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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 20192020
or
☐ 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 CORPORATIONCMC Materials, Inc.
(Exact name of registrant as specified in its charter)
Delaware36-4324765
(State of Incorporation)(I.R.S. Employer Identification No.)
870 North Commons Drive60504
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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par valueCCMPThe NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:  None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.       Yes x    No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes o   No x
Indicate by check mark whether the registrant: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 x   No o
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 (Section 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 x    No o
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 definitionthe definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated filerNon-accelerated filerSmaller reporting companyEmerging 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.   o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes     No x


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The aggregate market value of the registrant's Common Stock held beneficially or of record by stockholders who are not affiliates of the registrant, based upon the closing price of the Common Stock on March 31, 2019,2020, as reported by the NASDAQ Global


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Select Market, was approximately $3,221,306,626.$3,301,374,488.  For the purposes hereof, "affiliates" include all executive officers and directors of the registrant.
As of October 31, 2019,2020, the Company had 29,104,19029,081,617 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on March 4, 2020,3, 2021, are incorporated by reference in Part III of this Annual Report on Form 10-K to the extent stated herein.
This Annual Report on Form 10-K includes statements that constitute "forward-looking statements" within the meaning of federal securities regulations. For more detail regarding "forward-looking statements" see Item 7 of Part II of this Annual Report on Form 10-K.


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CABOT MICROELECTRONICS CORPORATIONCMC MATERIALS, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 20192020
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. 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 Annual Report on Form 10-K 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 CMC Materials, Inc. ("CMC'', "the Company'', "us'', "we'', or "our''), 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 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 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"), 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 the Company; the Company's management; foreign exchange fluctuation; the Company's current or future tax rate, including the effects of changes to tax laws in the jurisdictions in which the company operates; 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 CMC’s beliefs, plans and expectations, are forward-looking statements. Such statements are based on current expectations of CMC’s 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. Except as required by law, CMC undertakes no obligation to update forward-looking statements made by it to reflect new information, subsequent events or circumstances. The section entitled "Risk Factors" of this Annual Report on Form 10-K describes some, but not all, of the factors that could cause these differences.




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PART I
ITEM 1. BUSINESS
OUR COMPANY

Cabot Microelectronics Corporation ("Cabot Microelectronics'', "the Company'', "us'', "we'', or "our'')CMC Materials, Inc., which was incorporated in the state of Delaware in 1999, is a leading global supplier of consumable materials to semiconductor manufacturers and pipeline companies. We operate our business within two reportable segments: Electronic Materials and adjacent industry customers. OnPerformance Materials.
RECENT DEVELOPMENTS
Effective October 1, 2020, the Company changed its name from “Cabot Microelectronics Corporation” to “CMC Materials, Inc.” Our new name reflects our expanded product offerings and industries in which we participate following our acquisition of KMG in fiscal 2019 (the “Acquisition”).
We completed the Acquisition on November 15, 2018 (“Acquisition Date”), and since then we completed our acquisitionhave included the results 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, in our consolidated results. For additional information, refer to Note 4 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of this Annual Report on Form 10-K.
In the fourth quarter of fiscal 2019, we made a decision to close KMG-Bernuth, Inc.’s (“Acquisition”KMG-Bernuth”). The Acquisition extended Matamoros, Mexico and strengthenedTuscaloosa, Alabama wood treatment facilities and cease participating in the wood treatment business by approximately the end of calendar year 2021, and focus our position as onestrategy and future capital investments on our core businesses. Leading up to the planned closure of the leading suppliersMatamoros and Tuscaloosa facilities, we intend to continue to operate the existing facilities and serve our wood treatment customers. For additional information, refer to Note 10 of consumable materials“Notes to the semiconductor industry and expanded our portfolio with the additionConsolidated Financial Statements” included in Item 8 of KMG’s electronic chemicals and performance materials businesses, the latterPart II of which we believe enables us to be a leading global provider of performance products and services to customers in pipeline and adjacent industries.this Annual Report on Form 10-K.

ELECTRONIC MATERIALS SEGMENT
Subsequent to the Acquisition, we have operated our business within two reportable segments: Electronic Materials and Performance Materials. The Electronic Materials segment consists of our heritage chemical mechanical planarization (CMP)(“CMP”) slurries andbusiness, CMP polishing pads businesses, as well as the KMG’s heritagebusiness, and our electronic chemicals business. In our Electronic Materials segment, we serve customersThese businesses supply consumable products used in integrated circuit (“IC”) device manufacturing and other aspects of the semiconductor industry across the United States, Europe and Asia, anddata storage industries.
IC devices, or "chips", are the leading global supplier of CMP slurries, andcomponents in a leading global supplierwide range of electronic chemicals (also known as “high-puritysystems for computing, communications, manufacturing and transportation. The multi-step manufacturing process chemicals”),for IC devices typically begins with a circular wafer of pure silicon, then undergoes a process of alternating insulating and conducting layers until the desired wiring within the IC device is achieved. At the conclusion of the process, the wafer is cut into the individual IC devices, which are then packaged to form individual chips. Consumers most frequently encounter IC devices in smart phones and tablets, desktop or laptop computers, automotive applications, gaming devices, and televisions.
CMP pads. We develop, produce,SLURRIES AND CMP PADS
The Company develops, produces, and sellsells CMP slurries for polishing manya wide range of the conducting, insulating and isolating materials used in integrated circuit (IC)IC devices, including tungsten, dielectric materials, copper, tantalum (commonly referred to as "barrier"), and aluminum, and for polishing thebare silicon wafers, as well as disk substrates and magnetic heads used in hard disk drives. We also develop, manufacture, and sell CMP polishing pads, which are used in conjunction with slurries in the CMP process. In our electronic chemicals business, we produceOur CMP pads can be used on a variety of polishing tools and sell high-purity process chemicals through the formulation, purification, and blending of acids, solvents, and other wet chemicals used to etch and clean silicon wafers, in the production of semiconductors, photovoltaics (solar cells), and flat panel displays.

Our Performance Materials segment includes KMG’s heritage pipeline performance and wood treatment businesses, and our heritage QED business. We areover a leading global provider of products, services, and solutions for optimizing pipeline throughput and maximizing performance and safety. Our pipeline performance products include drag-reducing agents (“DRAs”), valve lubricants, cleaners and sealants, and related equipment supporting pipeline and adjacent industries. We also provide routine and emergency maintenance services as well as training for customers in the pipeline and adjacent industries worldwide. Through KMG’s subsidiary, KMG-Bernuth, Inc. (KMG-Bernuth), we manufacture and sell our wood treatment preservatives, based on pentachlorophenol (“penta”), to wood treatment customers who use these products to extend the useful life of wood utility poles and crossarms, but we recently have announced that we intend to no longer invest in this business and will not construct a new consolidated manufacturing facility when we close the two existing facilities by the end of 2021. See below, and Note 10 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of this Annual Report on Form 10-K. In our QED business, we serve the precision optics industry with capital equipment, consumables and services. For additional information on our segment reporting, refer to Note 22 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of this Annual Report on Form 10-K.
ELECTRONIC MATERIALS:
IC DEVICE MANUFACTURING
IC devices, or "chips", are components in a wide range of electronic systems for computing, communications, manufacturingtechnology nodes and transportation. Consumers most frequently encounter IC devices in mobile internet devices (MIDs) such as smart phonesapplications, including tungsten, copper, and tablets, microprocessors, application processors and memory chips in their desktop or laptop computers, and in automotive applications, gaming devices, and digital televisions. The multi-step manufacturing process for IC devices typically begins with a circular wafer of pure silicon, with the first manufacturing step referred to as a "wafer start". Many identical IC devices, or dies, are manufactured on each wafer at the same time. The initial steps in the manufacturing process build transistors and other electronic components on the silicon wafer. These components are isolated from each other using a layer of insulating material, most often silicon dioxide, to prevent electrical signals from bridging from one transistor to another. These components are then wired together using conducting materials such as aluminum or copper in a particular sequence to produce a functional IC device with specific characteristics. Once the conducting wiring on one layer of the IC device is completed, another layer of insulating material is added. The process of alternating insulating and conducting layers is repeated until the desired wiring within the IC device is achieved. At the end of the process, the wafer is cut into the individual dies, which are then packaged to form individual chips.
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dielectrics.
CMP SLURRIES AND PADS

Demand for CMP consumables products, including slurries and pads used in the production of IC devices is primarily based on the number of wafer starts by semiconductor manufacturers and the type and complexity of the IC devices they produce. To enhance the performance of IC devices, IC device manufacturers have progressively increased the number and density of electronic components and wiring layers in each IC device. This is typically done in conjunction with shrinking the key dimensions on an IC device from one technology generation, or "node," to another. As a result, the number of transistors, wires and discrete wiring layers have increased, increasing the complexity of the IC device and the related demand for (“CMP consumables products. Furthermore, as semiconductor technology has advanced and performance requirements of IC devices have increased, the percentage of IC devices that utilize CMP in the manufacturing process has increased steadily over time. We believe that CMP is used in most IC devices made today, and we expect that the use of CMP will continue to increase in the future.

In the CMP polishing process, CMP consumablesconsumables”) are used to remove excess material that is deposited during the IC manufacturing process and to level and smooth the surfaces of the layers of IC devices via a combination of chemical reactions and mechanical abrasion, leaving minimal residue and defects on the surface, with only the material necessary for circuit integrity remaining. CMP slurries are liquid solutions generally composedenables IC device manufacturers to produce smaller, faster, and more complex IC with a greater density of high-purity deionized water and a proprietary mixtransistors. CMP also helps reduce the number of chemical additives and engineered abrasives that chemically and mechanically interact at an atomic level withdefective or substandard IC devices, which increases the surface material on the wafer. CMP pads are engineered polymeric materials designed to distribute and transport the slurry to the surface of the wafer and distribute it evenly across the wafer. Grooves are formed into the surface of the pad to facilitate distribution of the slurry. The CMP process is performed on a CMP polishing tool. During the CMP process, the wafer is held on a rotating carrier, which is pressed down against a CMP pad. The CMP pad is attached to a rotating polishing table that spins in a circular motion in the opposite direction from the rotating wafer carrier. A CMP slurry is continuously applied to the polishing pad to facilitate and enhance the polishing process. Hard disk drive and silicon wafer manufacturers use similar processes to smooth the surface of substrate disks.

