board of Directors authorized an increase in the amount available under our share repurchase program ~~from the previously remaining $75.0 million~~ to $150.0 million. During the ~~second~~third quarter of fiscal 2020, we repurchased ~~157,368 shares for $16.4 million under this program. We did not purchase any~~160 thousand shares under this program, ~~during~~and $36.3 million authorization remained at the ~~first quarter~~end of ~~fiscal 2020. As of March 31, 2020, $54.9 million remained available under our share repurchase program. Share repurchases are made from time to time, depending on market and other conditions.~~the quarter. The timing, manner, price and amounts of repurchases are determined at the Company's discretion, and the share repurchase program may be suspended, terminated or modified at any time for any reason. The repurchase program does not obligate the Company to acquire any specific number of shares. To date, we have funded share purchases under our share repurchase program from our available cash ~~balance,~~on hand, and anticipate we will continue to do so. Periodically, we have entered into "10b5-1" stock purchase plan agreements with independent brokers to repurchase shares of our common stock in accordance with guidelines pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. A plan under Rule 10b5-1 allows a company to repurchase its shares at times when it otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. Repurchases are subject to SEC regulations as well as certain conditions specified in the plan.

Our Board of Directors authorized the initiation of our regular quarterly cash dividend program in January 2016, and since that time has periodically increased the dividend to its current quarterly level of $0.44 per share. The declaration and payment of future dividends is subject to the discretion and determination of the Board of Directors and management, based on a variety of factors, and the program may be suspended, terminated or modified at any time for any reason.

On March 31, 2020, we had $340.7 million of cash and cash equivalents, $114.9 million of which was held in foreign subsidiaries. See Item 1A of Part II of this Report on Form 10-Q for additional discussion of our foreign operations.

~~INDEX~~

We believe that ~~our current balance of~~ cash on hand, cash ~~generated by our~~available from future operations, ~~cash repatriation to the United States,~~ and available borrowing capacity under our Amended Credit ~~Facilities~~Agreement will be sufficient to fund our operations, expected capital expenditures, dividend payments, and share repurchases for at least the next twelve months. However, the current macroeconomic dislocation caused by the Pandemic has created uncertainty in worldwide economic conditions and in those of the industries in which we participate, and whether with respect to the impact of the Pandemic or in pursuit of corporate development or other initiatives, we may need to raise additional funds in the future through equity or debt financing, or other arrangements. Depending on future conditions in the capital and credit markets, we could encounter difficulty securing additional financing in the type or amount necessary to pursue these objectives.

Operating Activities

We generated $204.1 million in cash flows from operating activities in the first nine months of fiscal 2020, compared to $117.0 million in the first nine months of fiscal 2019. The increase in operating cash flows of $87.1 million was due to an increase of Net income adjusted for non-cash reconciling items.

Investing Activities

In the first nine months of fiscal 2020, net cash used in investing activities was $105.4 million, compared to $1,209.7 million in the first nine months of fiscal 2019. The decrease was primarily driven by the use of $1,182.2 million for the Acquisition during the first quarter of fiscal 2019. This was partially offset by an increase in capital expenditures of $74.3 million in the first nine months of fiscal 2020 compared to the first nine months of fiscal 2019 driven by plant expansion in the United States related to our Performance Materials segment.

INDEX

Financing Activities

In the first nine months of fiscal 2020, cash flows provided by financing activities were $67.2 million, compared to $908.7 million in the first nine months of fiscal 2019. The decrease was driven by net debt proceeds of $1,043.6 million in the first nine months of fiscal 2019 used to fund the Acquisition compared to $150.0 million draw down on our Revolving Credit Facility in the first nine months of fiscal 2020, as discussed above. Further, cash paid for repurchases of common stock increased from $9.5 million in the first nine months of fiscal 2019 to $38.1 million in the first nine months of fiscal 2020. This was partially offset by repayments of $18.0 million and $102.7 million under the Term Loan Facility during the first nine months of fiscal 2020 and 2019, respectively.

OFF-BALANCE SHEET ARRANGEMENTS

At ~~March 31,~~June 30, 2020 and September 30, 2019, we did not have any unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which might have been established for the purpose of facilitating off-balance sheet arrangements.

CONTRACTUAL OBLIGATIONS

There have been no material changes to the Company's contractual obligations during ~~the second quarter of~~ fiscal 2020, except as discussed below.

We have been operating under a multi-year supply agreement with Cabot Corporation, which has not been a related party since 2002, for the purchase of fumed silica, which runs through December 2022. As of ~~March 31,~~June 30, 2020, purchase obligations include an aggregate amount of ~~$27.5~~$24.7 million of contractual commitments related to this agreement.

Refer to Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019, for additional information regarding our contractual obligations.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

EFFECT OF FOREIGN CURRENCY EXCHANGE RATES AND EXCHANGE RATE RISK MANAGEMENT

We conduct business operations outside of the United States through our foreign operations. Some of our foreign operations maintain their accounting records in their local currencies. Consequently, period to period comparability of results of operations is affected by fluctuations in exchange rates. The primary currencies to which we have exposure are the Korean won, Japanese yen, the New Taiwan dollar, Euro, British pound, and Singapore dollar. Approximately ~~22%~~21% of our revenue for the quarter ended ~~March 31,~~June 30, 2020 is transacted in currencies other than the U.S. dollar. However, outside of the United States, we also incur expenses that are transacted in currencies other than the U.S. dollar, which mitigates the exposure on the Consolidated Statements of Income. We periodically enter into forward contracts in an effort to manage foreign currency exchange exposure on our Consolidated Balance Sheets. However, we are unlikely to be able to hedge these exposures completely. We do not enter into forward contracts or other derivative instruments for speculative or trading purposes.

During the three and ~~six~~nine months ended ~~March 31,~~June 30, 2020, we recorded ~~$19.7~~$9.1 million and ~~$3.9~~$5.2 million, respectively, in foreign currency translation ~~losses,~~gains, net of tax, that are included in other comprehensive income. These gains and losses primarily relate to changes in the U.S. dollar value of assets and liabilities denominated in local currencies when these asset and liability amounts are translated at month-end exchange rates.

MARKET RISK AND SENSITIVITY ANALYSIS RELATED TO FOREIGN EXCHANGE RATE RISK

We have performed a sensitivity analysis assuming a hypothetical 10% additional adverse movement in foreign exchange rates. As of ~~March 31,~~June 30, 2020, the analysis demonstrated that such market movements would not have a material adverse effect on our consolidated financial position, results of operations or cash flows over a one-year period. Actual gains and losses in the future may differ materially from this analysis based on changes in the timing and amount of foreign currency rate movements and our actual exposures.

