Document
0001102934FALSE00011029342019-11-172019-11-17

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
_______________________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported):
NOVEMBER 17, 2019
Cabot Microelectronics Corporation
(Exact name of registrant as specified in its charter)
Delaware000-3020536-4324765
(State or other jurisdiction of incorporation)(Commission File Number)(IRS Employer Identification No.)

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

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

Not applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareCCMPNASDAQ
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). 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. 




Item 2.02 Results of Operations and Financial Condition.

On November 17, 2019, Cabot Microelectronics Corporation issued a press release entitled “Cabot Microelectronics Corporation Reports Record Revenue for Fourth Quarter and Full Fiscal Year 2019,” and made available on the Company’s website a presentation entitled “Fourth Quarter of Fiscal 2019 Earnings Call, November 18, 2019,” copies of which are attached hereto as Exhibit 99.1 and Exhibit 99.2, respectively, and incorporated herein by reference. The press release and presentation contain financial and other information including that related to the Company’s fourth quarter and full fiscal year 2019, which ended September 30, 2019.

This information contained in the press release and presentation attached hereto as Exhibit 99.1 and Exhibit 99.2, respectively, and incorporated herein by reference is being furnished pursuant to Item 2.02 of Form 8-K and shall not be deemed "filed" for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01 Financial Statements and Exhibits.
(d)Exhibits
The following exhibits are being furnished, not filed, herewith pursuant to Item 2.02 of Form 8-K:
99.1Press release, dated November 17, 2019, entitled “Cabot Microelectronics Corporation Reports Record Revenue for Fourth Quarter and Full Fiscal Year 2019.”
99.2Presentation entitled “Fourth Quarter of Fiscal 2019 Earnings Call, November 18, 2019.”




SIGNATURE
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 hereunto duly authorized.
CABOT MICROELECTRONICS CORPORATION
[Registrant]
Date: November 18, 2019By:/s/ SCOTT D. BEAMER
Scott D. Beamer
Vice President and Chief Financial Officer
[Principal Financial Officer]




INDEX TO EXHIBITS
Exhibit NumberTitle
Press release, dated November 17, 2019, entitled “Cabot Microelectronics Corporation Reports Record Revenue for Fourth Quarter and Full Fiscal Year 2019.”
Presentation entitled “Fourth Quarter of Fiscal 2019 Earnings Call, November 18, 2019.”


Document

EXHIBIT 99.1
PRESS RELEASE



Cabot Microelectronics Corporation Reports Record Revenue for Fourth Quarter and Full Fiscal Year 2019

Fourth Fiscal Quarter
Record Revenue of $278.6 Million, $121.9 Million, or 77.8% Higher Than Last Year; Pro Forma Revenue was Essentially Flat Compared with Last Year1

Net Loss of $20.2 Million, $68.5 Million Lower Than Last Year; Adjusted Pro Forma Net Income of $49.8 Million, $1.1 Million, or 2.2% Lower Than Last Year1

Reported Net Loss Includes a Non-Cash Impairment Charge of $67.4 Million2, or $50.3 Million After Tax, Associated with Management’s Decision to Cease Future Investments in KMG-Bernuth Wood Treatment Business

Loss Per Share of $0.70, $2.54 Lower Than Last Year; Adjusted Pro Forma Diluted Earnings Per Share of $1.68, $0.05, or 2.9% Lower Than Last Year1

Adjusted Pro Forma EBITDA of $85.3 Million, $1.4 Million, or 1.6% Lower Than Last Year1; Adjusted Pro Forma EBITDA of 30.6% of Revenue, 50 Basis Points Lower Than Last Year


Full Fiscal Year 2019

Record Revenue of $1,037.7 Million, $447.6 Million, or 75.8% Higher Than Last Year; Pro Forma Revenue of $1,099.7 Million was $36.1 Million, or 3.4% Higher Than Last Year1

Net Income of $39.2 Million, $70.8 Million, or 64.4% Lower Than Last Year; Adjusted Pro Forma Net Income of $198.4 Million, $17.0 Million, or 9.4% Higher Than Last Year1

Diluted Earnings Per Share of $1.35, $2.84, or 67.8% Lower Than Last Year; Adjusted Pro Forma Diluted Earnings Per Share of $6.72, $0.57, or 9.3% Higher Than Last Year1

Adjusted EBITDA of $333.4 Million; Adjusted Pro Forma EBITDA of $345.4 Million, $34.4 Million, or 11.0% Higher Than Last Year1; Adjusted Pro Forma EBITDA of 31.4% of Revenue, 220 Basis Points Higher Than Last Year

Expecting Full Year Fiscal 2020 Adjusted EBITDA Between $350 Million and $380 Million




AURORA, IL, November 17, 2019 – Cabot Microelectronics Corporation (Nasdaq: CCMP), a leading global supplier of consumable materials to semiconductor manufacturers and pipeline companies, today reported financial results for its fourth quarter and full fiscal year 2019, which ended September 30, 2019.