device yield. An effective CMP process is achieved through technical optimization of the CMP consumables in conjunction with an appropriately designed CMP process. Prior to introducing new or different CMP slurries or pads into its manufacturing process an IC device manufacturerand generally requires the productslurries and pads to be qualified in its processes through an extensive series of tests and evaluations. These qualifications are intended to confirm that the CMP consumable product will function properly within the customer's overall manufacturing process. These tests and evaluations may require minor changes to the CMP process or the CMP slurry or pad. While this qualification process varies depending on numerous factors, it is generally quite costly and may take six months or longer to complete. IC device manufacturers usually assess thequality, cost, time required, and impact on production when they consider implementing or switching to a new CMP slurry or pad.
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CMP enables IC device manufacturers to produce smaller, faster and more complex IC devices with a greater density of transistors and other electronic components. With smaller IC devices, IC device manufacturers can increase the number of IC devices that fit on a wafer, which increases their throughput, or the number of IC devices that can be manufactured in a given time period. CMP also helps reduce the number of defective or substandard IC devices produced, which increases the device yield. Producing more complex and higher performing IC devices increases the value of the wafers processed. Improvements in throughput, yield and value per wafer improve the return on an IC device manufacturer's significant investment in manufacturing capacity, which is a high priority. More broadly, sustained growth in the semiconductor industry traditionally has been fueled by enhanced performance and lower unit costs, making IC devices more affordable in an expanding range of applications. We believe CMP remains a critical process in leading-edge semiconductor technology, enabling IC device manufacturers to efficiently produce complex chips, particularly where higher performance may now be accompanied by higher unit costs.
ELECTRONIC CHEMICALS

ThroughIn our electronic chemicals business, we formulate, purifyoffer semiconductor-grade wet chemicals with purities that extend to the parts-per-trillion (ppt) level. We produce and blendsell high-purity process chemicals through the formulation, purification, and blending of acids, solvents, and other wet chemicals primarily used to etch, clean, and cleandry silicon wafers induring the production of semiconductors, photovoltaics (solar cells), and flat panel displays. Our products include sulfuric, phosphoric, nitric and hydrofluoric acids, ammonium hydroxide, hydrogen peroxide, isopropyl alcohol, other specialty organic solvents and various blends of chemicals. Our customers rely on us to provide products with very low levels of contaminants and particles. We purchase raw material chemicals from various suppliers and at our facilities blend, purify and package them for distribution to our customers. We are responsible for product purity levels and analytical testing, and in our view, our ability to maintain high purity levels throughout the supply chain process is a competitive advantage. We believe the production of high-purity process chemicals is critical to our customers’ businesses, as they demand an increasing level of purity to enable more advanced technology nodes and increase yields. We believe demand for electronic chemicals will continue to increase as the semiconductor industry migrates to smaller nodes, which require additional processing steps.
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PERFORMANCE MATERIALS:
PIPELINE PERFORMANCE PRODUCTS; DRAG REDUCING AGENTS ("DRAs")

Through the Acquisition, we acquired KMG’s pipeline performance business, which has enabled us to become a leading global provider of performance products and services to pipeline companies. Through this business, we supply DRAs, valve lubricants, cleaners and sealants, and related services and equipment, including routine and emergency valve maintenance services and training, to customers in the pipeline and adjacent industries. Our pipeline performance products and services provide value-added specialty products that optimize pipeline efficiency, lower operating costs, and enhance safety. Through the Acquisition, we acquired KMG’s pipeline performance business, which includes the DRA business operated through Flowchem LLC (“Flowchem”), a wholly-owned subsidiary of KMG, as well the valve lubricants and related services businesses. We operate facilities for the manufacture, formulation and distribution of our pipeline performance products in the United States and Canada. We believe demand for DRAs is driven by both production levels within current pipeline infrastructure, as well as future additional pipeline capacity coming online. In our view, aging of existing pipeline infrastructure should create additional demand, as DRAs allow pipeline customers to maximize throughput while meeting maximum pipeline pressure regulations.
WOOD TREATMENT

In the wood treatment preservatives business, KMG-Bernuth supplies penta to industrial customers who use this preservative to pressure treat wood products, primarily utility poles and crossarms, to extend their useful life by protecting against insect damage and decay.Early in the fourth quarter of fiscal 2019, we had announced that, as a result of the Mexican government’s required compliance with certain international environmental regulations and the resulting requirement that KMG-Bernuth cease producing penta in Mexico by the end of 2021, we planned to close both the Matamoros, Mexico and Tuscaloosa, Alabama facilities by such time, with the intention to consolidate operations in a new plant. However, later in the fourth quarter of fiscal year 2019, as we assessed our capital expenditure priorities for fiscal year 2020 and beyond, we made a decision to further focus our future capital investments on our high-growth core businesses, such as pipeline performance products, CMP slurries and pads and electronic chemicals. As a result, we also decided to cease future investment in the wood treatment business and to not construct a new production facility to replace current operations in Matamoros and Tuscaloosa. In the interim, prior to the closure of the Matamoros and Tuscaloosa facilities, we intend to continue to operate the existing facilities and provide our customers with quality penta products to treat and extend the useful life of wood utility poles and crossarms. We are considering various options regarding this business. See Note 9 and Note 10 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of this Annual Report on Form 10-K.
PRECISION OPTICS
Our wholly-owned subsidiary, QED Technologies International, Inc. (QED), is a leading provider of deterministic finishing and advanced measurement technology for the precision optics industry. Many of the production processes currently used in precision machining and polishing have been based on traditional, labor-intensive techniques, which are being replaced by computer-controlled, deterministic processes. Through our QED subsidiary, we are applying our technical expertise in polishing techniques to demanding applications in other industries where shaping, enabling, and enhancing the performance of surfaces is critical to success, such as for precision optics. We believe precision optics are pervasive, serving several large existing industries such as semiconductor equipment, aerospace, defense, biomedical, research and digital imaging.

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OUR PRODUCTS
ELECTRONIC MATERIALS
CMP CONSUMABLES FOR IC DEVICES AND FOR SUBSTRATE MATERIALS

We develop, produce and sell CMP slurries for polishing a wide range of materials that conduct electrical signals, including tungsten, copper, tantalum (commonly referred to as "barrier"), which is used in copper wiring applications, and aluminum.Slurries for polishing tungsten are used in essentially all chip manufacturing processes containing CMP, with growth driven by increased utilization and higher performance demands in advanced logic, DRAM and 3D NAND devices.Tungsten slurries are also used in advanced logic devices for a multitude of end use applications including MIDs such as smart phones and tablets, gaming devices, and in high-performance computing and artificial intelligence, as well as in legacy logic applications such as those used in automobiles and connected communication devices.In addition, Tungsten slurries are also used in some of the most advanced technologies, such as 3D memory and FinFET for advanced logic IC devices.Slurries for polishing copper and barrier materials are used in the production of advanced IC logic devices such as microprocessors for computers, and devices for graphic systems, gaming systems and communication devices, as well as in the production of advanced memory devices.These products include different slurries for polishing the copper film and the thin barrier layer used to separate copper from the adjacent insulating material. Slurries for polishing aluminum are used in certain advanced transistor gate structures.We offer multiple products for each technology node to enable different integration schemes depending on specific customer needs.

We also develop, manufacture and sell slurry products used to polish the dielectric insulating materials that separate conductive layers within logic and memory IC devices. Some of our slurry products for these materials are used in mature, high volume polishing applications called Interlayer Dielectric, or ILD, in the production of both logic and memory devices. Our more advanced dielectrics products are designed to deliver higher throughput, improved defectivity, and lower cost of ownership than required in traditional ILD applications, as well as to meet the more stringent and complex performance requirements of lower-volume, more specialized dielectrics polishing applications at advanced technology nodes. Some of the applications for advanced dielectrics slurries include shallow trench isolation (STI), "stop on poly" or "stop on nitride" isolation, bulk oxide polishing, and polishing of various dielectrics in advanced transistor designs.

We develop, produce and sell CMP polishing pads, which are consumable materials that work in conjunction with CMP slurries in the CMP polishing process. We believe that CMP polishing pads represent a natural adjacency to our CMP slurry business, since both technologies are required by our customers to deliver their intended result and utilize the same technical and sales infrastructure. Our polishing pad product portfolio includes pads utilizing both thermoset and thermoplastic polyurethane pad material. We produce and sell pads that can be used on a variety of polishing tools, over a range of applications, including tungsten, copper, and dielectrics, over a range of technology nodes, and on both 300mm and 200mm wafers.

In addition, we develop, produce and sell CMP slurries for polishing certain substrate related materials that are used in the production of hard disks and IC devices used in various electronics applications, which represent an extension of our core CMP slurry technology and manufacturing capabilities established for the semiconductor industry. We believe CMP significantly improves the surface finish of these substrates, resulting in better performance, such as greater storage capacity, higher speed or better power efficiency, of electronics and their applications.
ELECTRONIC CHEMICALS PRODUCTS FOR IC DEVICES AND FOR SUBSTRATE MATERIALS
Our electronic chemicals products include sulfuric, phosphoric, nitric and hydrofluoric acids, ammonium hydroxide, hydrogen peroxide, isopropyl alcohol, other specialty organic solvents and various blends of chemicals. These products are used in multipleAs the IC manufacturing process steps throughout the semiconductor fab. Customers demand an increasing level of puritymoves to enable more advanced technology nodes and the complexity of the process continues to increase, yields. Ourquality and purity of the materials becomes even more critical to the device yield. Increasing levels of purity and achieving lower levels of variation in our electronic chemicals products currently have puritybusiness are required to enable next-generation IC technologies. Our advanced chemical purification technologies, including distillation, ion exchange, gas adsorption, and filtration, are designed to provide consistently low contaminant levels up to 20 parts per trillion levels.

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PERFORMANCE MATERIALS
PIPELINE PRODUCTS
In our Flowchem business, we provide polymer-based DRAs for light, medium, and heavy crude oil transmission. We have several product offerings to meet specific customer needs depending on the physical properties of the crude being pumped and various geographic climate conditions. Our products provide benefit by reducing the pressure loss in a pipeline due to the turbulent flow. This allows pipeline operators to maximize product flow while maintaining safe operating pressure and reducing energy consumption.

In our Valve Products and Services business, we develop, manufacture, and sell products used for maintaining and extending the operational lifespan of lubricated isolation valves.We also service valves inline and under pressure through our field services division, and provide accredited training to customers in the pipeline and adjacent industries globally.
WOOD TREATMENT PRODUCTS

Penta products include solid blocks and concentrated solutions. The solid penta blocks are manufactured at our facility in Matamoros, Mexico. DT-40 (penta concentrate liquid) is processed at KMG-Bernuth’s plant in Tuscaloosa, Alabama. See above and below, and Note 9 and Note 10 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of this Annual Report on Form 10-K regarding our decision to cease future investment in the wood treatment business and to not construct a new production facility to replace current operations in Matamoros and Tuscaloosa.
PRECISION OPTICS PRODUCTS

Through QED, we design and produce precision polishing and metrology systems for advanced optics applications that allow customers to attain near-perfect shape and surface finish on a range of optical components such as mirrors, lenses and prisms. QED's polishing systems use Magneto-Rheological Finishing (MRFTM), a proprietary surface figuring and finishing technology that employs magnetic fluids and sophisticated computer technology to polish a variety of shapes and materials. QED's metrology systems use proprietary Subaperture Stitching Interferometry (SSI) technology, which captures precise metrology data for large and/or strongly curved optical parts. QED's products also include MR polishing fluids, consumables, spare and replacement parts, as well as optical polishing services and other customer support services.