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ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), has conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended ("the Exchange Act")), as of ~~March 31,~~June 30, 2020. Based on that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to ensure that such information is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

The Company is in the process of integrating KMG into the Company's internal control over financial reporting. As a result of these integration activities, certain controls will be evaluated and may be changed. Excluding the Acquisition, there were no changes in the Company's internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS

Because of inherent limitations, our disclosure controls or our internal control over financial reporting may not prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth in Note 13 of "Notes to the Consolidated Financial Statements" included in Item 1 of Part I of this Report on Form 10-Q is incorporated herein by reference.

ITEM 1A. RISK FACTORS

RISKS RELATING TO OUR BUSINESS

OUR BUSINESS AND RESULTS OF OPERATIONS MAY BE ADVERSELY AFFECTED BY THE CORONAVIRUS (COVID-19) PANDEMIC (“PANDEMIC”) AND RELATED ADVERSE IMPACT TO WORLDWIDE ECONOMIC AND INDUSTRY CONDITIONS

The global spread of the Pandemic has created significant volatility, uncertainty and economic disruption across the world and in the countries and locations in which we and our customers and suppliers operate. In our third fiscal quarter of 2020, while businesses in our Electronic Materials segment remained generally stable despite the Pandemic, the Pandemic had a significant adverse impact on our Performance Materials segment's pipeline performance business, as the demand for drag reducing agents declined significantly due to the ongoing dislocation in the energy sector occasioned by the Pandemic as well as certain geopolitical factors, as described below. The extent to which the Pandemic ~~impacts~~may further impact our business, operations, results of operations and financial condition ~~are~~is uncertain and difficult to ~~predict,~~estimate, and ~~depend~~depends on numerous evolving factors that we may not be able to accurately predict, ~~and~~which may include: A decrease in short-term and long-term demand and pricing for our products and services, and a global economic recession that could further reduce demand and/or pricing for our products and services resulting from actions taken by governments, businesses, or the general public in an effort to limit exposure to and ~~spreading~~spread of such infectious diseases, such as ongoing or renewed travel restrictions, quarantines, and business shutdowns or slowdowns; Negative impacts to our operations, including reductions in production levels, research and development ("R&D&D") activities, and qualification activities with our customers, and increased costs resulting from our efforts to mitigate the impact of the Pandemic through additional or continued social-distancing measures we have enacted at our locations around the world in an effort to protect our employees’ health and well-being (including working from home, ~~limiting the number of employees attending meetings,~~ reducing the number of employees or others in our sites at any one time and how such individuals perform work while at our sites, redesigning or adjusting our manufacturing, R&D and office facilities, and suspending employee travel); Deterioration of worldwide credit and financial markets that could limit our ability to obtain external financing to fund our operations and capital expenditures, result in losses on our holdings of cash and investments due to failures of financial institutions and other parties, and result in losses on our accounts receivables due to credit defaults or our customers’ inability to pay; and, Disruptions to our supply chain in connection with the sourcing of materials, equipment and logistics or other services and support necessary to our business as a result of the Pandemic and efforts to contain the spread of the Pandemic. ~~The~~To the extent possible if and when the Pandemic is contained or abates, the resumption of normal business operations after such interruptions may be delayed or constrained by lingering effects of the Pandemic on our Company and our customers, suppliers, and third-party service providers. These effects, alone or taken together, could have a material adverse effect on our business, results of operations, legal exposure, or financial condition. A further sustained or prolonged outbreak or return of the Pandemic could exacerbate the adverse impact of such measures on our Company.

INDEX

DEMAND FOR OUR PRODUCTS FLUCTUATES AND OUR BUSINESS MAY BE ADVERSELY AFFECTED BY WORLDWIDE ECONOMIC, INDUSTRY AND ~~INDUSTRY~~OTHER CONDITIONS

Our business is affected by economic and industry conditions, such as those currently being adversely affected by the Pandemic, and the majority of our revenue derives from our Electronic Materials segment, which is primarily dependent upon semiconductor industry demand. With respect to our Electronic Materials segment, historically, semiconductor industry demand has fluctuated due to economic and industry cycles and seasonal shifts in demand, which can affect our business, causing demand for our electronic materials products to fluctuate. For example, prior to the Pandemic, the relatively soft demand conditions in the semiconductor industry that had commenced in our second fiscal quarter of 2019 and continued into our first fiscal quarter of 2020 had begun to ameliorate in the beginning of the second fiscal quarter of 2020. However, although our Electronic Materials segment experienced relatively stable conditions during the third fiscal quarter of 2020, the ongoing nature of the Pandemic has created uncertainty as to demand conditions for the semiconductor industry going forward through the remainder of the fiscal year and beyond. Furthermore, competitive dynamics within the semiconductor industry may impact our business. Our limited visibility to future customer orders makes it difficult for us to predict industry trends, especially during unusual adverse circumstances, such as the Pandemic. If the global economy or the semiconductor industry weakens further, whether in general or as a result of the Pandemic or other specific factors, such as macroeconomic factors, or unpredictable events such as natural disasters, geopolitical conditions, civil unrest, or additional global health crises, we could experience material adverse impacts on our results of operations and financial condition. Some additional factors that may affect demand for our electronic materials products include: demand trends for different types of electronic devices, such as logic versus memory ICintegrated circuit ("IC") devices, or digital versus analog IC devices; the various technology nodes at which those products are manufactured; customers' efficiencies in the use of CMP consumables and/or high-purity process chemicals (“electronic chemicals”); customers' device architectures and specific manufacturing processes; the short order to delivery time for our products; quarter-to-quarter changes in customer order patterns; market share and competitive gains and losses; and pricing changes by us and our competitors.

~~INDEX~~

As to our Performance Materials segment, which continues to be an area of potential continued growth for us, our pipeline performance business may be impacted by changes in the utilities and/or oil and gas industries, such as ~~the recent and~~we saw in our third fiscal quarter of 2020 resulting from ongoing significant dislocation in these industries occasioned by geopolitical disputes such as those that commenced in March 2020 between the Organization of Petroleum Exporting Countries ~~(OPEC)~~("OPEC") and Russia, and a confluence of an excess in oil capacity due to these factors and the Pandemic and efforts to contain the Pandemic. Relatedly, as described, volatility in oil and natural gas prices may impact our customers’ activity levels, including production, and ~~while~~as we ~~have not yet~~saw during the third fiscal quarter of 2020, we experienced a significant ~~adverse effect, we then may experience a~~ drop in demand for our related pipeline performance ~~materials~~ products and services. Expectations about future prices and price volatility are important in determining future spending levels for customers of our pipeline performance products and services. The ~~current~~ongoing volatility in worldwide oil and natural gas prices and markets are an extreme example of historical volatility in this sector, and such volatility is likely to continue in the future. As is currently the case, prices for oil and natural gas are subject to wide fluctuations in response to relatively minor or major changes in the supply of and demand for oil and natural gas, market uncertainty and a variety of additional factors that are beyond our control. These factors include, but are not limited to, decreases or increases in supplies from U.S. shale production or other oil production, geopolitical conditions, including uprisings, ~~political~~civil unrest, and international trade tensions, sovereign debt crises, the domestic and non-United States supply of oil and natural gas, the level of consumer demand due to economic growth or contraction such as currently seen related to the Pandemic, and other factors in countries such as China, weather conditions, domestic and foreign governmental regulations and taxes, the price and availability of alternative fuels, the health of international economic and credit markets, the ability of the members of the OPEC and other state-controlled oil companies to agree upon and maintain oil price and production controls, and general economic conditions, such as those currently seen related to the Pandemic.