Key Highlights

The company delivered record revenue of $278.6 million in the fourth fiscal quarter, essentially flat compared with the pro forma revenue in the same quarter last year. The year-over-year revenue growth in CMP pads, electronic chemicals and pipeline performance products offset lower CMP slurries revenue due to semiconductor industry softness. Adjusted pro forma EBITDA was $85.3 million, or 30.6% of revenue, in the quarter. Full year revenue was a record $1,037.7 million, $447.6 million, or 75.8% higher than last year primarily due to the company’s acquisition of KMG Chemicals, Inc. (“KMG”), and growth of its CMP pads business. The company generated $177.1 million in cash flow from operations during the year, and had $188.5 million of cash on hand and $941.8 million in total debt as of September 30, 2019. The company has made a decision to focus its future capital investments on high-growth businesses complementary to its core, and to cease future investments in the KMG-Bernuth wood treatment business; thus, it recorded a non-cash impairment charge of $67.4 million2, or $50.3 million after-tax.

“We are proud of another year of record results for our company,” said David Li, President and CEO of Cabot Microelectronics Corporation. “We completed the largest acquisition in our history, which broadened our product portfolio and geographic reach, and nearly doubled our size. With some signs of stabilization in the semiconductor industry and continued robust demand for our pipeline performance products, we look forward to another year of strong performance in fiscal 2020, and remain optimistic about the bright future for our company with continued growth expectations for our revenue and profitability.”

1 Adjusted pro forma results, including adjusted pro forma gross margin, adjusted pro forma net income, adjusted pro forma EBITDA and adjusted pro forma diluted EPS, are considered as non-GAAP financial measures by the U.S. Securities and Exchange Commission (SEC). These adjusted pro forma results are presented as if the company’s acquisition of KMG Chemicals, Inc. (“KMG”) had been consummated on October 1, 2017, and exclude the impact of non-recurring acquisition and integration related costs, acquisition-related amortization expenses, the effect of the enactment of the Tax Cuts and Jobs Act in December 2017 in the United States (“tax act”) and the newly issued final regulations related to the tax act, the effect of asset impairment and restructuring charges related to the company’s wood treatment business (recorded in fourth quarter of fiscal 2019), and certain costs related to a warehouse fire at KMG-Bernuth in Tuscaloosa, Alabama (recorded in third and fourth quarters of fiscal 2019). See “Use of Certain GAAP and Non-GAAP Adjusted Pro Forma Financial Information” below for more information about these measures. In addition, reconciliations of these non-GAAP measures to their most comparable GAAP measures and reconciliations of selected pro forma financial information to adjusted pro forma financial information are included in the financial statements portion of this press release.
2 Asset impairment charge for the KMG-Bernuth wood treatment business is preliminary and subject to finalization of impairment analysis and control procedures.

Key Financial Information for Fourth Quarter of Fiscal 2019



Revenue was $278.6 million, which is $121.9 million, or 77.8% higher than the revenue reported in the same quarter last year. Pro forma revenue was essentially flat compared to the same quarter last year as revenue growth in CMP pads, electronic chemicals and pipeline performance products offset lower CMP slurries revenue. Electronic chemicals revenue benefited from growth in advanced logic while CMP pads continued to gain traction with customers. CMP slurries revenue declined due to soft semiconductor industry demand, primarily from memory customers.

Net loss for the quarter was $20.2 million, which is $68.5 million lower than in the same quarter last year. Excluding the impact of acquisition-related amortization and integration expenses, additional cleanup costs related to a wood treatment business warehouse fire in Tuscaloosa, Alabama, which occurred in the third quarter of fiscal 2019, and the asset impairment and restructuring charges related to the wood treatment business, adjusted pro forma net income was $49.8 million, which is $1.1 million, or 2.2%, lower than in the prior year.

Loss per share was $0.70 this quarter, which is $2.54 lower than in the fourth quarter of fiscal 2018. Adjusted pro forma EPS was $1.68, which is $0.05, or 2.9%, lower than in the same quarter last year.