STRATEGY
We collaborate closely with our customers to develop and manufacture products that offer innovative and reliable solutions to our customers' challenges, and we strive to consistently and reliably deliver and support these products around the world through what we believe is a robust global infrastructure and supply chain.high-purity process chemicals. We continue to focus onwork to develop industry-leading metrology and analytical methods to measure the execution of our primary strategies related to technology leadership, customer collaboration, and supply chain excellence.purity levels achieved.
STRENGTHENING AND GROWING OUR ELECTRONIC MATERIALS BUSINESSSTRATEGY
Delivering Innovative and High-Performing Solutions: We believe that technologyTechnology and innovation are vital to success in our Electronic Materials business, primarily in the area of CMP consumables, and we devote significant resources to research and development. We focus our research and development activity to deliver innovative CMP consumables products for advanced applications for our technology-leading customers.

We believe an example of our ability to deliver innovative products for advanced applications is the revenue generated from our tungsten and dielectrics slurry products used in 3D memory and tungsten slurry products for FinFET in advanced logic, as well as growth in revenue from our CMP pads products. We believe our focused effort on advanced technologies with technology-leading customers will enableenables us to provide more compelling new products as technology continuessemiconductor devices continue to advance. In addition,We focus our research and development activity to deliver innovative consumable products for advanced applications for our technology-leading customers. We have strategically located our research and development and clean room facilities, manufacturing operations, and related quality, field application, technical and customer support teams to be responsive to our customers' needs, which we believe our CMP pads product area representsprovides us with a promising opportunity for continued growth. competitive advantage.
We believe that our array of pad technology and products enables us to better serve the needs of our customersalso focus on a global basis, including the ability to offer performance-differentiated CMP slurry and pad consumable sets. For our electronic chemicals products, we believe increasing levels of purity and achieving lower levels of variation are required to enable these next-generation IC technologies. We continue to work to develop industry leading metrology methods to measure the purity levels achieved.


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Close Collaboration with Our Customers: We believe that building close relationships with our customers is essential to achieving long-term success in our business.customers. We collaborate with our customersthem to identify and deliver new and improved CMP solutions, to integrate our products into their manufacturing processes, and to assist them with supply, warehouse and inventory management. Our customers demand a highly reliable supply source, and we believe we have a competitive advantage because of our ability to timely deliver high-quality products and service from the early stages of product development through the high-volume commercial use of our products. We have strategically located our research and development and clean room facilities, manufacturing operations, and related technical and customer support teams to be responsive to our customers' needs, and believe they provide us with a competitive advantage. These facilities are located in the United States, South Korea, Japan, Taiwan, Singapore, France, Italy, and the United Kingdom.

We believe the several supplier excellence awards we have received from our customers over the past decade, which recognize our product quality and reliability, technology leadership, and customer support capabilities, are evidence of our commitment to, and success in, delivering high-performing and high-quality products to our customers through close collaboration with them. Our global business teams are focused on a range of projects with our customers to address specific business opportunities for advanced technologies.

Robust Manufacturing Process and Global Supply Chain: We believe thatanother competitive advantage is product and supply chain quality are critical to success in our business.quality. Our customers demand continuous improvement in the performance of our products, in terms of product performance, quality and consistency. Thus,In pursuit of this, we strivework to reduce variation incontinuously improve and innovate with respect to our own products, and processes in order to increase quality, productivity and efficiency, and improve the uniformity and consistencyas part of performancethat, we require our raw materials suppliers, who provide us with certain important elements of our CMP consumablesslurries, pads and high-purity electronic chemicals, products. Variability reduction becomes more important to our customers as technology advances. Our global manufacturing sites are managed to providedo the people, training and systems needed to support stringent industry demands for product quality. To support our quality initiative, we use Six Sigma, a systematic, data-driven approach and methodology for improving quality by reducing variability, across our Company. We believe our use of Six Sigma has contributed to lower variability in our products and sustained improvement in productivity in our operations.

We also believe that continuous improvement and variation reduction in our global supply chain are critical to our success and the success of our customers.same. We believe our capabilities in supply chain management and quality systems differentiate us from our competitors, and that our worldwide CMP consumables manufacturing plants and global network of suppliers also provide supply chain flexibility as needed.
EXPANDING OUR PERFORMANCE MATERIALS BUSINESS

Delivering High Quality Pipeline Products. For In our DRAelectronic chemicals business, we are responsible for product performance, purity levels and analytical testing, and in our Flowchem subsidiary focuses on providing superior customer serviceview, our ability to our customers while delivering consistent,maintain high quality DRA products atlevels and superior supply chain process is a competitive price. We intend to continue to serve current customers as they bring new capacity online and to grow our business through attracting and serving new customers. In addition, we continue to develop other products focused on the pipeline transmission area for which DRAs can serve currently unmet needs.advantage.

In our Valves Products and Services business, we continue to work to drive demand for our products by promoting valve best practices to energy industry operators that align with current and trending global regulations. Our primary focus is the promotion of our high-margin critical sealing products as an alternative to more costly mechanical solutions for achieving isolation in aged infrastructure.

Wood Treatment Transition. Early in the fourth quarter of fiscal 2019, we had announced that, as a result of the Mexican government’s required compliance with certain international environmental regulations and the resulting requirement that KMG-Bernuth cease producing penta in Mexico by the end of 2021, we planned to close both the Matamoros, Mexico and Tuscaloosa, Alabama facilities by such time, with the intention to consolidate operations in a new plant. However, later in the fourth quarter of fiscal year 2019, as we assessed our capital expenditure priorities for fiscal year 2020 and beyond, we made a decision to further focus our future capital investments on high-growth core businesses, such as pipeline performance products, CMP slurries and pads and electronic chemicals. As a result, we also decided to cease future investment in the wood treatment business and to not construct a new production facility to replace operations in Matamoros and Tuscaloosa. In the interim, prior to the closure of the Matamoros and Tuscaloosa facilities by the end of 2021, we intend to continue to operate the existing facilities and provide our customers with quality penta products to treat and extend the useful life of wood utility poles and crossarms. We are considering various options regarding this business. See above and below and Note 10 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of this Annual Report on Form 10-K.

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Driving Demand for Precision Optics.

Through our QED subsidiary, we develop and provide products for demanding polishing applications for precision optics, and QED continues to be the technology leader in deterministic finishing in the industry. QED’s polishing and metrology technology enables customers to replace manual processes with automated solutions that provide more precise and repeatable results.

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INDUSTRY TRENDS
SEMICONDUCTOR INDUSTRY

We believe the semiconductor industry continues to exhibit various trends. Demand within the semiconductor industry is driven by MIDs,smart phones, tablets, personal computers (PCs)(“PCs”), servers, and a wide range of other electronic applications, including high-performance computing and artificial intelligence. TheOver time, overall semiconductor industry demand has shown fluctuation in the overall industry demand,fluctuated as a result of numerous factors, including the changing mix of demand drivers, semiconductor fab utilization, pressure to reduce costs, and slowerthe pace of technology advancement.

We have discussedOver the past several years there has been a significant shift in semiconductor industry demand over the past several years from IC devices for PCs to MIDs. Demand for MIDs is largely consumer-based, versus more enterprise-basedhand-held consumer electronic devices. Future demand for PCs, and this shift introduced fluctuations in semiconductor industry demand, along with various macroeconomic and geopolitical conditions. There are several factors that could drive future industry growth, such as the: ongoing transition from traditional planar, or 2D, memory to advanced 3D memory for mobile, server, and PC applications; expected need for advanced semiconductor devices foris expected to be driven by applications such as high performance computing, virtual and augmented reality, smart phone applications, artificial intelligence, and 5G; demand for greater connectivity with wearables, peripherals, and the internet of things;things, and increased semiconductor content in automobiles; and semiconductor industry development in China.automobiles. While demand conditions may fluctuate, and periodically be softer, which we experienced in fiscal year 2019, we continue to believe that semiconductor industry demand will grow over the long term based on increased usage of IC devices in existing applications, as seen in fiscal 2020 due to increased technology needs and renewed demand for PC’s due to “work from home” and remote learning as a result of the Pandemic, as well as future applications.
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Over the past several years, we have seen consolidation in the customer base within the semiconductor industry consolidate as larger semiconductor manufacturers have generally grown faster than smaller ones, through mergers and acquisitions as well as through alliances among and between different companies.industry. Costs to achieve the required scale in manufacturing within the semiconductor industry continue to rise, along with the related costs of research and development, and larger manufacturers generally have greater access to the resources necessary to manage their businesses. This trend is particularly evident in capital spending within the industry, as the largest semiconductor companies account for an increasingly large portion of total capital spending in the industry compared to the past.

As demand for more advanced and lower cost electronic devices grows, there is continuedongoing pressure on IC device manufacturers to reduce their costs. Manufacturers have historically reduced cost and simultaneously improved device performance by migrating to smaller technology nodes. To achieve performance and cost improvements, semiconductor manufacturers are placing greater emphasis on new device architectures, including 3D memory and FinFET. Many manufacturers reduce costs by pursuing ever-increasing scale in their operations, while seeking to reduce their production costs by increasing their production yields regardless of their scale. Thus, they look for electronic materials products, such as CMP consumables and electronic chemicals products, with quality and performance attributes that can help them reduce their overall cost of ownership, pursue ways to use smaller amounts of CMP materials, and aggressively pursue price reductions for these materials. Electronic chemicals products also require increased levels of purity and, like CMP consumables products, lower levels of variation, which contributes to our pursuit of cutting-edge metrology methods to measure purity levels achieved.

Manufacturers also have historically reduced cost, and simultaneously improved device performance, by migrating to smaller technology nodes. However, as the industry continues to shrink dimensions, leading edge technology node transitions are becoming more challenging due to technical and physical obstacles, and the pace of technology change has slowed. To achieve performanceThus, they look for semiconductor materials products, such as CMP consumables and cost improvements, semiconductor manufacturers are placing greater emphasis on new device architectures, including 3D memory and FinFET. Industry commentary suggests that approximately two-thirds of the NAND market has been converted to 3D memory, and while the industry transition is almost complete, we expect additional incremental volume in the memory area associated with more vertical layers. In addition, while during our fiscal 2019 the semiconductor industry experienced weakness in overall DRAM and NAND demand that led to what we believe is a short-term reduction in wafer starts, industry expectations remain that overall demand for these devices, and the related need for increased wafer starts, should continue in the coming years. We believe semiconductor manufacturers will continue to depend upon highly engineered materials in these new architectures, requiring innovative CMP solutions. Further, as wafer starts and the subsequent number of processing steps used on each wafer continue to grow, we see the demand for our high purity electronic chemicals, products as also likely to increase.help enable the achievement of technology progression with quality and performance attributes that can help them achieve their overall performance targets, cost structure, and to drive yield improvement.