Further, adverse global economic, industry and ~~industry~~other conditions such as those related to the Pandemic could have other negative effects on our Company. For instance, we could experience negative impacts on cash flows due to the inability of our customers to pay their obligations to us, or our production processes could be harmed if our suppliers cannot fulfill their obligations to us. As a result of these or other conditions, we also might have to reduce the carrying value of goodwill and other intangible assets, which could harm our financial position and results of operations.

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WE MAY PURSUE ACQUISITIONS OF, INVESTMENTS IN, AND MERGERS OR STRATEGIC ALLIANCES WITH OTHER ENTITIES, WHICH COULD DISRUPT OUR OPERATIONS AND HARM OUR OPERATING RESULTS IF THEY ARE UNSUCCESSFUL, OR WE MAY ENCOUNTER UNANTICIPATED ISSUES IN IMPLEMENTING THEM

We expect to continue to make investments in technologies, assets and companies, either through acquisitions, mergers, investments or alliances, in order to supplement our organic growth and development efforts. Acquisitions, mergers, and investments, including our acquisitions of KMG, which we completed in November 2018, and NexPlanar, which we completed in October 2015, involve numerous risks, including the following: difficulties and risks in integrating the operations, technologies, products and personnel of acquired companies; difficulties and risks from unanticipated issues arising subsequent to a transaction related to the other entity; potential disruption of relationships with third parties such as customers or suppliers; diversion of management's attention from normal daily operations of the business; increased risk associated with foreign operations; potential difficulties and risks in entering markets or industries in which we have limited or no direct prior experience and/or where competitors have stronger positions; potential difficulties and unexpected situations arising in operating new businesses with different business models; facilities and operations; potential difficulties with regulatory or contract compliance in areas in which we have limited or no experience; initial dependence on unfamiliar supply chains or relatively small supply partners; insufficient ~~revenues~~revenue to offset increased expenses associated with acquisitions; potential loss of key employees of the acquired companies; or inability to effectively cooperate and collaborate with our alliance partners.

Further, we may never realize the perceived or anticipated benefits of a business combination or merger with, or asset or other acquisition of, or investments in, other entities. Transactions such as our acquisitions of KMG and NexPlanar could and in some cases have had negative effects on our results of operations, in areas such as contingent liabilities, gross margins, amortization charges related to intangible assets and other effects of accounting for the purchases of other business entities. Investments in and acquisitions of technology-related or early-stage companies or assets are inherently risky because these businesses or assets may never develop, and we may incur losses related to these investments.

In addition, we may be required to impair the carrying value of these acquisitions or investments to reflect other than temporary declines in their value. The carrying value of goodwill represents the fair value of acquired businesses in excess of identifiable assets and liabilities as of the acquisition date. The carrying value of other intangible assets represents the fair value of customer relationships, tradenames and other acquired intangible assets as of the acquisition date. Goodwill and other acquired intangible assets expected to contribute indefinitely to our cash flows are not amortized, but must be evaluated for impairment by management at least annually. If the carrying value exceeds the implied fair value of goodwill, the goodwill is considered impaired and is reduced to fair value via a non-cash charge to earnings. If the carrying value of an indefinite-lived intangible asset is greater than its fair value, the intangible asset is considered impaired and is reduced to fair value via a non-cash charge to earnings. If the value of goodwill or other acquired intangible assets is impaired, our results of operations and financial condition could be adversely affected. Examples of asset impairment charges we recently incurred include the charge we took in the fourth quarter of fiscal year 2019 related to the KMG wood treatment business. Absent a sale of the wood treatment business, as we approach the previously announced closure date of the ~~Matamoros and Tuscaloosa~~wood treatment facilities and there are fewer estimated future cash flows, ~~there is ongoing potential for further~~we expect that the carrying value of the wood treatment asset group will not be recoverable, resulting in future impairments of ~~long-lived~~intangible assets and ~~impairment~~goodwill. The amount of ~~goodwill. While the timing~~such impairments could be material and ~~amounts of any further impairments are unknown,~~could adversely affect our results of operations and financial ~~condition could be adversely affected.~~condition. See ~~Notes 9 and 10~~Note 7 of ~~“Notes~~"Notes to the Consolidated Financial ~~Statements” included in Item 8~~Statements" of ~~Part II of our Annual~~this Report on Form ~~10-K~~10-Q for ~~the fiscal year ended September 30, 2019, for a more detailed discussion of this impairment.~~additional discussion.

Furthermore, the integration of the recently acquired KMG business into our operations is a complex and time-consuming process that may not be successful. Our Company has a limited history of integrating a significant acquisition into its business and the process of integration may produce unforeseen operating difficulties and expenditures. The primary areas of focus for successfully combining the business of KMG with our operations may include and has included, among others: retaining and integrating key employees; realizing synergies; aligning customer and supplier interface, and operations across the combined business; integrating enterprise resource planning and other information technology systems; and, managing the growth of the combined company. Even if we successfully integrate the business of KMG into our operations, there can be no assurance that we will realize the anticipated benefits of the Acquisition.

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WE HAVE A CONCENTRATED PRODUCT RANGE WITHIN EACH OF OUR SEGMENTS AND OUR PRODUCTS MAY BECOME OBSOLETE, OR TECHNOLOGICAL CHANGES MAY REDUCE OR LIMIT INCREASES IN THE CONSUMPTION OF OUR PRODUCTS

Although our product offerings have expanded with the Acquisition, our business remains substantially dependent on products in our Electronic Materials segment, such as CMP slurries, pads and electronic chemicals, which account for the majority of our revenue. We have identified our Performance Materials segment as another area of potential continued growth and the product offerings in our Performance Materials segment are similarly concentrated. As such, our business would suffer if these products became obsolete or if consumption of these products decreased. Our success depends on our ability to keep pace with technological changes and advances in the industries in which we operate, particularly the semiconductor industry, and to adapt, improve and customize our products in response to evolving customer needs and industry trends. Since its inception, the semiconductor industry, which is the largest industry in which we operate, has experienced technological changes and advances in the design, manufacture, performance and application of IC devices. Our customers continually pursue lower cost of ownership and higher quality and performance of materials consumed in their manufacturing processes, including CMP slurries and pads and electronic chemicals, as a means to reduce costs, increase the yield in their manufacturing facilities, and achieve desired performance of the IC devices they produce. We expect these technological changes, and this drive toward lower costs, higher quality and performance and higher yields, will continue in the future. Potential technology developments in the semiconductor industry, as well as our customers' efforts to reduce consumption of CMP consumables, including through use of smaller quantities, could render our products less important to the IC device manufacturing process.