Adjusted pro forma EBITDA was $85.3 million, which is $1.4 million, or 1.6%, lower than in the same quarter last year, primarily due to lower gross margin, which was partially offset by lower selling, general and administrative expenses. Adjusted pro forma EBITDA margin for the quarter was 30.6%, compared to 31.1% in the same quarter last year.

Electronic Materials – Revenue was $217.5 million, which is $8.0 million, or 3.6%, lower than pro forma revenue in the same quarter last year. CMP pads and electronic chemicals delivered results that were 1.8% and 1.5% higher, respectively, than in the same quarter last year. CMP slurries revenue declined 7.7% from last year’s quarter, primarily due to softer industry conditions and lower demand from memory customers. The Electronic Materials segment adjusted EBITDA was $74.3 million, or 34.2% of revenue.

Performance Materials – Revenue was $61.2 million for the quarter, which is $7.8 million, or 14.7%, higher than pro forma revenue in the prior year’s quarter. The increase was driven by higher revenue from pipeline performance products, which was partially offset by a decline in QED revenue. The Performance Materials segment adjusted EBITDA was $28.2 million, or 46.1% of revenue.

Asset Impairment Charge
During the quarter, the company made a decision to further focus its future capital investments on high-growth core businesses such as pipeline performance products, CMP slurries and pads and electronic chemicals. As a result, it has decided to cease future investment in the wood treatment business and not construct a new production facility to replace operations in Matamoros, Mexico and Tuscaloosa, Alabama. The company is considering various options regarding this business. This decision has triggered a non-cash impairment charge of $67.4



million, or $50.3 million after tax, that negatively impacted fourth fiscal quarter and full year reported results; this amount is preliminary and subject to finalization of procedures.

Key Financial Information for Full Fiscal Year 2019
Revenue was $1,037.7 million, which is $447.6 million, or 75.8% higher than the revenue reported in fiscal year 2018. Pro forma revenue of $1099.7 million was $36.1 million, or 3.4%, higher compared to last year. Results benefited from revenue growth in CMP pads and pipeline performance products, but were offset by lower CMP slurries revenue. CMP slurries revenue declined due to soft semiconductor industry demand, primarily from memory and foundry customers.

Net income was $39.2 million, which is $70.8 million, or 64.4% lower than in fiscal year 2018. Excluding the impact of acquisition-related amortization and integration expenses, an adjustment related to newly issued final regulations for the tax act, additional cleanup costs related to the wood treatment business warehouse fire in Tuscaloosa, Alabama, and the asset impairment and restructuring charges related to the wood treatment business, adjusted pro forma net income was $198.4 million, which is $17.0 million, or 9.4%, higher than in the prior year.
Diluted EPS was $1.35, which is $2.84, or 67.8% lower than in fiscal year 2018. Adjusted pro forma EPS was $6.72, which is $0.57, or 9.3%, higher than last year.

Adjusted pro forma EBITDA was $345.4 million, which is $34.4 million, or 11.0% higher than in fiscal year 2018, primarily due to lower selling, general and administrative expenses. Adjusted pro forma EBITDA margin was 31.4%.

Guidance for First Quarter and Full Fiscal Year 2020

For the first quarter of fiscal 2020, the company currently expects total revenue to be approximately flat compared to the company’s revenue for the fourth quarter of fiscal 2019. Electronic Materials revenue is expected to be approximately flat sequentially and Performance Materials revenue is expected to be approximately flat to up low single digits sequentially.

The company currently expects full fiscal year 2020 adjusted EBITDA to be between $350 million and $380 million. Additional current expectations are provided on slide 10 in the related slide presentation.


RELATED SLIDE PRESENTATION
A slide presentation related to this press release will be available at ir.cabotcmp.com in the Quarterly Results section of the Investor Relations center at approximately the same time that this press release is issued.




CONFERENCE CALL

Cabot Microelectronics Corporation’s quarterly earnings conference call will be held at 10:00 a.m. Eastern Time (9:00 a.m. Central Time) on Monday, November 18. The conference call will be available via live webcast and replay from the company’s website, www.cabotcmp.com, or by phone at (844) 825-4410. Callers outside the U.S. may dial (973) 638-3236. The conference code for the call is 1096337. A transcript of the formal comments made during the conference call will also be available in the Investor Relations section of the company’s website.

ABOUT CABOT MICROELECTRONICS CORPORATION

Cabot Microelectronics Corporation, headquartered in Aurora, Illinois, 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. Cabot Microelectronics Corporation is also a leading provider of performance materials to pipeline operators. The company's mission is to create value by delivering high-performing and innovative solutions that solve its customers’ challenges. The company has approximately 1,900 employees globally. For more information about Cabot Microelectronics Corporation, visit www.cabotcmp.com, or contact Colleen Mumford, Vice President, Communications and Marketing, at 630-499-2600.