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ELECTRONIC MATERIALS DEMAND

Demand for our CMP consumables and electronic chemicals products is primarily driven by wafer starts, so the electronic materials sector reflects semiconductor industry demand patterns in terms of growth, cyclicality and seasonality, and varying demand for specific device types. Consistent with other participants in the semiconductor industry, we have experienced relatively softstable demand conditions in our fiscal 2020 despite global macroeconomic uncertainty caused by the semiconductor industry starting in our second fiscal quarter of 2019 and continuing past the end of the fiscal year, although some signs of stabilization are becoming apparent.Pandemic. Over the long term, we anticipate worldwide demand for CMP consumables and electronic chemicals used by IC device manufacturers willto grow as a result of expected long-term growth in wafer starts, and the trend to more advanced technologies. With respect to CMP consumables, we believe there will continue to be an associated increase in the number of CMP polishing steps required to produce these advanced devices, and the introduction of new materials that are expected to require CMP. With respect to electronic chemicals, we believe there will be increasing demand as customers are requiring a higher level of purity,transitioning to advanced technology nodes, which requiresrequire an increasing number of processing steps used on each wafer. In addition, as customers introduce smaller technology nodeswafer and new architectures, they requirematerials with higher purity chemicals with fewer and fewer impurities.

We expect the anticipated long-term growth in demand will be partially mitigated by continued efficiency improvements in electronic materials usage as customers seek to reduce their costs. As discussed above, semiconductor manufacturers look for ways to lower the cost of CMP consumables and electronic chemicals in their production operations. As an example, for CMP consumables, these can include customer improvements in technology, dilution of slurry, use of concentrated slurry products, or reduction of slurry flow rate, to reduce the total amount of slurry used, and to extend pad life. In addition, CMP demand also depends upon the specific mix of IC device demand, since the intensity of CMP usage varies by IC device type.

We believe that CMP technical solutions are becoming more complex, with advanced technologies generally requiring greater customization of CMP slurry products by customer, tool set and process integration approach. As a result, we generally see customers selecting suppliers earlier in their development processes and maintaining preferred supplier relationships through production. Therefore, we believe that close collaboration with our customers early in the development cycle offers the best opportunity for optimal CMP solutions. We also believe that research and development programs with customers and suppliers continue to be vital to our success as we develop and commercialize innovative, high-performing and more cost-effective CMP solutions.
PERFORMANCE MATERIALS DEMAND

Pipeline Products and Services

Demand for our pipeline performance products and services may be impacted by changes in the utilities and/or oil and gas industries. Volatility in oil and natural gas prices may impact our customers’ activity levels, including production and spending on our pipeline 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. Historically, worldwide oil and natural gas prices and markets have been volatile and may continue to be so in the future. Prices for oil and natural gas are subject to wide fluctuations in response to relatively minor 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, increases in supplies from United States shale production, international political conditions, including uprisings and political unrest, sovereign debt crises, the domestic and foreign supply of oil and natural gas, the level of consumer demand due to economic growth 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 Organization of Petroleum Exporting Countries and other state-controlled oil companies to agree upon and maintain oil price and production controls, and general economic conditions.

Wood Treatment

Demand for our wood treatment preservative products, which are used to treat and preserve wood from insect damage and decay, is driven by our customers’ demand for utility poles and railroad crossarms, which may be impacted by factors such as infrastructure improvement projects and weather-related events.See above and below, and Note 10 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of this Annual Report on Form 10-K, regarding our decision to cease future investment in the wood treatment business and to not construct a new production facility to replace operations in Matamoros and Tuscaloosa.


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Precision Optics
Demand for products produced by our QED subsidiary may be impacted by changes in the underlying industries that utilize precision optics, such as semiconductor equipment, aerospace, defense, research, biomedical and digital imaging. Since our primary QED business is the sale of capital equipment, our results may be directly affected by levels of capital spending in these industries. Historically, capital spending is very cyclical, and is impacted by several different factors. These factors include general macroeconomic conditions, government spending and policies, as well as industry-specific trends and dynamics.levels.
COMPETITION
ELECTRONIC MATERIALS

We compete in the semiconductor industry, which is characterized by advances in technology andadvances, demanding requirements for product quality and consistency, and lower cost of ownership. We face competition from other suppliers of electronic materials. However, as to our CMP consumables business, weWe believe we are the world’s leading global supplier of CMP slurries, and the second largest providerwith a broad range of CMP pads. We believe we continue to be well-positioned to retain and grow our business, and that we have the experience, scale, capabilities and infrastructure that are required for success, as we continue to work closely with technology-leading customers in the semiconductor industry to meet their growing expectations as a trusted business partner.

innovative solutions. Our CMP slurry competitors range from small companies that compete with a single product or in a single geographic region, to divisions of global companies with multiple lines of CMP products. In our view, we are the only CMP slurry supplier today that serves a broad range of customers by offering and supporting a full line of CMP slurry solutions for all major applications, with a proven track record of supplying these products globally in high volumes with the requisite high level of technical support services.

With respect to CMP polishing pads, a division of DowDuPontDuPont has held the leading position in this area for many years. Several other companies also participate in this area of the CMP consumables business.We believe that our distinctive portfolio of pad technology and products enables us to meet our customers' needs for improved defectivity, greater pad consistency, and longer pad life. In addition, we believe that our full array of polishing pads offerings enables us to better serve our customers on a global basis, including our performance-differentiated slurry and pad consumable sets.consumables.

As toFor our electronic chemicals business, there are various competitors with whom we compete in different regions. In North America, we believe that we have a significant leadership position, and our principal competitorsthese include Honeywell, Kanto Corporation and Avantor. Outside of the United States (U.S.), other providers in Europe are BASF, Technic and Honeywell, and in Asia, BASF and Kanto Corporation, among others. We believe our business in Europe is comparable to other providers, and other than in Singapore, at present we do not participate materially in the business in Asia.
PERFORMANCE MATERIALS
In our pipeline performance business, LiquidPower Specialty Products Inc. holds the leading position in DRAs, with Baker Hughes as the other primary provider. For our valve products and services, however, participants include numerous other businesses with none appearing to hold a leadership position.

With respect to our wood treatment business, penta products are and must be registered prior to sale under United States law. See Item 3 of this Annual Report on Form 10-K. As a condition to registration, any company wishing to manufacture and sell these products must provide substantial scientific research and testing data regarding the chemistry and toxicology of the products to the U.S. Environmental Protection Agency (“EPA”). This data must be generated by the applicant, or the applicant must purchase access to the information from other data providers. We believe that the cost of satisfying the data submission requirement serves as an impediment to the entry of new competitors, particularly those with lesser financial resources. While we have no reason to believe that the product registration requirement will be materially modified, we cannot give any assurances as to the effect of such a discontinuation or modification on our business or competitive position.

Our QED subsidiary operates in the precision optics industry. There are few direct competitors of QED and we believe its technology is unique and provides a competitive advantage to customers in the precision optics industry, which still relies heavily on traditional artisanal methods of fabrication.

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CUSTOMERS, SALES, AND MARKETING
ELECTRONIC MATERIALS
Within the semiconductor industry, our customers are generally producers of logic or memory IC devices, or providers of IC foundry services. Some logic customers, and so-called "fabless" companies, outsource some or all the production of their devices to foundries, which provide contract manufacturing services, in order to avoid the high cost of process development, construction and operation of a fab, or to provide additional capacity when needed.

We believe the primary influences of our customers' electronic materials buying decisions are: overall cost of ownership, which represents the cost to purchase, use and maintain a product; product quality and consistency; product performance and its impact on a customer's overall yield; engineering support; and, supply assurance. We believe that greater customer expertise within the processes that utilize our CMP consumables and electronic chemicals, more challenging integration schemes, additional and unique polishing materials, and cost pressures will continue to increase demands on suppliers like us.

We use a collaborative approach to build close relationships with our customers in a variety of areas, and we have customer-focused teams in each major geographic region. Our sales process begins long before the actual sale of our products and occurs on numerous levels. Due to the long lead times from research and development to product commercialization and sales, we have research teams that collaborate with technology-leading customers on emerging applications years before the products are required by the market. For CMP consumables, we also have development teams that interact closely with these customers, using our research and development facilities and capabilities to design products tailored to their needs. Next, our applications engineers work with customers to integrate our products into their manufacturing processes. Finally, as part of our sales process, our logistics and sales personnel provide supply, warehouse and inventory management services for our customers, which is also the case for our electronic chemicals customers.

We market our CMP slurry and pad products primarily through direct sales to our customers, although we use distributors in certain areas. We believe this strategy of primarily direct sales provides us an additional means to collaborate closely with our customers and provides our customers with the most efficient means by which to procure our products.