A SIGNIFICANT AMOUNT OF OUR BUSINESS COMES FROM A LIMITED NUMBER OF LARGE CUSTOMERS AND OUR REVENUE AND PROFITS COULD DECREASE SIGNIFICANTLY IF WE LOST ONE OR MORE OF THESE CUSTOMERS OR BUSINESS FROM THEM

Our customer base is concentrated among a limited number of large customers in each of our segments. Currently, our principal business is to supply electronic materials primarily to the semiconductor industry. The semiconductor industry has been consolidating as the larger semiconductor manufacturers have generally grown faster than the smaller ones, through business gains, mergers and acquisitions, and strategic alliances. Industry analysts predict that this trend will continue, which means the semiconductor industry will continue to be comprised of fewer and larger participants in the future if their prediction is correct. In addition, our customer base in our pipeline-related businesses is also somewhat concentrated, with large entities predominant, and outside of the United States, these entities frequently are state-owned or sponsored, and limited in number per country, as described more above. One or more of these principal customers could stop buying products from us or could substantially reduce the quantity of products purchased from us. Our principal customers in both of our segments also hold considerable purchasing power, which can impact the pricing and terms of sale of our products. Any deferral or significant reduction in the quantity or price of products sold to these principal customers could seriously harm our business, financial condition and results of operations.

ANY PROBLEM OR DISRUPTION IN OUR SUPPLY CHAIN, INCLUDING SUPPLY OF OUR MOST IMPORTANT RAW MATERIALS, OR IN OUR ABILITY TO MANUFACTURE OR DELIVER OUR PRODUCTS TO OUR CUSTOMERS, COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS

We depend on our supply chain to enable us to meet the demands of our customers. Our supply chain includes the raw materials we use to manufacture our products, our production operations and the means by which we deliver our products to our customers. Our business could be adversely affected by any problem or interruption in the supply of the key raw materials we use in our products, including raw materials that do not meet the stringent quality and consistency requirements of our customers, any problem or interruption that may occur during production or delivery of our products, such as weather-related problems, natural disasters, global public health crises such as the Pandemic, geopolitical, trade or labor-related issues, civil unrest, or any difficulty in producing sufficient quantities of our products to meet growing demand from our customers. In particular, severe weather conditions have the potential to adversely affect our operations, damage facilities and increase our costs, and those conditions may also have an indirect effect on our operations by disrupting services provided by service companies or suppliers with whom we have a business relationship. Additionally, some of our full-time employees are represented by labor unions, works councils or comparable organizations, particularly in Mexico and Europe. As our current agreements expire, we cannot provide assurance that new agreements will be reached at the end of each period without union action, or that a new agreement will be reached on terms satisfactory to us. An extended work stoppage, slowdown or other action by our employees could significantly disrupt our business. Future labor contracts may be on terms that result in higher labor costs to us, which also could adversely affect our results of operations. Our supply chain may also be negatively impacted by unanticipated price increases due to supply restrictions beyond the control of our Company or our raw materials suppliers, such as those related to the Pandemic.

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We believe it would be difficult to promptly secure alternative sources of key raw materials in the event one of our suppliers becomes unable to supply us with sufficient quantities of raw materials that meet the quality and technical specifications required by us and our customers. In addition, new contract terms, forced production or manufacturing changes, contractual amendments to existing agreements with, or non-performance by, our suppliers, including any significant financial distress our suppliers may suffer, could adversely affect us. Also, if we change the supplier or type of key raw materials we use to make our products, in particular our electronic materials products, or are required to purchase them from a different manufacturer or manufacturing facility or otherwise modify our products, in certain circumstances our customers might have to requalify our products for their manufacturing processes and products. The requalification process could take a significant amount of time and expense to complete and could occupy technical resources of our customers that might otherwise be used to evaluate our new products, thus delaying potential revenue growth, or motivate our customers to consider purchasing products from our competitors, possibly interrupting or reducing our sales of products to these customers, especially sales of our electronic materials products to our semiconductor industry customers, but also with respect to our pipeline performance products to our pipeline and adjacent industry customers.

OUR BUSINESS COULD BE SERIOUSLY HARMED IF OUR COMPETITORS DEVELOP COMPETITIVE PRODUCTS, OFFER BETTER PRICING, SERVICE OR OTHER TERMS, OR OBTAIN OR ASSERT CERTAIN INTELLECTUAL PROPERTY RIGHTS

Competition from other electronic materials or performance materials manufacturers or any new entrants could seriously harm our business and results of operations, and this competition could continue to increase. Competition has and will likely continue to impact the prices we are able to charge for our products, as well as our overall business. In addition, our competitors could have, obtain or assert intellectual property rights that could affect or restrict our ability to market our existing products and/or to innovate and develop new products, thus increasing our costs of doing business, could attempt to introduce products similar to ours following the expiration of our patents, or could attempt to introduce products that do not fall within the scope of our intellectual property rights.

WE ARE SUBJECT TO RISKS ASSOCIATED WITH OUR FOREIGN OPERATIONS

We currently have operations and a large customer base outside of the United States. Approximately 64% of our revenue was generated by sales to customers outside of the United States for the fiscal year ended September 30, 2019. We may encounter risks in doing business in certain foreign countries, including, but not limited to, adverse changes in economic and political conditions, both in foreign locations and in the United States with respect to ~~non-U.S.~~non-United States operations of ~~U.S.~~United States businesses like ours, geopolitical and/or trade tensions, global health crises such as the Pandemic, civil unrest, fluctuation in exchange rates, changes in international trade requirements and sanctions and/or tariffs that affect our business and that of our customers and suppliers, compliance with a variety of foreign laws and regulations and related audits and investigations, as well as difficulty in enforcing business and customer contracts and agreements, including protection of intellectual property rights. We also may encounter risks that we may not be able to repatriate additional earnings from our foreign operations, derive anticipated tax benefits of our foreign operations or recover the investments made in our foreign operations, whether due to regulatory or policy changes in the ~~U.S.~~United States or in the countries outside of the ~~U.S.~~United States in which we do business, or other factors.