USE OF CERTAIN GAAP AND NON-GAAP ADJUSTED PRO FORMA FINANCIAL INFORMATION

The company presented the following measures considered as non-GAAP by the SEC: adjusted pro forma EBITDA (earnings before interest, taxes, depreciation and amortization), adjusted pro forma EBITDA margin, adjusted pro forma net income and adjusted pro forma diluted earnings per share. These adjusted pro forma results are presented as if the company’s acquisition of KMG Chemicals, Inc. (“KMG”), had been consummated on October 1, 2017 and exclude the impact of non-recurring acquisition and integration related costs, acquisition related amortization expenses, the adjustments related to the effect of the enactment of the Tax Cuts and Jobs Act in December 2017 in the United States (“tax act”) and the newly issued final regulations related to the tax act, the effect of asset impairment and restructuring charges related to the company’s wood treatment business, and certain costs related to a warehouse fire at KMG-Bernuth in Tuscaloosa, Alabama. The non-GAAP adjusted pro forma financial information provided in this press release is a supplement to, and not a substitute for, the company’s financial results presented in accordance with U.S. GAAP. These non-GAAP adjusted pro forma financial measures are provided to enhance the investor's understanding about the company's ongoing operations. Specifically, the company believes the impact of the adjustments related to the effect of the enactment of the Tax Cuts and Jobs Act in December 2017 in the United States (“tax act”) and the newly issued final regulations related to the tax act, KMG acquisition and integration-related expenses, the effect of asset impairment and restructuring charges related to the company’s wood treatment business, certain costs related to a warehouse fire at KMG-Bernuth in Tuscaloosa, Alabama, 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 adjusted pro forma 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. Reconciliations of non-GAAP measures to their most comparable GAAP measures and reconciliations of pro forma financial information to adjusted pro forma financial information are included in the financial statements portion of this press release.

The company has not quantitatively reconciled its guidance for adjusted EBITDA to its most comparable GAAP measure because the company does not provide specific guidance for the various reconciling items as certain items that impact this measure have not occurred, are out of the company’s control, or cannot be reasonably predicted. Accordingly, a reconciliation to the nearest GAAP financial metric is not available without unreasonable effort. Please note that the unavailable reconciling items could significantly impact the company’s results.
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.

FORWARD LOOKING STATEMENTS
This press release contains forward-looking statements, which address a variety of subjects including, for example, future sales and operating results; growth or contraction, and trends in the industry and markets in which the Company participates; 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; 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; competitive landscape; the Company's supply chain; natural disasters; various economic or political factors and international or national events, including related to 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 (“tax 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”), including the risk factors contained in Cabot Microelectronics’ Annual Report on Form 10-K for the fiscal year ended September 30, 2018 and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2019. 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.



Contact:
Colleen Mumford



Corporate Relations Director
Cabot Microelectronics Corporation 
(630) 499-2600



CABOT MICROELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited and amounts in thousands, except per share amounts)

Quarter EndedYear Ended
September 30, 2019June 30, 2019September 30, 2018September 30, 2019September 30, 2018
Revenue$278,645  $271,882  $156,729  $1,037,696  $590,123  
Cost of sales165,535  156,492  72,383  595,043  276,018  
         Gross profit113,110  115,390  84,346  442,653  314,105  
Operating expenses:
   Research, development & technical 12,698  12,191  13,372  51,707  51,950  
   Selling, general & administrative 50,663  50,959  26,986  213,078  102,037  
   Asset impairment charges67,372  —  —  67,372  —  
         Total operating expenses130,733  63,150  40,358  332,157  153,987  
Operating income (loss)(17,623) 52,240  43,988  110,496  160,118  
Interest expense12,703  12,757  102  45,681  2,905  
Interest income342  417  1,161  2,346  4,409  
Other income (expense), net(1,158) (472) (24) (4,055) 89  
Income (loss) before income taxes(31,142) 39,428  45,023  63,106  161,711  
Provision for income taxes (benefit)(10,899) 20,550  (3,195) 23,891  51,668  
         Net income (loss)$(20,243) $18,878  $48,218  $39,215  $110,043  
Basic earnings (loss) per share $(0.70) $0.65  $1.89  $1.37  $4.31  
Weighted average basic shares outstanding 29,084  29,064  25,520  28,571  25,518  
Diluted earnings (loss) per share $(0.70) $0.64  $1.84  $1.35  $4.19  
Weighted average diluted shares outstanding 29,084  29,568  26,213  29,094  26,243  