As part of our sales process, our logistics and sales personnel provide supply, warehouse and inventory management services for our customers.
For additional information on our customers, refer to Note 2 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of this Annual Report on Form 10-K.
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RESEARCH, DEVELOPMENT AND TECHNICAL
As technology advances and semiconductor materials and designs increase in complexity, these challenges require significant investments in research, development and technical support (“R&D”), and we plan to continue to devote significant resources to R&D, and balance our efforts between shorter and longer-term industry needs.
Our global R&D team includes experts from the semiconductor industry and scientists and engineers from key disciplines required for the development of high-performance CMP consumable products. We operate CMP consumable product R&D facilities primarily in the U.S., with certain development capabilities in Taiwan and South Korea, in Singapore for data storage, and in Japan for silicon wafer products. We also operate electronic chemicals product development facilities in the U.S., Europe, and Singapore.
RAW MATERIALS SUPPLY
Engineered abrasive particles are significant raw materials we use in many of our CMP slurries. Our strategy is to secure various sources of different raw materials, as appropriate, to enable the desired performance of our products, and monitor those sources as necessary to provide supply assurance. We have multi-year supply agreements with several suppliers for the purchase of raw materials in the interest of supply and quality assurance, and to control costs.
In our electronic chemicals business, we rely on a variety of suppliers for our raw materials, some of which we purchase pursuant to purchase orders, and others which we purchase under supply contracts. The number of suppliers is often limited, particularly as to the specific grade of raw material required by us to supply high purity products we market through a combination of an internal sales force and distributors organized by geographic region.to our customers.
PERFORMANCE MATERIALS SEGMENT
PipelineOur Performance Materials segment includes our pipeline and industrial materials (“PIM”) business, wood treatment business, and precision optics business. We are a leading global provider of products, services, and solutions for optimizing pipeline throughput and maximizing performance and safety. Our PIM products include drag-reducing agents (“DRAs”), valve greases, cleaners and sealants, and related equipment supporting pipeline and adjacent industries. We also provide routine and emergency maintenance services as well as training for customers in the pipeline and adjacent industries worldwide. Through QED Technologies International, Inc. (“QED”), our precision optics business, we serve the precision optics industry with capital equipment, consumables, and services. KMG-Bernuth operates the wood treatment business, which manufactures and sells wood treatment preservatives made from pentachlorophenol (“penta”).
PIM PRODUCTS AND SERVICES
We are a leading global provider of performance products and services to pipeline companies. We supply DRAs, valve greases, cleaners and sealants, and related services and equipment, including routine and emergency valve maintenance services and training, to customers in the pipeline and adjacent industries. Our PIM products and services provide value-added specialty products that optimize pipeline efficiency, lower operating costs, and enhance safety. We operate facilities for the manufacture, formulation and distribution of our products in the U.S. and Canada. Our PIM products are sold under the brands Flowchem, Sealweld, and Val-Tex.
We provide polymer-based DRAs for crude oil transmission. We have several product offerings to meet specific customer needs depending on the physical properties of the oil being pumped and various geographic climate conditions. Our products provide benefit to our customers by reducing the pressure loss in a pipeline due to turbulent flow within it. This allows pipeline operators to maximize product flow while maintaining safe operating pressure and reducing energy consumption.
We develop, manufacture, and sell products used for maintaining and extending the operational lifespan of lubricated isolation valves. We also service valves inline and under pressure through our field services division and provide accredited training to customers in the pipeline and adjacent industries globally.
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QED
QED is a leading provider of deterministic finishing and advanced measurement technology to the precision optics industry. We design and produce precision polishing and metrology systems for advanced optics applications that allow customers to attain near-perfect shape and surface finish on a range of optical components such as mirrors, lenses and prisms. QED's products also include magneto-rheological polishing fluids, consumables, spare and replacement parts, as well as optical polishing services and other customer support services. We are applying our technical expertise in polishing techniques to applications in other industries where shaping, enabling, and enhancing the performance of surfaces is critical to success. We believe precision optics are pervasive, serving several large existing industries such as semiconductor equipment, aerospace, defense, biomedical, research and digital imaging.
WOOD TREATMENT
The wood treatment preservatives business supplies penta-based products to industrial customers in the U.S. and Canada who use this preservative to pressure treat utility poles and crossarms to extend their useful life by protecting against insect damage and decay. Penta products include solid blocks, which are manufactured by KMG-Bernuth at its facility in Matamoros, Mexico, and penta concentrate liquid that is processed from penta blocks at KMG-Bernuth’s plant in Tuscaloosa, Alabama. We are the only manufacturer of penta-based preservatives in North America.
In the fourth quarter of fiscal 2019, we made a decision to close KMG-Bernuth’s Matamoros, Mexico and Tuscaloosa, Alabama wood treatment facilities and cease participating in the wood treatment business by approximately the end of calendar year 2021, and focus our strategy and future capital investments on our core businesses.Leading up to the planned closure of the Matamoros and Tuscaloosa facilities, we intend to continue to operate the existing facilities and serve our wood treatment customers. For additional information, refer to Note 9 and Note 10 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of this Annual Report on Form 10-K.
STRATEGY
Our strategy for our Performance Materials segment focuses on expanding the PIM business, delivering high quality products to our customers, and driving demand for our products.
PIM PRODUCTS AND SERVICES
We focus on providing superior customer service to our customers while delivering consistent, high quality DRA products that meet their needs at a competitive price. We intend to continue to serve current customers as they bring new capacity online and to grow our business through attracting and serving new customers. In addition, we continue to develop other products focused on the pipeline transmission area for which we believe DRAs can serve currently unmet needs.
Additionally, we continue to work to drive demand for our products by promoting valve best practices to energy industry operators that align with current and trending global regulations and sustainable practices. Our primary focus is the promotion of our critical sealing products as an alternative to more costly mechanical solutions for achieving isolation in aged infrastructure.
QED
Our focus for QED is to provide innovative and industry-leading products and services to the precision optics industry. We continue to drive demand for our products to new and existing customers by developing new equipment and capabilities, pursuing emerging applications, and communicating the unique value offered by our products.
DEMAND
PIM PRODUCTS AND SERVICES
Demand for our PIM products and services is driven by new pipeline construction, increasing rate of adoption, oil and gas production capacity, and focus on safety for the aging infrastructure. Demand for our PIM products decreased significantly in the second half of fiscal 2020 as a result of the Pandemic and the related extreme global reduction in and restrictions related to plane, automotive, and industrial activity.
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QED
Demand for products produced by QED is typically driven by the trends in the underlying industries that utilize precision optics, such as semiconductor equipment, aerospace, defense, research, biomedical, and digital imaging. Since our primary QED business is the sale of capital equipment, our results are typically affected by levels of capital spending in these industries. Historically, capital spending is cyclical, and is impacted by general macroeconomic conditions, government spending and policies, as well as industry-specific trends and dynamics.
COMPETITION
In our PIM business, LiquidPower Specialty Products Inc. holds a leading position in DRAs, with Baker Hughes as another primary provider. For our additional PIM products and Servicesservices, however, participants include numerous other businesses with none appearing to hold a leadership position.
ThroughIn QED, there are few direct competitors but we believe our Flowchem subsidiary,technology is unique and provides a competitive advantage to customers in the precision optics industry, which still relies heavily on traditional artisanal methods of fabrication.
In our wood treatment business, we are the only manufacturer of penta-based wood treatment preservatives in North America.
CUSTOMERS, SALES, AND MARKETING
PIM PRODUCTS AND SERVICES
We provide DRAs to several major mid-stream pipeline transmission companies both domestically and internationally. We have a U.S.-based and global sales team,network, a wholly-ownedU.S.-based transportation and logistics companyoperations, and a global network of distributors and agents to manage the sales and delivery of our products. Our main marketing approach is throughFor our membership in industry-based professional organizations, trade showsadditional PIM products and publications.

In our Valve Products & Services business,services, we market and sell to pipeline and adjacent industry customers, such as service companies, and major utility distribution companies via direct sales and channel partners. We actively participate as industry experts in global industry trade shows and forums through technical presentations and white papers.
Wood TreatmentQED
The principal wood preserving chemicals for industrial applications are penta, which is the base for our products, creosote and chromated copper arsenate, or CCA. We only supply penta to customers in the United States and Canada. We do not have other products or business. We are the only manufacturer of penta-based preservatives in North America. Penta is used primarily to treat electric, telephone and other utility poles, to protect them from insect damage and decay, thus extending their useful life by many years. We estimate that approximately two million treated wood utility poles are purchased each year by utility companies in the United States. Of that amount, we estimate approximately 50% are treated with penta. The remaining poles are treated primarily with creosote or CCA.


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Precision Optics

Our QED subsidiary supports customers in the semiconductor equipment, aerospace, defense, research, biomedical, and digital imaging industries. QED counts among its worldwide customers leading precision optics manufacturers, major semiconductor original equipment manufacturers, research institutions, and contractors to the United StatesU.S. and other governments.

WOOD TREATMENT
For additional information on ourWe are the only manufacturer of penta-based wood treatment preservatives in North America and only supply penta to customers refer to Note 2 of “Notes toin the Consolidated Financial Statements” includedU.S. and Canada. We do not have other products or business in Item 8 of Part II of this Annual Report on Form 10-K.area.
RESEARCH, DEVELOPMENT AND TECHNICAL
We believe that technology is vital to success inFor our businesses, primarily in the area of CMP consumables, and we plan to continue to devote significant resources to research, development and technical support (“R&D”), and balance our efforts between shorter and longer-term industry needs. Here,PIM products, we focus our R&D efforts on product innovation at leading-edge applications for our technology-leading customers. We develop new and enhanced CMP solutions tailored to these customers' requirements using our expertise in chemical formulation, materials science, product engineering and manufacturing technology. We work closely with these customers at their facilities to identify their specific technology and manufacturing challenges and to translate these challenges into viable CMP process solutions.

Our Research, development and technical efforts are focused on the areas of research related to fundamental CMP technology; development of new and enhanced CMP consumables products, including collaboration on joint development projects with technology-leading customers and suppliers; process development to support rapid and effective commercialization of new products; technical support of our CMP products in our customers’ research, development and manufacturing facilities; and, development of polishing and metrology application outside of the semiconductor industry.

Our research in CMP slurries and pads addresses a breadth of complex and interrelated performance criteria that relate to the functional performance of IC devices, our customers' manufacturing yields, and their overall cost of ownership. We design slurries and pads that are capable of polishing one or more materials of differing hardness, sometimes at the same time, that comprise the semiconductor circuitry. In addition, our slurries and pads products must achieve the desired surface conditions at high polishing rates, high processing yields and low consumables costs in order to provide acceptable cost of ownership for our customers. Meanwhile, our electronic chemicals products are subject to increased high purity demand to enable more advanced technology nodes and increase yields. These market expectations require us to continue to develop industry leading metrology methods in order to measure the purity levels achieved. As technology advances and materials and designs increase in complexity, these challenges require significant investments in R&D.

We believe that our technology provides us with a competitive advantage, and that our investments in R&D provide us with polishing and metrology capabilities that support the most advanced and challenging customer technology requirements.

Our global R&D team includes experts from the semiconductor industry and scientists from key disciplines required for the development of high-performance CMP consumable products. We operate an R&D facility in Aurora, Illinois, that features a Class 1 clean room and advanced equipment for product development, including 300mm polishing and metrology capabilities;; a facility in Taiwan that includes a clean room with 200mm polishing capability; a facility in South Korea that provides slurry formulation capability and 300mm polishing capability; and, an R&D laboratory in Singapore that provides polishing, metrology and slurry development capabilities for the data storage industry. We also operate R&D facilities in the United States, Europe, and Singapore pertaining to our electronic chemicals business. Our slurry, pads, and electronic chemicals facilities underscore our commitment to continuing to invest in our technology infrastructure to maintain our technology leadership and to be responsive to the needs of our customers.

For our pipeline performance products, in our Flowchem business, we employ several resources and facilities to performU.S.-based research and development activities. We focusactivities on both improving existing product performance as well as developing new products/products and technologies to serve our customers’ needs for DRAs.needs.

We also commitFor QED, R&D resources to our QED subsidiary. These activities are primarily focused on the development of new polishing and metrology capabilities, in support of our MRF and SSI product lines, as well as additional capabilities for our polishing services group. This work is done in our facilities in Rochester, New York.
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RAW MATERIALS SUPPLY
Engineered abrasive particles are significant raw materials we use in many of our CMP slurries and pads. Our strategy is to secure various sources of different raw materials, as appropriate, to enable the desired performance of our products, and monitor those sources as necessary to provide supply assurance. Also, we have entered into multi-year supply agreements with several suppliers for the purchase of raw materials in the interest of supply assurance and to control costs. For additional information regarding these agreements, refer to "Tabular Disclosure of Contractual Obligations", included in "Management's Discussion and Analysis of Financial Condition and Results of Operations," in Item 7 of Part II of this Annual Report on Form 10-K. In our electronic chemicals business, we rely on a variety of suppliers for our raw materials, some of which we purchase on open account and others which we purchase under supply contracts. The number of suppliers is often limited, particularly as to the specific grade of raw material required by us to supply high purity products to our customers.

For both our pipeline performancePIM products and our wood treatment products, we depend on outside suppliers for all the raw materials needed to produce our productsthem and are subject to fluctuations in the price of those materials. Wematerials, which we purchase raw materials for these businesses from a limited number of suppliers. Most of our QED subsidiary’s business relates toQED’s is capital equipment,equipment-based, thus, there are minimal raw material supply issues that we face within this business unit.
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INTELLECTUAL PROPERTY
We believe our intellectual property is important to our success and ability to compete, and in addition to it, we also differentiate our products and technology by their high quality and reliability, and our quality systems, global supply chain and logistics. As of October 31, 2019,2020, we had 1,3171,301 active worldwide patents, of which 284 United States268 U.S. patents, and 357344 pending worldwide patent applications, of which 5145 are in the United States.