In particular, China continues to be ~~a fast-developing~~an important market for the semiconductor industry, and an area of continued potential growth for us. As business volume between China and the rest of the world continues to grow, there is risk that geopolitical, regulatory, trade, political and global public health crises such as the Pandemic could adversely affect business for companies like ours based on the complex relationships among China, the United States, and other countries in the Asia Pacific region or elsewhere, which could have a material adverse impact on our business. In addition, there are risks that the Chinese government may, among other things, require the use of local suppliers, compel companies that do business in China to partner with local companies to conduct business, or, provide incentives to government-backed local customers to buy from local suppliers rather than companies like ours, all of which could adversely impact our business, including our results of operations. Also, there are risks that the United States government may impose additional export restrictions on technology and products that companies that operate in the semiconductor industry supply or use in China, which could adversely impact our business and our results of operations.

In addition, we have operations and customers located in the United Kingdom, which recently has exited the European Union. Although the United Kingdom and the European Union have agreed to operate under transitional provisions under which most European Union law would remain in force in the United Kingdom until the end of December 2020, it is at present unclear as to what trade agreement the parties will operate under following such time, and what impacts such might have on our business.

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WE ARE SUBJECT TO EXTENSIVE ENVIRONMENTAL LAWS AND REGULATIONS AND MAY INCUR COSTS THAT HAVE AN ADVERSE EFFECT ON OUR FINANCIAL CONDITION AS A RESULT OF VIOLATIONS OF OR LIABILITIES UNDER THEM

Like other companies involved in environmentally sensitive businesses, our operations and properties are subject to extensive and stringent federal, state, local and foreign ~~environmental, health and safety (EHS)~~EHS laws and regulations, including those concerning, among other things:

• the marketing, sale, use and registration of our chemical products, such as ~~pentachlorophenol (“penta”),~~penta, which is part of the wood treatment business in our Performance Materials segment;

• the treatment, storage and disposal of wastes;

• the investigation and remediation of contaminated media including but not limited to soil and groundwater;

• the discharge of effluents into waterways;

• the emission of substances into the air; and

• other matters relating to environmental protection and various health and safety matters.

The United States EPA and other federal and state agencies in the United States, as well as comparable agencies in other countries where we have facilities or sell our products, such as Canada or Mexico, have the authority to promulgate regulations that could have a material adverse impact on our operations. These EHS laws and regulations may require permits for certain types of operations, require the installation of expensive pollution control equipment, place restrictions upon operations or impose substantial liability for pollution and other EHS concerns resulting from our operations. Compliance with EHS laws and regulations has resulted in ongoing costs for us and could restrict our ability to modify or expand our facilities, continue production, require us to install costly pollution control equipment, or incur significant other expenses, including remediation costs. We are currently involved in investigation and remediation activities at certain sites, such as at KMG-Bernuth's Tuscaloosa, Alabama facility as described in Note 10 of "Notes to the Consolidated Financial Statements" included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019. We have incurred, and expect to continue to incur, significant costs to comply with EHS laws or to address liabilities for contamination resulting from past or present operations. Federal, state and foreign governmental authorities may seek fines and penalties, as well as injunctive relief, for violation of EHS laws and regulations, and could, among other things, impose liability on us to cleanup or mitigate environmental, natural resources or other damages resulting from a release of pesticides, hazardous materials or other chemicals into the environment. We maintain insurance coverage for sudden and accidental environmental damages. We do not believe that insurance coverage for environmental damage that occurs over time is available at a reasonable cost. Also, we do not believe that insurance coverage for the full potential liability that could be caused by sudden and accidental incidences is available at a reasonable cost. Accordingly, we may be subject to an uninsured or under-insured loss in such cases; although unknown at present, the KMG-Bernuth warehouse fire may be such an instance.

The distribution, sale and use of our products is subject to prior governmental approvals and thereafter ongoing governmental regulation: Our products are subject to laws administered by federal, state and foreign governments, including regulations requiring registration, approval and labeling. The labeling requirements restrict the use and type of application for our products. More stringent restrictions could make our products less desirable which would adversely affect our sales and profitability. All venues where our penta products are used also require registration prior to marketing or use.

Governmental regulatory authorities have required, and may require in the future, that certain scientific testing and data production be provided on our products. Under the ~~Federal Insecticide, Fungicide and Rodenticide Act (“FIFRA”),~~FIFRA, the EPA requires registrants to submit a wide range of scientific data to support U.S. registrations. This requirement significantly increases our Operating expenses, and we expect those expenses will continue in the future while we operate the wood treatment business. Because scientific analyses are constantly improving, we cannot determine with certainty whether or not new or additional tests may be required by regulatory authorities. While good laboratory practice standards specify the minimum practices and procedures that must be followed in order to ensure the quality and integrity of data related to these tests submitted to the EPA, there can be no assurance that the EPA will not request certain tests or studies be repeated. In addition, more stringent legislation or requirements may be imposed in the future. ~~Recent changes~~Amendments to the Toxic Substances Control Act ~~(“TSCA”)~~TSCA could result in increased regulation and required testing of chemicals we manufacture and could increase the costs of compliance for our operations. We can provide no assurance that the cost of such compliance will not adversely affect our profitability. Our products could also be subject to other future regulatory action that may result in restricting or completely banning their use which could have an adverse effect on our performance and results of operations.

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1. The Registration, Evaluation and Authorization of Chemicals (“REACH”) legislation may affect our ability to manufacture and sell certain products in the European Union: REACH requires chemical manufacturers and importers in the European Union to prove the safety of their products. We were required to pre-register certain products and file comprehensive reports, including testing data, on each chemical substance, and perform chemical safety assessments. Additionally, substances of high concern are subject to an authorization process. Authorization may result in restrictions on certain uses of products or even prohibitions on the manufacture or importation of products. The full registration requirements of REACH are phased in over several years. We will incur additional expense to cause the registration of our products under these regulations. REACH may also affect our ability to import, manufacture and sell certain products in the European Union. In addition, other countries and regions of the world already have or may adopt legislation similar to REACH that affect our business, affect our ability to import, manufacture or sell certain products in these jurisdictions, and have required or will require us to incur increased costs.