CABOT MICROELECTRONICS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited and amounts in thousands)
September 30, 2019September 30, 2018
ASSETS:
Current assets:
Cash and cash equivalents$188,495  $352,921  
Accounts receivable, net146,113  75,886  
Inventories, net145,278  71,926  
Other current assets28,670  22,048  
Total current assets508,556  522,781  
Property, plant and equipment, net276,818  111,403  
Other long-term assets1,476,392  146,789  
Total assets$2,261,766  $780,973  
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable$54,529  $18,171  
Current portion of long-term debt13,313  —  
Accrued expenses, income taxes payable and other current liabilities103,618  82,983  
Total current liabilities171,460  101,154  
Long-term debt, net of current portion928,463  —  
Other long-term liabilities181,466  13,127  
Total liabilities1,281,389  114,281  
Stockholders' equity980,377  666,692  
Total liabilities and stockholders' equity$2,261,766  $780,973  




CABOT MICROELECTRONICS CORPORATION
Reconciliation of GAAP Net income to Non-GAAP Adjusted EBITDA
(Unaudited and amounts in thousands, except per share and percentage amounts)
Three Months Ended
 Twelve Months Ended
September 30, 2019September 30, 2018September 30, 2019September 30, 2018
Net income (loss)$(20,243) $48,218  $39,215  $110,043  
Interest expense12,703  102  45,681  2,905  
Interest income(342) (1,161) (2,346) (4,409) 
Income taxes (benefit)(10,899) (3,195) 23,891  51,668  
Depreciation & amortization28,116  6,349  98,592  25,876  
EBITDA*$9,335  $50,313  $205,033  $186,083  
Acquisition and integration-related expenses1,601  3,861  34,709  3,861  
Charge for fair value write-up of acquired inventory sold—  —  14,869  —  
Costs related to KMG-Bernuth fire5,455  —  9,905  —  
Costs related to restructuring of wood treatment business1,530  —  1,530  —  
Charges related to asset impairment of wood treatment business67,372  —  67,372  —  
Adjusted EBITDA**$85,293  $54,174  $333,418  $189,944  
Adjusted EBITDA margin30.6 %34.6 %32.1 %32.2 %
* EBITDA represents earnings before interest, taxes, depreciation and amortization.
** 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.



SUPPLEMENTAL UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Combined Financial Information is presented to illustrate the estimated effects of the company’s acquisition of KMG (the “Acquisition”), which was consummated on November 15, 2018 (the “Acquisition Date”), based on the historical results of operations of Cabot Microelectronics and KMG. The following Unaudited Pro Forma Condensed Combined Statements of Income for the three and twelve months ended September 30, 2019 and September 30, 2018 are based on the historical financial statements of Cabot Microelectronics and KMG after giving effect to the Acquisition, and the assumptions and adjustments described in the accompanying notes to these Unaudited Pro Forma Condensed Combined Statements of Income.Unaudited Pro Forma Condensed Combined Financial Information is presented to illustrate the estimated effects of the company’s acquisition of KMG (the “Acquisition”), which was consummated on November 15, 2018 (the “Acquisition Date”), based on the historical results of operations of Cabot Microelectronics and KMG. See Note 1, Background and Basis of Presentation, and Note 4, Business Combination, to the consolidated financial statements for additional information on the Acquisition. The following Unaudited Pro Forma Condensed Combined Statements of Income for the three and nine months ended June 30, 2019 and 2018 are based on the historical financial statements of Cabot Microelectronics and KMG after giving effect to the Acquisition, and the assumptions and adjustments described in the accompanying notes to these Unaudited Pro Forma Condensed Combined Statements of Income.