U.S.
Many of these patents are important to our continued development of new and innovative products for CMP and related processes, as well as for new businesses. Our patents have a range of duration. We refresh our intellectual property on an ongoing basis through continued innovation. As an example, we have had patent coverage that was important to some of our legacy CMP slurry business and continue to have significant other patents that protect this technology and other legacy and advanced technology with a range of duration. We attempt to protect our intellectual property rights through a combination of patent, trademark, copyright and trade secret laws, use of certain manufacturing technologies, exclusive contractual arrangements with suppliers, and with employee and third party-nondisclosure and assignment agreements. We refresh our intellectual property on an ongoing basis through continued innovation. We vigorously protect and defend our intellectual property and have been successful in this regard.

Most of our intellectual property has been developed internally, but we also may acquire intellectual property from others to enhance our intellectual property portfolio. These enhancements may be via licenses or assignments, or we may acquire certain proprietary technology and intellectual property when we make acquisitions. We believe these technology rights can enhance our competitive advantage by providing us with future product development opportunities and expanding our intellectual property portfolio.
ENVIRONMENTAL, SAFETY AND HEALTH AND OTHER REGULATORY MATTERS

ENVIRONMENTAL, SAFETY AND HEALTH MATTERS
Our facilities and operations are subject to various environmental, safety, and human health laws and regulations, both at a federal and state or local level, including those relating to air emissions, wastewater discharges, chemical manufacture and distribution, the handling and disposal of solid and hazardous wastes, storage and disposal, and various other occupational safety and health matters. Governmental authorities can to enforce compliance with their regulations, and violators may be subject to civil, criminal, and administrative penalties, injunctions, or both. We believe that our facilities are in substantial compliance with applicable environmental laws and regulations. Our major operations in the United States,U.S., Japan, Singapore, South Korea, Taiwan, France, Italy, and the United Kingdom are certified under current ISO 14001 Environmental and OHSAS 18001 Safety and Health standards, which requiresrequire that we implement and operate according to various procedures that demonstrate waste reduction, energy conservation, injury reduction and other environmental, health and safety and sustainability objectives. We have achieved certification under the revised ISO 14001 standards and are now actively pursuing certification under revised OHSAS 18001 standards that will transition to ISO 45001 standards over the next three years. We have incurred, and will continue to incur, capital and operating expenditures and other costs in complying with environmental, safety and health laws and regulations in the United StatesU.S. and other countries in which we do business, but we do not expect these costs will be material. SeeFor additional information, refer to “Item, 1A. Risk Factors.”Factors”, Item 3 “Legal Proceedings”, and Note 20 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of this Annual Report on Form 10-K.

EMPLOYMENT AND LABOR RELATIONS MATTERS

We are subject to numerous foreign, federal, state and local government laws and regulations governing our relationships with our employees, including those relating to minimum wage, overtime, working conditions, hiring and firing, non-discrimination, work permits and employee benefits. We believe that our operations are conducted in compliance in all material respects with such laws and regulations. We have not experienced any significant work stoppages or disruptions to our business relating to employee matters. We believe that our relationship with our employees is good. For additional information, refer to “Item, 1A. Risk Factors.” and Item 1, Business, Environmental, Safety and Health and Other Regulatory Matters -- “Employees and Talent (Human Capital) Management.”
IMPORT AND EXPORT CONTROL AND RELATED MATTERS
We manufacture, market and sell our products both inside and outside the U.S. Certain products are subject to the Export Administration Regulations, administered by the U.S. Department of Commerce, Bureau of Industry and Security, which require that we obtain an export license before we can export certain controlled products or technology to specified countries. Additionally, some of our products are subject to the International Traffic in Arms Regulations, which restrict the export of information and material that may be used for military or intelligence applications by a foreign person. We also are subject to the import regulations administered by U.S. Customs and Border Protection, and to the regulations administered by the U.S. Department of the Treasury, Office of Foreign Assets Control, implementing economic sanctions against designated countries, governments, and persons based on U.S. foreign policy and national security considerations.
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Similar controls exist in other countries and regions. Failure to comply with these laws could result in sanctions by the U.S. or other respective government, including substantial monetary penalties, denial of import or export or other privileges and debarment from government contracts. We maintain an import and export compliance program under which we screen import and export and other transactions against current lists of restricted imports or exports or other transactions, destinations and end users with the objective of managing related decisions, transactions and shipping and banking logistics to comply with these requirements.
EMPLOYEES AND TALENT (HUMAN CAPITAL) MANAGEMENT
We believe our employees are the foundation of our success. Our overall talent acquisition and retention strategy is designed to attract and retain diverse and qualified candidates to meet our performance goals on an ongoing basis and enable the success of the Company.
We are focused on employee safety and health and a shared culture of results, caring, candor, and learning, which are foundations of our Company’s values, and are expressed in our Code of Business Conduct, to which all employees certify, and related policies and procedures in the countries in which we do business. With respect to employee health and safety measures, we focus on ongoing education with respect to environmental, health and safety (“EHS”) matters, and injury prevention and reduction across all our operations. We track injury rates on an ongoing basis and compare them to the average injury rates for chemical manufacturers as well as to semiconductor industry manufacturers; we believe we have been significantly below each of these industry averages for the past five years. In fiscal 2020 we urgently focused our EHS efforts around the world, including education and enhanced health and safety protocols, on employee well-being and prevention of the spread of the Pandemic at our facilities and in our communities. For additional information, refer to “Item 1A. Risk Factors.”
As of October 31, 2019,September 30, 2020, we employed 2,0472,082 individuals, including 1,3851,413 in operations, 249252 in research and development and technical, 413417 in sales, general and administration. Approximately 1,091 of these individuals located in the U.S. and approximately 991 of these individuals located outside of the U.S., with 716 in Asia Pacific, 199 in Europe and 76 in Canada and Mexico. With respect to gender diversity, we believe the percentage of women in our worldwide workforce is at least generally comparable to averages in the chemical and semiconductor industries. Of our Executive Officers 50% identify as female, and 50% identify as male.
In general, our employees are not covered by collective bargaining agreements, but we do have some workers who are subject to such agreements, part of worksworkers’ councils, or similar arrangements, primarily in Europe, Mexico, and Singapore. We have not experienced any work stoppages and consider our relations withprovide various employee benefits to our employees around the world. Some examples of this are: an employee stock purchase plan, a parental leave program, and a paid time off program to be good.global employees; statutory health care and pension benefits to our employees outside the U.S.; and, a health and welfare benefits plan and a defined contribution savings plan to U.S. employees. See Note 18 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of this Annual Report on Form 10-K.
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

We sell our products worldwide. We believe our geographic coverage allows us to utilize our business and technical expertise from a diverse, global workforce, strategically located in close proximity to our customers. As a result of the Acquisition, our geographic mix has changed. For example, in fiscal 2019, our North America revenue as a percentage of total revenue has increased from 13% to 36% compared to fiscal 2018. While approximately 50% of our global revenue is still being generated in Asia Pacific, our dependency on revenue from Asia Pacific has decreased as a result of the Acquisition. For more financial information about geographic areas, see Note 23 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of this Annual Report on Form 10-K.

SEASONALITY

Our Electronic Materials business experiences some seasonality, mostly related to fluctuations in consumer demand for MID’s around the December and lunar new year holidays, and back to school periods, but over the past several years seasonality has appeared more muted, tempered by the broader array of factors affecting demand, such as 5G, Cloud computing, and AI. In our Performance Materials business, demand for our pipeline performance products such as DRAs appears to have some seasonality linked to weather, with demand for DRAs increasing in the colder months, yet demand from additional pipeline capacity coming online has made this less apparent.
AVAILABLE INFORMATION
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, definitive proxy statements on Schedule 14A, current reports on Form 8-K, and any amendments to those reports, as well as any other filings with the SEC,Securities and Exchange Commission (“SEC”), are made available free of charge on our Company website, www.cabotcmp.com,www.cmcmaterials.com, as soon as reasonably practicable after such reports are filed or furnished with the SecuritiesSEC. Our Code of Business Conduct and Exchange Commission (SEC).certain other governance documents are also available on our website, www.cmcmaterials.com. Statements regarding beneficial ownership of our securities by our executive officers and directors are made available on our Company website following the filing of such with the SEC. In addition, the SEC's website (http://www.sec.gov) contains reports, proxy statements, and other information that we file electronically with the SEC.
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ITEM 1A. RISK FACTORS

RISKS RELATING TO OUR BUSINESS, STRATEGY AND OPERATIONS
OUR BUSINESS AND RESULTS OF OPERATIONS MAY BE ADVERSELY AFFECTED BY THE CORONAVIRUS (COVID-19) 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 and fourth fiscal quarters of 2020, businesses in our Electronic Materials segment remained generally stable despite the Pandemic. With respect to our Performance Materials segment, the Pandemic had a significant adverse impact on our Performance Materials’ PIM business in our third and fourth fiscal quarters of 2020, as the demand for DRAs 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 may further impact our business, operations, results of operations and financial condition is uncertain and difficult to estimate, and depends on numerous evolving factors that we may not be able to accurately predict, which may include: A decrease in short-term and long-term demand and pricing for our products and services, and an ongoing 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 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, R&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, 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 or limiting 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. To the extent possible if and when the Pandemic is contained or abates, the resumption of what was previously considered normal business operations after such interruption 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 in the places in which we do business, such as is currently being experienced in the U.S. and Europe, could exacerbate the adverse impact of such measures on our Company.
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DEMAND FOR OUR PRODUCTS FLUCTUATES AND OUR BUSINESS MAY BE ADVERSELY AFFECTED BY WORLDWIDE ECONOMIC, INDUSTRY AND INDUSTRYOTHER 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, we have experiencedprior to the Pandemic, the relatively soft demand conditions in the semiconductor industry startingthat had commenced in our second fiscal quarter of 2019 and continuing pastcontinued into our first fiscal quarter of 2020 had begun to ameliorate in the endbeginning of the second fiscal year,quarter of 2020. However, although some signsour Electronic Materials segment experienced relatively stable conditions during the third and fourth fiscal quarters of stabilization are becoming apparent. Previously, we had experienced2020, the strengtheningongoing nature of the Pandemic has created uncertainty as to demand conditions infor the semiconductor industry from the second half ofgoing forward into our fiscal 2016 through fiscal 2018, following relatively soft demand conditions during the first half of fiscal 2016.2021 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.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 and international trade tensions, civil unrest, or geopolitical events,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 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.