2. The classification of penta as a Persistent Organic Pollutant (“POP”) under the Stockholm Convention may adversely affect our ability to manufacture or sell our penta products: The Conference of the Parties (“COP”) accepted the recommendation of the United Nations Persistent Organic Pollutant Review Committee that the use of penta should be banned except that its use for the treatment of utility poles and crossarms could continue for an extended period of five to ten years. KMG-Bernuth supplies penta to industrial customers who use it primarily to treat utility poles and crossarms. The ~~U.S.~~United States is not bound by the determination of the COP because it did not ratify the Stockholm Convention treaty. Canada and Mexico are governed by the treaty. KMG-Bernuth's sole penta manufacturing facility is located in Matamoros, Mexico, and its processing facility is located in Tuscaloosa, Alabama. As a result of the classification of penta as a POP, the Mexican government requires KMG-Bernuth to cease producing penta in Mexico by the end of 2021. In July 2020, the Canadian government released a proposed order that sales and use of penta in Canada be ceased, but such proposed order is subject to a comment period and is not final, and no timing for any such order, if implemented, has been proposed. In July 2019, KMG-Bernuth had communicated plans to close both the Matamoros and Tuscaloosa facilities by such date and to consolidate into and build a new facility. However, in November 2019, we communicated that we will not build a new facility, and that we intend to explore various options for the wood treatment business. We took a restructuring charge and asset impairment charges in our fourth fiscal quarter of 2019 related to the decision to close the Matamoros and Tuscaloosa facilities and to not build a new ~~plant.~~plant, and as described further in Note 4, we expect to take additional impairment charges related to the wood treatment business. No assurance can be given that we will not incur significant expenditures in connection with closing the facilities, or that the ultimate action of the COP and our related decisions will not adversely impact on our financial condition and results of operation.

3. If our products are not re-registered by the EPA or are re-registered subject to new restrictions, our ability to sell our products may be curtailed or significantly limited: KMG-Bernuth's penta product registrations are under continuous review by the EPA under FIFRA. KMG-Bernuth has submitted and will continue to submit a wide range of scientific data to support its ~~U.S.~~United States registrations. To satisfy the registration review, KMG-Bernuth is required to demonstrate, among other things, that its products will not cause unreasonable adverse effects on human health or the environment when used according to approved label directions. In September 2008, the EPA announced that it had determined that penta was eligible for re-registration, but the EPA proposed new restrictions on the use of penta that have required KMG-Bernuth's customers to incur substantial additional costs and to revise certain operating procedures. In December 2014, the EPA issued a registration review work plan that required penta registrants to provide additional research and testing data respecting certain potential risks to human health or the environment as a further condition to continued registration. KMG-Bernuth conducted required testing in accordance with the EPA's proposed work plan. In January 2020, the EPA published a Registration Review Draft Risk Assessment for Pentachlorophenol, dated June 27, 2019, which included several key preliminary EPA conclusions related to the safety and environmental risks of penta as a wood treating product. We have provided the EPA with responsive comments. We cannot ~~tell you~~predict when or if the EPA will issue a final decision concluding that the conditions of re-registration for its penta products and all additional testing requirements have been satisfied. We cannot assure you that KMG-Bernuth's products will not be subject to use or labeling restrictions that may have an adverse effect on our financial position and results of operations. The failure of KMG-Bernuth's products to be re-registered, to satisfy the registration review by the EPA, or the imposition of new use, labeling or other restrictions in connection with re-registration could have an adverse effect on our financial condition and results of operations.

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4. Our use of hazardous materials exposes us to potential liabilities: Our manufacturing and distribution of chemical products, such as our electronic chemicals, involves the controlled use of hazardous materials. Our operations, therefore, are subject to various associated risks, including chemical spills, discharges or releases of toxic or hazardous substances or gases, fires, mechanical failure, storage facility leaks and similar events. Our suppliers are subject to similar risks that may adversely impact the availability of raw materials. While we adapt our manufacturing and distribution processes to the environmental control standards of regulatory authorities, we cannot completely eliminate the risk of accidental contamination or injury from hazardous or regulated materials, including injury of our employees, individuals who handle our products or goods treated with our products, or others who claim to have been exposed to our products, nor can we completely eliminate the unanticipated interruption or suspension of operations at our facilities due to such events. We may be held liable for significant damages or fines in the event of contamination or injury, and such assessed damages or fines could have an adverse effect on our financial performance and results of operations.

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FUTURE CLIMATE CHANGE REGULATION COULD RESULT IN INCREASED OPERATING COSTS AND REDUCED DEMAND FOR OUR PRODUCTS

Although the U.S. has not ratified the Kyoto Protocol, a number of federal laws related to “greenhouse gas” or “GHG” emissions have been considered by Congress. Because of the lack of any comprehensive legislation program addressing GHGs, the EPA is using its existing regulatory authority to promulgate regulations requiring reduction in GHG emissions from various categories of sources, such as when a permit is required due to emissions of other pollutants. In addition, various state, local and regional regulations and initiatives have been enacted or are being considered related to GHGs.

Member States of the European Union each have an overall cap on emissions, which are approved by the European Commission, and implement the EU Emissions Trading Directive as a commitment to the Kyoto Protocol. Under this Directive, organizations apply to the Member State for an allowance of GHG emissions. These allowances are tradable so as to enable companies that manage to reduce their GHG emissions to sell their excess allowances to companies that are not reaching their emissions objectives. Failure to purchase sufficient allowances will require the purchase of allowances at a current market price.

Any laws or regulations that may be adopted to restrict or reduce emissions of GHGs could cause an increase to our raw material costs, require us to incur increased operating costs, and have an adverse effect on demand for our products and our financial performance and results for our business.

OUR PRODUCTS MAY BE RENDERED OBSOLETE OR LESS ATTRACTIVE BY CHANGES IN INDUSTRY REQUIREMENTS OR BY SUPPLY-CHAIN DRIVEN PRESSURES TO SHIFT TO ENVIRONMENTALLY PREFERABLE ALTERNATIVES

Changes in regulatory, legislative and industry requirements, or changes driven by supply-chain pressures, may shift current customers away from products using penta, products containing hazardous materials, or certain of our other products and toward alternative products that are believed to have fewer environmental effects. The EPA, foreign and state regulators, local governments, private environmental advocacy organizations and a number of large industrial companies have proposed or adopted policies designed to decrease the use of a variety of chemicals, including penta and others included in certain of our products, such as those containing hazardous materials. Our ability to anticipate changes in regulatory, legislative, and industry requirements, or changes driven by supply-chain pressures, affects our ability to remain competitive. Further, we may not be able to comply with changed or new regulatory or industrial standards that may be necessary for us to remain competitive.

We cannot assure you that the EPA, foreign and state regulators or local governments will not restrict the uses of penta or certain of our other products or ban the use of one or more of these products or the raw materials in them. Similarly, companies who use our products may decide to reduce significantly or cease the use of our products voluntarily. As a result, our products may become obsolete or less attractive to our customers.