The historical Cabot Microelectronics Consolidated Statements of Income for the three and twelve months ended September 30, 2019 and September 30, 2018 were derived from the consolidated financial statements included elsewhere in this release. The historical KMG Consolidated Statements of Income for the twelve months ended September 30, 2019, as well as the historical KMG Consolidated Statements of Income for the three and twelve months ended September 30, 2018 includes information derived from KMG’s books and records. Prior to the Acquisition, KMG was on a July 31st fiscal year end reporting cycle. These pro forma financials include actual KMG’s pre-acquisition results with the months aligned to Cabot Microelectronics’ fiscal periods, and therefore, they do not align with consolidated financial statements included in KMG’s Quarterly or Annual Reports on Form 10-Q or 10-K.
The Unaudited Pro Forma Condensed Combined Statements of Income are presented as if the Acquisition had been consummated on October 1, 2017, the first business day of our 2018 fiscal year, and combine the historical results of Cabot Microelectronics and KMG, which is consistent with internal management reporting, after primarily giving effect to the following assumptions and adjustments:
• Application of the acquisition method of accounting;
• Elimination of transaction costs incurred in connection with the Acquisition;
• Adjustments to reflect the new financing arrangements entered into and legacy financing arrangements retired in connection with the Acquisition;
• The exchange of 0.2000 share(s) of Cabot Microelectronics common stock for each share of KMG common stock; and
• Conformance of accounting policies.
The Unaudited Pro Forma Condensed Combined Financial Information was prepared using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed in a business combination be recognized at their fair values as of the completion of the acquisition. We utilized estimated fair values at the Acquisition Date to allocate the total consideration exchanged to the net tangible and intangible assets acquired and liabilities assumed. This allocation was initially completed as of November 15, 2018.  The allocation may be adjusted for up to one-year post closing.
The Unaudited Pro Forma Condensed Combined financial information has been prepared on the basis of SEC Regulation S-X Article 11 and is not necessarily indicative of the results of operations that would have been realized had the transactions been completed as of the dates indicated, nor are they meant to be indicative of our anticipated combined future results. In addition, the accompanying Unaudited Pro Forma Condensed Combined Statements of Income do not reflect any additional anticipated synergies, operating efficiencies, cost savings, or any integration costs that may result from the Acquisition.
The historical consolidated financial information has been adjusted in the accompanying Unaudited Pro Forma Condensed Combined Statements of Income to give effect to unaudited pro forma events that are (1) directly attributable to the transaction, (2) factually supportable and (3) are expected to have a continuing impact on the results of operations of the combined company. As a result, under SEC Regulation S-X Article 11, certain non-recurring expenses such as deal costs and compensation expenses related to severance or accelerated stock compensation and certain non-cash costs related to the fair value step-up of inventory are eliminated from pro forma results in the periods presented. Certain recurring historical KMG expenses related to depreciation, amortization, financing costs and costs of sales have been adjusted as if the Acquisition had occurred on October 1, 2017.
The Unaudited Pro Forma Condensed Combined Financial Information, including the related notes included herein, should be read in conjunction with Cabot Microelectronics’ Current Report on Form 8-K/A filed on January 30, 2019, as well as our consolidated financial statements included in this release and the historical consolidated financial statements and related notes of Cabot Microelectronics and KMG, which are available to the public at the SEC’s website at www.sec.gov.



CABOT MICROELECTRONICS CORPORATION
Unaudited Pro Forma Condensed Combined Statement of Income
For the Three and Twelve Months Ended September 30, 2019 and September 30, 2018
(in thousands, except per share data)
Three Months Ended Twelve Months Ended
September 30, 2019September 30, 2018September 30, 2019September 30, 2018
Revenue$278,645  $278,869  $1,099,674  $1,063,563  
Cost of sales165,757  154,989  623,303  598,049  
Gross profit112,888  123,880  476,371  465,514  
Operating expenses:
Research, development and technical 12,698  13,372  51,707  51,950  
Selling, general and administrative expenses55,322  49,560  221,758  204,875  
Asset impairment charges51,186  —  51,186  —  
Total operating expenses119,206  62,932  324,651  256,825  
Operating income (loss)(6,318) 60,948  151,720  208,689  
Interest expense12,844  13,251  53,743  51,804  
Interest income342  1,234  2,397  4,493  
Other income (expense), net(1,158) (184) (4,313) (1,073) 
Income (loss) before income taxes(19,978) 48,747  96,061  160,305  
Provision for income taxes (benefit)(7,885) (4,200) 26,388  33,925  
Net income (loss)$(12,093) $52,947  $69,673  $126,380  
Basic earnings (loss) per share $(0.42) $1.84  $2.40  $4.40  
Weighted average basic shares outstanding 29,084  28,757  28,979  28,755  
Diluted earnings (loss) per share $(0.42) $1.80  $2.36  $4.29  
Weighted average diluted shares outstanding29,084  29,450  29,502  29,480  




CABOT MICROELECTRONICS CORPORATION
Unaudited Pro Forma Condensed Combined Statement of Income
For the Three Months Ended September 30, 2019
(in thousands, except per share data)
Cabot Microelectronics
Three Months Ended September 30, 2019
Pro Forma
Adjustments (1)