As to our Performance Materials segment, which continues to be an area of potential continued growth for us over the longer term, our PIM business may be impacted by changes in the utilities and/or oil and gas industries. Volatilityindustries, such as we saw in our third and fourth fiscal quarters 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") and Russia, and a confluence of an excess in oil capacity due to these factors and the ongoing 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 spending onas we saw during the third and fourth fiscal quarters of 2020, we experienced a significant drop in demand for our performance materialsrelated PIM products and services. Expectations about future prices and price volatility are important in determining future spending levels for customers of our pipeline performancePIM products and services. Historically,The ongoing volatility in worldwide oil and natural gas prices and markets have been volatile,are an extreme example of historical volatility in this sector, and maysuch volatility is likely to continue to be so in the future. PricesAs 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 international politicalor other oil production, geopolitical conditions, including uprisings, civil unrest, and political unrest,international trade tensions, sovereign debt crises, the domestic and foreign 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 Organization of Petroleum Exporting CountriesOPEC and other state-controlled oil companies to agree upon and maintain oil price and production controls, and general economic conditions.

conditions, such as those currently seen related to the Pandemic.
Further, adverse global economic, industry and industryother conditions such as those related to the ongoing 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 revenuesrevenue 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 NexPlanarthe Acquisition 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 and the fourth quarter of fiscal 2020 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 Tuscaloosawood treatment facilities and there are fewer estimated future cash flows, there is ongoing potential for furtherwe expect that the carrying value of the wood treatment asset group will not be recoverable, resulting in future impairments of long-livedintangible assets and impairmentgoodwill. The amount of goodwill. While the timingsuch 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 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of this Annual Report on Form 10-K for a more detailed discussion of this impairment.

additional discussion.
Furthermore, the integration of the recently acquired KMG businessbusinesses 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 businessacquisitions, and the process of integration may produce unforeseen operating difficulties and expenditures. TheAs demonstrated in the Acquisition, the primary areas of focus for successfully combining the business of KMGthose businesses with our operations may include and hashave included, among others: retaining and integrating key employees; realizing synergies; aligning customer and supplier interface,interfaces, 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 thean acquired business, ofsuch as 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,U.S., these entities frequently are state-owned or sponsored, and limited in number per country, as described more above.country. 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, orglobal public health crises such as the ongoing 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. An extended work stoppage, slowdown or other action by our employees could significantly disrupt our business. As our current agreements with labor unions and works councils 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.
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 performancePIM 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 FOREIGNINTERNATIONAL OPERATIONS

We currently have operations and a large customer base outside of the United States.U.S. Approximately 64%65% of our revenue was generated by sales to customers outside of the United StatesU.S. for the full fiscal year ended September 30, 2019.2020. We may encounter risks in doing business in certain foreign countries other than the U.S., including, but not limited to, adverse changes in economic and political conditions, both in foreign locations and in the United StatesU.S. with respect to non-U.S. operations of U.S. businesses like ours, geopolitical and/or trade tensions, global health crises such as the ongoing 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 outside of the U.S., derive anticipated tax benefits of our foreignthese operations or recover the investments made in our foreign operations,them, whether due to regulatory or policy changes in the U.S. or in the countries outside of the U.S. in which we do business, or other factors.

In particular, China continues to be a fast-developingan 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 continueshas continued to grow, there is risk that geopolitical, regulatory, trade, political and political mattersglobal 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,U.S., 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, as has been seen over our last fiscal year, there are risks that the U.S. 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, where voters have approved an exit fromwhich recently has exited the European Union (“Brexit”EU”), which is supposed to occur by January 31, 2020. The. Although the United Kingdom and the European UnionEU have agreed to operate under transitional provisions under which most European UnionEU law would remain in force in the United Kingdom until the end of December 2020, however, this transitional period remains subject to the successful conclusion of a final withdrawal agreement between the parties. In the absence of such an agreement, there would be no transitional provisions and a “hard” Brexit would occur. Although it is unknownat present unclear as to what trade agreement the terms ofparties will operate under following such an agreement, assuming it is reached, will be, it is possible that there will be greater restrictions on importstime, and exports between the United Kingdom and European Union countries, a fluctuation in currency exchange rates and increased regulatory complexities. These changes may adversely affect our operations and financial results. Whilewhat impacts such changes in laws, regulations and conditionsmight have not had a material adverse effect on our business or financial condition to date, we cannot provide assurances regarding the future effect of any such changes.
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LEGAL, COMPLIANCE AND REGULATORY RISKS
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 EPAUnited States Environmental Protection Agency (“EPA”) and other federal and state agencies in the United States,U.S., 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 remediationenvironmental compliance costs. We are currently involved in investigation and remediationcontinue to manage environmental compliance activities at certain sites, such as at KMG-Bernuth's Tuscaloosa, Alabama facility as described in Note 1020 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of this Annual Report on Form 10-K. 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 described in Note 20 of this Annual Report on Form 10-K 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”), the EPA requires registrants to submit a wide range of scientific data to support U.S. registrations. This requirement significantly increases our operatingOperating expenses, and we expect those expenses will continue in the future.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 changesAmendments to the Toxic Substances Control Act (“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:EU: REACH requires chemical manufacturers and importers in the European UnionEU 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 arehave been phased in over several years. We will incuryears, and we have incurred 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.EU. 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. 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 calendar year 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 October 2020, the EPA indicated it was inclined to issue a proposed order that provided alternatives, one similar to Canada’s proposed order and one that would provide reregistration according to certain additional occupational use parameters to those currently existing, but any such proposed order would be subject to a comment period, including with respect to the second alternative, would be expected to provide a transition period intended not to disrupt customers of penta. In July 2019, KMG-Bernuth had communicated plans to close both the Matamoros and Tuscaloosa facilities by such datethe end of calendar year 2021 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 while we intend to explore various options for the wood treatment business.business we did not intend to continue the business past approximately the end of calendar year 2021. We have takentook 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 10 of this Annual Report on Form 10-K, we have taken an additional impairment charge in our fourth fiscal quarter of 2020 and expect to take additional impairment charges related to the wood treatment business through the end of calendar year 2021. 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: as described above, KMG-Bernuth's penta product registrations are under continuous review by the EPA under FIFRA. KMG-Bernuth has submitted and will submit a wide range of scientific data to support its U.S. 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. but cannot tell you 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 current or future-acquired 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.

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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CURRENT OR FUTURE CLIMATE CHANGE REGULATIONREGULATIONS COULD RESULT IN INCREASED OPERATING COSTS AND REDUCED DEMAND FOR OUR PRODUCTS

AlthoughThe U.S. has notified the U.S.United Nations of its intention to withdraw from the Paris Climate Agreement and to date, has not ratified the Kyoto Protocol, a number of federal laws relatedProtocol. The Clean Air Act has been interpreted to “greenhouse gas” or “GHG”regulate greenhouse gas (“GHG”) emissions have been considered by Congress. Because of the lack of any comprehensive legislation program addressing GHGs,and the EPA is using its existing regulatory authority to promulgatedevelop 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,Because of the lack of any comprehensive legislation program addressing GHGs, a number of U.S. federal laws related to GHG emissions have been considered by the U.S. Congress from time to time and various state, local and regional regulations and initiatives have been enacted or are being considered related to GHGs.

Member States of the European UnionEU 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, organizationsGHG emissions are regulated by Member States through the EU Emission Trading System and the EU Effort Sharing Decision/Regulation depending upon the industry sector. 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.

In addition to GHG and climate change regulatory developments and legislation, we are continuing to evaluate and assess the potential impact on our business of the ongoing transition worldwide to a low carbon, resilient economy as well as physical effects resulting from climate change.
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, investors and investor advisory firms, 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, investor 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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GENERAL COMMERCIAL, OPERATIONAL, FINANCIAL AND REGULATORY RISKS
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 ourthe 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,U.S., state, local and foreign tax rules. In December 2017, comprehensive tax legislation commonly referred to aswas enacted in the U.S. under the Tax Cuts and Jobs Act (the "Tax Act"“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 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 describe in Note 19 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of this Annual Report on Form 10-K. 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, whether in response to the Tax Act or otherwise, 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.


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In addition, regulatory authorities have increased their focus on how companies collect, process, use, store, share and transmit personal data. New privacyPrivacy security laws and regulations, including the United Kingdom's Data Protection Act 2018 and the European UnionEU 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.

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 inIn the future we may 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. During the first quarter of fiscal 2020, the Company amended its credit agreement ("Amended Credit Agreement") to reduce the interest rate on term loan borrowings, under the Senior Secured Term Loan Facility under the Amended Credit Agreement ("Term Loan Facility"). 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 our Credit Agreement.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 FacilitiesAgreement generally bear interest based on (a) a London Inter-bank Offered Rate (“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 Term Loan Facility, 2.25%2.00% for LIBOR loans and 1.25%1.00% for base rate loans and, in the case of borrowings under the Amended Credit Agreement's revolving credit facility ("Revolving Credit Facility,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,U.S., 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 PRICE 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 1B. UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES
The material properties owned by the Company consist of the following:
▪ aOur global headquarters and research and development facilityfacilities are located in Aurora, Illinois, comprising approximately 200,000   square feet,Illinois. As of September 30, 2020, we operated 46 facilities globally, of which serves both of our segments;
▪ a commercial slurry manufacturing plant20 facilities are owned by the company and distribution center26 are leased. The Company operates in Aurora, Illinois, comprising approximately 175,000 square feet, which serves our Electronic Materials segment;
▪ an electronic chemicals manufacturing plant18 facilities located in the U.S. and distribution center28 are outside the U.S. These facilities outside the Unites States include locations in Pueblo, Colorado, comprising approximately 1,629,000 square feet, which serves our Electronic Materials segment;
▪ a pipeline performance materials manufacturing plant and distribution center in Waller, Texas, comprising approximately 1,742,000 square feet, which serves our Performance Materials segment;
▪ a commercial slurry and pad manufacturing plant, automated warehouse, research and development facility and offices in Kaohsiung County, Taiwan, comprising approximately 190,000 square feet, which serves our Electronic Materials segment;
▪ a commercial slurry manufacturing plant and distribution center, and a development and technical support facility in Geino, Japan, comprising approximately 165,000 square feet, which serves our Electronic Materials segment; and
▪ a commercial slurry manufacturing plant, development facility and offices in Oseong, South Korea, comprising approximately 110,000 square feet, which serves our Electronic Materials segment.Singapore, China, Canada, Mexico, Italy, France, and the United Kingdom.

The material properties leased by the Company consist of the following:

▪ a commercial pad manufacturing plant and offices in Hillsboro, Oregon, comprising approximately 140,000 square feet, which serves our Electronic Materials segment;
▪ a commercial slurry manufacturing plant, research and development facility and offices in Singapore, comprising approximately 24,000 square feet, which serves our Electronic Materials segment;
▪ an electronic chemicals manufacturing plant and distribution center in Singapore, comprising approximately 213,000 square feet, which serves our Electronic Materials segment; and
▪ an electronic chemicals manufacturing plant and distribution center in Riddings, UK, comprising approximately 183,000 square feet, which serves our Electronic Materials segment.

We also own and lease space in various locations worldwide for manufacturing, distribution, technical support, sales, training, and general administrative purposes. We believe that our facilities are suitable and adequate for their intended purpose and provide us with sufficient capacity and capacity expansion opportunities and technological capability to meet our current and expected demand in the foreseeable future. We intend to expand certain of our Electronic Materials and Performance Materials facilities to meet our anticipated business needs.