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BECAUSE WE RELY ON OUR INTELLECTUAL PROPERTY, OUR FAILURE TO ADEQUATELY OBTAIN OR PROTECT IT COULD SIGNIFICANTLY HARM OUR BUSINESS

Protection of intellectual property is particularly important in ~~our~~the semiconductor industry, which is the primary industry in which we participate, because we develop complex technical formulas and processes for products that are proprietary in nature and differentiate our products from those of our competitors. Our intellectual property is important to our success and ability to compete. We attempt to protect our intellectual property rights through a combination of patent, trademark, copyright and trade secret laws, as well as employee and third-party nondisclosure and assignment agreements. In addition, we protect our product differentiation through various other means, such as proprietary supply arrangements for certain raw materials, and use of certain manufacturing technologies. Due to our international operations, we pursue protection in different jurisdictions, which may provide varying degrees of protection, and we cannot provide assurance that we can obtain adequate protection in each such jurisdiction. Our failure to obtain or maintain adequate protection of our intellectual property rights for any reason, including through the patent prosecution process or in the event of litigation related to such intellectual property, which we pursue when necessary to protect our rights against others who are found to be misusing our intellectual property, could seriously harm our business. In addition, certain types of intellectual property, such as patents, expire after a certain period of time, and products protected by our patents then lose such protection, so we refresh our intellectual property portfolio on an ongoing basis through continued innovation, and failure to do so could adversely affect our business. Also, the costs of obtaining or protecting our intellectual property could negatively affect our operating results.

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OUR INABILITY TO ATTRACT AND RETAIN KEY PERSONNEL COULD CAUSE OUR BUSINESS TO SUFFER

We utilize and rely upon a global workforce. If we fail to attract and retain the necessary managerial, technical and customer support personnel, our business and our ability to maintain existing and obtain new customers, develop new products and provide acceptable levels of customer service could suffer. We compete worldwide with other ~~industry~~ participants in the industries in which we do business for qualified personnel, particularly those with significant experience in the semiconductor ~~industry.~~and pipeline industries. The loss of services of key employees, or our inability to obtain or maintain visas or other travel or residency documents on their behalf with respect to our business needs, could harm our business and results of operations. Periodically, we engage in succession planning for our key employees, and our Board of Directors reviews succession planning for our executive officers, including our chief executive officer, on an annual basis.

BECAUSE WE HAVE LIMITED EXPERIENCE IN BUSINESS AREAS OUTSIDE OF ELECTRONIC MATERIALS AND PERFORMANCE MATERIALS, EXPANSION OF OUR BUSINESS INTO OTHER PRODUCTS AND APPLICATIONS MAY NOT BE SUCCESSFUL

An element of our strategy has been to leverage our customer relationships, technological expertise and other capabilities and competencies to expand our business. For example, we have made acquisitions to expand beyond CMP consumables into other electronic materials product areas, as well as into performance materials product areas in which we have limited experience. Expanding our business into new product areas could involve technologies, production processes and business models in which we have limited experience, and we may not be able to develop and produce products or provide services that satisfy customers' needs, or we may be unable to keep pace with technological or other developments. Or, we may decide that we no longer wish to pursue these new business initiatives. Also, our competitors may have or obtain intellectual property rights that could restrict our ability to market our existing products and/or to innovate and develop new products.

TAX INCREASES OR CHANGES IN TAX RULES MAY ADVERSELY AFFECT OUR FINANCIAL RESULTS

As a company conducting business on a global basis, we are exposed, both directly and indirectly, to effects of changes in United States, state, local and foreign tax rules. In December 2017, comprehensive tax legislation commonly referred to as the Tax ~~Cuts and Jobs~~ Act ~~(the "Tax Act")~~ was enacted in the United States. Known and certain estimated effects based upon current interpretation of the Tax Act have been incorporated into our financial results. ~~As additional clarification and implementation guidance is issued on the Tax Act, it~~It may be necessary to adjust our income tax estimates, as we experienced in our second fiscal quarter of fiscal 2019 with respect to our previously reported Transition Tax described in Note 19 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019. Adjustments to income tax amounts could be material to our results of operations and cash flows. In addition, there is a risk that state or foreign jurisdictions may amend their tax laws in response to the Tax Act, which could have a material impact on our future results of operations and cash flows.

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CERTAIN CRITICAL INFORMATION SYSTEMS COULD BE SUSCEPTIBLE TO CYBERSECURITY AND OTHER THREATS

We maintain and rely upon certain critical information systems for the effective operation of our business. These information systems include, but are not limited to, telecommunications, the Internet, our corporate intranet, various computer hardware and software applications, network communications, and email. These information systems may be owned and maintained by us, our outsourced providers, or third parties such as vendors, contractors, and Cloud providers. All of these information systems are subject to disruption, breach or failure from various sources including, but not limited to, attacks, degradation, and failures resulting from potential sources, including viruses, malware, denial of service, destructive or inadequate code, power failures, and physical damage. Confidential and/or sensitive information stored on these information systems, or transmitted to or from Cloud storage, could be intentionally or unintentionally compromised, lost, and/or stolen. While we have implemented security procedures and virus protection software, intrusion prevention systems, access control, and emergency recovery processes to mitigate risks like these with respect to information systems that are under our control, they are not fail-safe and may be subject to breaches. Further, we cannot assure that third parties upon whom we rely for various IT services will maintain sufficient vigilance and controls over their systems. Our inability to use or access these information systems at critical points in time, or unauthorized releases of personal or confidential information, could unfavorably impact the timely and efficient operation of our business, including our results of operations, and our reputation, as well as our relationships with our employees or other individuals whose information may have been affected by such cybersecurity incidents.

~~INDEX~~

In addition, regulatory authorities have increased their focus on how companies collect, process, use, store, share and transmit personal data. Privacy security laws and regulations, including the United Kingdom's Data Protection Act 2018 and the European Union General Data Protection Regulation 2016, and similar laws in countries such as Korea and Taiwan, among others, pose increasingly complex compliance challenges, which may increase compliance costs, and any failure to comply with data privacy laws and regulations could result in significant penalties that could adversely affect our business and results of operations.

OUR ABILITY TO RAISE CAPITAL IN THE FUTURE MAY BE LIMITED, WHICH COULD PREVENT US FROM GROWING, AND OUR EXISTING CREDIT AGREEMENT COULD RESTRICT OUR BUSINESS ACTIVITIES

We may in the future be required to raise capital through public or private financing or other arrangements. Such financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could harm our business. Our Amended Credit Agreement contains financial and other covenants that may restrict our business activities or our ability to execute our strategic objectives, and our failure to comply with these covenants could result in a default under it. Furthermore, additional equity financing may dilute the interests of our common stockholders, and debt financing, if available, may involve restrictive covenants that could further restrict our business activities or our ability to execute our strategic objectives and could reduce our profitability. If we raise or borrow funds on acceptable terms, we may not be able to grow our business or respond to competitive pressures.