Pro Forma
Combined
Revenue$278,645  $—  $278,645  
Cost of sales165,535  222  165,757  
Gross profit113,110  (222) 112,888  
Operating expenses:
Research, development and technical12,698  —  12,698  
Selling, general and administrative expenses50,663  4,659  55,322  
Asset impairment charges67,372  (16,186) 51,186  
Total operating expenses130,733  (11,527) 119,206  
Operating income (loss)(17,623) 11,305  (6,318) 
Interest expense12,703  141  12,844  
Interest income342  342  
Other income (expense), net(1,158) —  (1,158) 
Income (loss) before income taxes(31,142) 11,164  (19,978) 
Provision for income taxes (benefit)(10,899) 3,014  (7,885) 
Net income (loss)$(20,243) $8,150  $(12,093) 
Basic earnings (loss) per share$(0.70) $(0.42) 
Weighted average basic shares outstanding29,084  29,084  
Diluted earnings (loss) per share$(0.70) $(0.42) 
Weighted average diluted shares outstanding29,084  29,084  
1 Pro forma adjustments are related to non-recurring items directly attributable to the transaction as well as recurring differences related to amortization or financing costs that were included as if the companies were combined as of October 1, 2017.



CABOT MICROELECTRONICS CORPORATION
Unaudited Pro Forma Condensed Combined Statement of Income
For the Year Ended September 30, 2019
(in thousands, except per share data)
Cabot Microelectronics (1)KMG Chemicals (2)
Year Ended September 30, 2019October 1, 2018 to November 14, 2018
Presentation Reclassification
(3)
Pro Forma
Adjustments (4)
Pro Forma
Combined
Revenue$1,037,696  $61,978  $—  $—  $1,099,674  
Cost of sales595,043  36,534  4,741  (13,015) 623,303  
Gross profit442,653  25,444  (4,741) 13,015  476,371  
Operating expenses:
Distribution expenses—  4,741  (4,741) —  —  
Research, development and technical 51,707  —  —  —  51,707  
Selling, general and administrative expenses213,078  40,504  —  (31,824) 221,758  
Amortization of intangibles—  1,943  —  (1,943) —  
Asset impairment charges67,372  —  —  (16,186) 51,186  
Total operating expenses332,157  47,188  (4,741) (49,953) 324,651  
Operating income (loss)110,496  (21,744) —  62,968  151,720  
Interest expense45,681  8,537  —  (475) 53,743  
Interest income2,346  51  —  —  2,397  
Derivative fair value gain—  567  —  (567) —  
Other income (expense), net(4,055) (258) —  —  (4,313) 
Income (loss) before income taxes63,106  (29,921) —  62,876  96,061  
Provision for income taxes (benefit)23,891  (3,722) —  6,219  26,388  
Net income (loss)$39,215  $(26,199) $—  $56,657  $69,673  
Basic earnings per share $1.37  $—  $2.40  
Weighted average basic shares outstanding 28,571  —  28,979  
Diluted earnings per share $1.35  $—  $2.36  
Weighted average diluted shares outstanding29,094  —  29,502  
1 Includes heritage Cabot Microelectronics from October 1, 2018 to June 30, 2019 and heritage KMG from November 15, 2018 to June 30, 2019. On November 15, 2018, the Acquisition was completed and actual combined company results are included.
2 Heritage KMG results that occurred prior to the Acquisition on November 15, 2018.
3 Represents the reclassification of KMG distribution expenses from operating expenses to cost of sales, in order to conform with Cabot Microelectronics’ accounting policies.
4 Certain pro forma adjustments related to depreciation, amortization, financing costs and costs of sales have been made for the October 1, 2018 to September 30, 2019 period assuming that the Acquisition occurred on October 1, 2017. Additionally, nonrecurring pro forma adjustments have been made for deal costs, compensation expenses related to severance or accelerated stock compensation, and the fair value step-up of inventory directly attributable throughout the twelve-month period.



CABOT MICROELECTRONICS CORPORATION
Unaudited Pro Forma Condensed Combined Statement of Income
For the Three Months Ended September 30, 2018
(in thousands, except per share data)
Cabot MicroelectronicsKMG Chemicals (1)
Three Months Ended September 30, 2018Three Months Ended September 30, 2018
Presentation Reclassification
(2)
Pro Forma
Adjustments (3)
Pro Forma
Combined
Revenue$156,729  $122,140  $—  $—  $278,869  
Cost of sales72,383  70,335  8,956  3,315  154,989  
Gross profit84,346  51,805  (8,956) (3,315) 123,880  
Operating expenses:
Distribution expenses—  8,956  (8,956) —  —  
Research, development and technical 13,372  —  —  —  13,372  
Selling, general and administrative expenses26,986  18,740  3,834  49,560  
Amortization of intangibles—  3,854  —  (3,854) —  
Total operating expenses40,358  31,550  (8,956) (20) 62,932  
Operating income43,988  20,255  —  (3,295) 60,948  
Interest expense102  4,166  —  8,983  13,251  
Interest income1,161  73  —  —  1,234  
Loss on the extinguishment of debt—  355  —  (355) —  
Derivative fair value gain—  353  —  (353) —  
Other income (expense), net(24) (160) —  —  (184) 
Income before income taxes45,023  16,000  —  (12,276) 48,747  
Provision for income taxes (benefit)(3,195) 3,662  —  (4,667) (4,200) 
Net income$48,218  $12,338  $—  $(7,609) $52,947  
Basic earnings per share $1.89  $0.80  $1.84  
Weighted average basic shares outstanding 25,520  15,506  28,757  
Diluted earnings per share $1.84  $0.77  $1.80  
Weighted average diluted shares outstanding26,213  15,992  29,450  
1 Shares outstanding for KMG are calculated from the KMG fiscal year FY2018 10K ended July 31, 2018 and the nine month ended April 30, 2018. They are intended for illustrative purposes only and do not impact pro forma EPS calculations at right. Three months ended September 30, 2018 KMG share calculations were not available.
2 Represents the reclassification of KMG distribution expenses from operating expenses to cost of sales, in order to conform with Cabot
Microelectronics’ accounting policies.

3 Pro forma adjustments are related to non-recurring items directly attributable to the transaction as well as recurring differences related to depreciation, amortization, compensation or financing costs that were included as if the companies were combined as of October 1, 2017.



CABOT MICROELECTRONICS CORPORATION
Unaudited Pro Forma Condensed Combined Statement of Income
For the Year Ended September 30, 2018
(in thousands, except per share data)
Cabot MicroelectronicsKMG Chemicals (1)
Year Ended September 30, 2018Year Ended September 30, 2018
Presentation
Reclassification (2)
Pro Forma Adjustments
(3)
Pro Forma
 Combined
Revenue$590,123  $473,440  $—  $—  $1,063,563  
Cost of sales276,018  272,517  35,939  13,575  598,049  
Gross profit314,105  200,923  (35,939) (13,575) 465,514  
Operating expenses:
Distribution expenses—  35,939  (35,939) —  —  
Research, development and technical 51,950  —  —  —  51,950  
Selling, general and administrative expenses102,037  62,563  40,275  204,875  
Amortization of intangibles—  14,690  —  (14,690) —  
Total operating expenses153,987  113,192  (35,939) 25,585  256,825  
Operating income160,118  87,731  —  (39,160) 208,689  
Interest expense2,905  18,899  —  30,000  51,804  
Interest income4,409  84  —  —  4,493  
Loss on the extinguishment of debt—  6,858  —  (6,858) —  
Derivative fair value gain—  5,685  —  (5,685) —  
Other income (expense), net89  (1,162) —  —  (1,073) 
Income before income taxes161,711  66,581  —  (67,987) 160,305  
Provision for income taxes 51,668  57  —  (17,800) 33,925  
Net income$110,043  $66,524  $—  $(50,187) $126,380  
Basic earnings per share$4.31  $4.52  $4.40  
Weighted average basic shares outstanding25,518  14,708  28,755  
Diluted earnings per share$4.19  $4.40  $4.29  
Weighted average diluted shares outstanding26,243  15,111  29,480  
1 Shares outstanding for KMG are calculated from the KMG fiscal year FY2018 10K ended July 31, 2018. They are intended for illustrative purposes only and do not impact pro forma EPS calculations at right. Twelve months ended September 30, 2018 KMG share calculations were not available.
2 Represents the reclassification of KMG distribution expenses from operating expenses to cost of sales, in order to conform with Cabot
Microelectronics’ accounting policies.

3 Pro forma adjustments are related to non-recurring items directly attributable to the transaction as well as recurring differences related to depreciation, amortization, compensation or financing costs that were included as if the companies were combined as of October 1, 2017





CABOT MICROELECTRONICS CORPORATION
Summary of Pro Forma Adjustments
(in thousands, except per share data)
Three Months Ended September 30, 2019Three Months Ended September 30, 2018Year Ended September 30, 2019Year Ended September 30, 2018
Impact to cost of sales:
Depreciation and amortization, net(a)$222  $3,315  $1,855  $13,575  
Inventory step-up(b)—  —  (14,870) —  
Impact to cost of sales$222  $3,315  $(13,015)