In addition, borrowings under our Amended Credit ~~Facilities~~Agreement generally bear interest based on (a) a ~~London Inter-bank Offered Rate (“LIBOR”),~~LIBOR, subject to a 0.00% floor, or (b) a base rate in each case, plus an applicable margin of, in the case of borrowings under the ~~Amended~~ Term Loan Facility, 2.00% for LIBOR loans and 1.00% for base rate loans and, in the case of borrowings under the Revolving Credit Facility, initially, 1.50% for LIBOR loans and 0.50% for base rate loans. On July 27, 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. In the United States, the Alternative Reference Rates Committee (“ARRC”), the working group formed to recommend an alternative rate to LIBOR, has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate for USD LIBOR. When LIBOR ceases to exist after 2021, any calculation of interest based upon the Alternate Base Rate (or any comparable or replacement formulation), may result in higher interest rates. To the extent that these interest rates increase, our Interest expense will increase, which could adversely affect our financial condition, operating results and cash flows.

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RISKS RELATING TO THE MARKET FOR OUR COMMON STOCK

THE MARKET PRICE MAY FLUCTUATE SIGNIFICANTLY AND RAPIDLY

The market price of our common stock has fluctuated and could continue to fluctuate significantly as a result of factors such as: economic, geopolitical, global public health, political and stock market conditions generally and specifically as they may impact participants in the semiconductor and related industries; and/or participants in oil and gas related industries; changes in financial estimates and recommendations by securities analysts who follow our stock; earnings and other announcements, and changes in market evaluations, by securities analysts, investors, market participants or others, of or related to, us or participants in the semiconductor and related industries; changes in business, trade or regulatory conditions affecting us or participants in the semiconductor and related industries; announcements or implementation by us, our competitors, or our customers of technological innovations, new products or different business strategies; changes in our capital deployment strategy, issuances of shares of our capital stock or entering into a business combination or other strategic transaction; and trading volume of our common stock. This has been evident since approximately March of 2020 in the wake of the significant adverse impact to global economic conditions of the Pandemic and also dislocation in the oil and gas sector.

ANTI-TAKEOVER PROVISIONS UNDER OUR CERTIFICATE OF INCORPORATION AND BYLAWS MAY DISCOURAGE THIRD PARTIES FROM MAKING AN UNSOLICITED BID FOR OUR COMPANY

Our certificate of incorporation and bylaws, and various provisions of the Delaware General Corporation Law may make it more difficult or expensive to effect a change in control of our Company. For instance, our amended and restated certificate of incorporation provides for the division of our Board of Directors into three classes as nearly equal in size as possible with staggered three-year terms.

We have adopted change in control arrangements covering our executive officers and other key employees. These arrangements provide for a cash severance payment, continued medical benefits and other ancillary payments and benefits upon termination of service of a covered employee's employment following a change in control, which may make it more expensive to acquire our Company.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ISSUER PURCHASES OF EQUITY SECURITIES

In January 2016, our Board of Directors authorized an increase in the amount available under our share repurchase program to $150.0 million. As of ~~March 31,~~June 30, 2020, there was ~~$54.9~~$36.3 million of authorized repurchases remaining under the program. The manner in which the Company repurchases its shares is discussed in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the heading “Liquidity and Capital ~~Resources”,~~Resources,” of this Report on Form 10-Q. To date, we have funded share purchases under our share repurchase program from our available cash balance, and anticipate we will continue to do so.

Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands)
Jan. 1 through Jan. 31, 2020 — $ — — $ 71,268
Feb. 1 through Feb. 29, 2020 — $ — — $ 71,268
Mar. 1 through Mar. 31, 2020 157,368 $ 104.31 157,368 $ 54,854
Total 157,368 $ 104.31 157,368 $ 54,854


Period	Total Number of Shares Purchased (in thousands)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (in thousands)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands)
Apr. 1 through Apr. 30, 2020	119	$	112.95	119	$	41,389
May 1 through May 31, 2020	41	$	124.17	41	$	36,259
June 1 through June 30, 2020	—	$	—	—	$	36,259
Total	160	$	115.84	160	$	36,259

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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INDEX

ITEM 6. EXHIBITS

The exhibit numbers in the following list correspond to the number assigned to such exhibits in the Exhibit Table of Item 601 of Regulation S-K:


Exhibit Number			Description
~~10.72~~			~~Cabot Microelectronics Corporation 401(k) Plan, as amended.~~
~~10.73~~			~~Adoption Agreement, January 1, 2020, as amended, of Cabot Microelectronics Corporation 401(k) Plan.~~
31.1			Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2			Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1			Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101. INS			XBRL Instance Document - The Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH			XBRL Taxonomy Extension Schema
101.CAL			XBRL Taxonomy Extension Calculation Linkbase
101.DEF			XBRL Taxonomy Extension Definition Linkbase
101.LAB			XBRL Taxonomy Extension Label Linkbase
101.PRE			XBRL Taxonomy Extension Presentation Linkbase
104.			Cover Page Interactive Data File - The Cover Page Interactive Data File does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

5350

INDEX

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		CABOT MICROELECTRONICS CORPORATION
		[Registrant]

Date: ~~May 8,~~August 6, 2020	By:	/s/ SCOTT D. BEAMER
		Scott D. Beamer Vice President and Chief Financial Officer [Principal Financial ~~Officer and Interim~~ Officer]

Date: August 6, 2020	By:	/s/ JEANETTE A. PRESS
		Jeanette A. Press Corporate Controller [Principal Accounting Officer]

5451


Part I. Financial Information			Page

Item 1.	Unaudited Financial Statements

	Consolidated Statements of Income	3

	Consolidated Statements of Comprehensive Income	4

	Consolidated Balance Sheets	5

	Consolidated Statements of Cash Flows	6

	Consolidated Statements of Changes in Stockholders’ Equity	7

	Notes to the Consolidated Financial Statements	9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2826

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4036

Item 4.	Controls and Procedures	4137

Part II. Other Information

Item 1.	Legal Proceedings	4238

Item 1A.	Risk Factors	4238

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5249

Item 3.	Defaults Upon Senior Securities	5249

Item 4.	Mine Safety Disclosures	5249

Item 6.	Exhibits	5350
	Signatures	5451


	Fair Value		Estimated Useful Life (years)
Customer relationships - Flowchem	$	315,000	20
Customer relationships - Electronic chemicals	280,000		19
Customer relationships - all other	109,000		15-16
Technology and know-how	85,500		9-11
Trade name - Flowchem	46,000		Indefinite
Trade name - all other	7,000		1-15
EPA product registration rights	2,300		15
Total intangible assets	$	844,800


	Three Months Ended March 31, 2019		Six Months Ended March 31, 2019
Revenue	$	265,391	$	549,147
Net income	26,871		64,473
Earnings per share - basic	0.93		2.23
Earnings per share - diluted	0.91		2.19


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands)
Jan. 1 through Jan. 31, 2020	—	$	—	—	$	71,268
Feb. 1 through Feb. 29, 2020	—	$	—	—	$	71,268
Mar. 1 through Mar. 31, 2020	157,368	$	104.31	157,368	$	54,854
Total	157,368	$	104.31	157,368	$	54,854