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ITEM 3. LEGAL PROCEEDINGS

We periodically become a party to legal proceedings, arbitrations, and regulatory proceedings, inquiries and investigations (“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. OneThe information set forth in Note 20 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 facility of KMG’s subsidiary, KMG-Bernuth, in Tuscaloosa, Alabama, which processes 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 have applied these criteria and recorded an undiscounted amount of $9,494 loss contingency regarding disposal costs that can be reasonably estimated at this time. These disposal costs were charged to Cost of sales. There are potential additional disposal and other costs that cannot be reasonably estimated as of this time related to materials in the warehouse or otherwise impacted by the incident. The fire waste cleanup and disposal costs have been and may continue to be significant due to the nature of federally-regulated penta-related waste cleanup and disposal requirements. We will 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 this point we cannot reasonably estimate whether we will receive, or if so, the amount of, any potential insurance recoveries. As such, no insurance recoveries have been recognized as of September 30, 2019.

Separately, in 2014, prior to the Acquisition, 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 seven 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 September 30, 2019, the reserve remaining was $728.

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 U.S. 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 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 U.S., 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 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 in “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of this Annual Report on Form 10-K. The ultimate resolution of these contingencies10-K 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 atincorporated by reference into 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.Item 3.

ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Set forth below is information concerningof our executive officers and their ages as of October 31, 2019.2020.
NAMEAGEPOSITION
David H. Li46 President and Chief Executive Officer
Scott D. Beamer48 Vice President and Chief Financial Officer
H. Carol Bernstein59 Vice President, Secretary and General Counsel
Jeffrey M. Dysard46 Vice President and President, Performance Materials
Colleen E. Mumford43 Vice President, Communications and Marketing
Eleanor K. Thorp45 Vice President, Human Resources
Daniel D. Woodland49 Vice President and President, Electronic Materials
Thomas S. Roman58 Principal Accounting Officer and Corporate Controller
NameAgePresent PositionFiscal Year Appointed to Current Position
Other Positions Held Between Fiscal 2016-20201
David H. Li47President and Chief Executive Officer2015
Scott D. Beamer49Vice President and Chief Financial Officer2018Vice President and Chief Financial Officer, Stepan Company, 2013-2018
H. Carol Bernstein60Vice President, Secretary and General Counsel2000
Jeffrey M. Dysard47Vice President and President, Performance Materials2019General Manager of CMP Slurries, 2018-2019; General Manager of CMP Pads, 2016-2018
Colleen E. Mumford44Vice President, Communications and Marketing2020Corporate Relations Director, 2018-2019; various other roles within the Company 1997-2018
Eleanor K. Thorp46Vice President, Human Resources2018Head of Human Resources and Recruiting at Sephora Digital SEA, 2015-2018
Daniel D. Woodland50Vice President and President, Electronic Materials2019Vice President and Chief Marketing and Operations Officer, 2017-2019; Vice President of Marketing, 2015-2017
Jeanette A. Press45Corporate Controller and Principal Accounting Officer2020Vice President and Principal Accounting Officer, Univar Solutions, 2019-2020; Vice President and Principal Accounting Officer, USG Corporation, 2014-2019

DAVID H. LI1 has served as our President and Chief Executive Officer, and as a directorFiscal years for other positions held include partial years if held for any portion of our Company, since January 2015. From June 2008 through December 2014, Mr. Li served as our Vice President of the Asia Pacific Region. Prior to that role, Mr. Li held various leadership roles throughout our business, including in regional and product line management, operations, supply chain and investor relations since joining us in 1998. Mr. Li received a B.S. in Chemical Engineering from Purdue University and an M.B.A. from Northwestern University.fiscal year

SCOTT D. BEAMERhas served as our Vice President and Chief Financial Officer since January 2018. Prior to joining us, Mr. Beamer served as Vice President and Chief Financial Officer of Stepan Company from August 2013. Before that, he held various senior finance roles over a 16-year career at PPG Industries, Inc., including serving as its CFO – Europe, and as its Assistant Corporate Controller. Mr. Beamer has a B.S. in Accounting from Bloomsburg University, and an M.B.A. from the University of Pittsburgh, and began his career at Ernst & Young.

H. CAROL BERNSTEINhas served as our Vice President, Secretary and General Counsel since August 2000. Prior to joining us, Ms. Bernstein served in various senior leadership roles, including as the General Counsel and Director of Industrial Technology Development of Argonne National Laboratory/the University of Chicago, and as over a thirteen-year career at the IBM Corporation, as an Associate General Counsel of the IBM Corporation, and as the Vice President, Secretary and General Counsel of Advantis Corporation, an IBM joint venture. Ms. Bernstein received her B.A. from Colgate University in History and Political Science, and her J.D. from Northwestern University; she is a member of the Bar of the States of Illinois and New York.

JEFFREY M. DYSARD has served as our Vice President and President, Performance Materials since January 2019, and prior to that had served as the General Manager of CMP Slurries, since October 2017, following serving as the General Manager of CMP Pads, from October 2015. Prior to that, Dr. Dysard held a variety of leadership roles in our R&D and product line organizations since joining us in 2004. Before that, he was a scientist with ExxonMobil. Dr. Dysard received a B.S. in Chemistry from the University of Chicago, and a Ph.D. in Chemistry from the University of California, Berkeley.

COLLEEN E. MUMFORD has served as our Vice President of Communications and Marketing since September 2019. Prior to that, Ms. Mumford served as our Corporate Relations Director since March 2018, responsible for Investor Relations, Corporate Communications and Marketing Communications. Ms. Mumford joined us in 1997, and has held various positions, including as North America Quality Director, among other leadership roles in research and development, operations, and human resources. Ms. Mumford received a B.S. in Ecology, Ethology and Evolution from the University of Illinois.

ELEANOR K. THORP has served as our Vice President, Human Resources since September 2018. Ms. Thorp rejoined our company after serving as the Head of Human Resources and Recruiting at Sephora Digital SEA, from 2015 through 2018, based in Singapore. Prior to that, Ms. Thorp was Cabot Microelectronics' Human Resources Director of Asia Pacific from 2013 through 2015. Before this, she was Head of Human Resources and Recruiting at Frontier Strategy Group, and also spent time in executive search, working across a wide range of industries, based first in London and then in New York. Ms. Thorp graduated from the University of Cambridge (England) with a B.A. in Social and Political Science.


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DANIEL D. WOODLAND has served as our Vice President and President, Electronic Materials since November 2018, and prior to that had served as our Vice President and Chief Marketing and Operations Officer since October 2017 and Vice President of Marketing since January 2015. Previously, Dr. Woodland served in various product line, marketing and research and development leadership roles since joining us in 2003. Before joining our Company, Dr. Woodland held management roles at OMNOVA Solutions. Dr. Woodland received a B.A. in Physics from the University of California, Berkeley, and a Ph.D. in Physics from the University of Maine.

THOMAS S. ROMAN has served as our Corporate Controller and Principal Accounting Officer since February 2004, and prior to that served as our North American Controller after joining us in 2000, Before that, he worked for FMC Corporation, Gould Electronics, and Arthur Andersen LLP in various financial reporting, tax and audit positions. Mr. Roman is a C.P.A. and earned a B.S. in Accounting from the University of Illinois and an M.B.A. from DePaul University.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock has traded publicly under the symbol "CCMP" since our initial public offering in April 2000, currentlyis listed on the NASDAQ Global Select Market and formerlyunder the NASDAQ National Market.symbol “CCMP.” As of October 31, 2019,2020, there were approximately 630598 holders of record of our common stock. In January 2016, we announced that our Board of Directors authorized the initiation of a regular dividend program under which the Company intends to pay quarterly cash dividends on our common stock. The declaration and payment of future dividends is subject to the discretion and determination of the Company's 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.
ISSUER PURCHASES OF EQUITY SECURITIES
PeriodTotal Number of Shares
Purchased
Average Price Paid Per ShareTotal 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)
Jul. 1 through Jul. 31, 201915,660  $114.66  15,000  $74,554  
Aug. 1 through Aug. 31, 201914,978  118.98  14,900  72,781  
Sep. 1 through Sep. 30, 201911,033  137.16  11,033  71,268  
Total41,671  $122.17  40,933  $71,268  
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. Under this program, we repurchased 88,403318 thousand shares for $10.0$35.0 million in fiscal 2019.2020. There were no share repurchases under the share repurchase program in the fourth quarter of 2020. As of September 30, 2019, $71.32020, $36.3 million remainsremained available under our share repurchase program. The manner in which the Company repurchases its shares is discussed in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, under the heading "Liquidity and Capital Resources", of this Annual Report on Form 10-K. To date, we have funded share purchases under our share repurchase program from our available cash balance, and currently anticipate we will continue to do so.

Separate from this share repurchase program, we purchased a total of 46,70225 thousand shares during fiscal 2019 pursuant to the terms of our Cabot Microelectronics Corporation 2012 Omnibus Incentive Plan, as amended (“OIP”), as shareswere withheld from equity award recipients to cover payroll taxes on the vesting of shares of restricted stock or restricted stock units awarded underduring fiscal 2020 pursuant to the OIP.terms of our 2012 Omnibus Incentive Plan, as amended (“OIP”).
EQUITY COMPENSATION PLAN INFORMATION
See Part III, Item 12 of this Annual Report on Form 10-K for information regarding shares of common stock that may be issued under the Company's existing equity compensation plans.

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STOCK PERFORMANCE GRAPH
The following graph illustrates the cumulative total stockholder return on our common stock during the period from September 30, 20142015 through September 30, 20192020 and compares it with the cumulative total return on the NASDAQ Composite Index and the Philadelphia Semiconductor Index.Index (PHLX). The comparison assumes $100 was invested on September 30, 20142015 in our common stock and in each of the foregoing indices and assumes reinvestment of the quarterly cash dividends declared in each fiscal year from 2016 2017, 2018, and 2019.to 2020. The performance shown is not necessarily indicative of future performance. See "Risk Factors" in Part I, Item 1A above.



COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN*
Among Cabot Microelectronics Corporation, the NASDAQ Composite Index
and the PHLX Semiconductor Index
ccmp-20190930_g1.jpg
*$100 invested on 9/30/14 in stock or index, including reinvestment of dividends.
Fiscal year ending September 30.
9/1412/143/156/159/1512/153/166/169/1612/163/17
Cabot Microelectronics Corporation$100.00  $114.16  $120.55  $113.66  $93.46  $105.62  $99.14  $103.04  $129.20  $154.69  $188.12  
NASDAQ Composite$100.00  $105.70  $109.70  $111.93  $104.00  $113.06  $110.31  $110.05  $121.08  $123.08  $135.55  
PHLX Semiconductor$100.00  $108.00  $109.77  $108.00  $96.12  $106.28  $108.97  $112.07  $135.94  $148.07  $165.83  
ccmp-20200930_g1.jpg

6/179/1712/173/186/189/1812/183/196/199/199/1512/153/166/169/1612/163/176/179/1712/173/18
Cabot Microelectronics Corporation$181.78  $197.32  $232.74  $265.93  $268.02  $257.08  $239.63  $282.44  $278.78  $357.62  
CMC Materials, Inc.CMC Materials, Inc.$100.00 $113.01 $106.08 $110.24 $138.24 $165.51 $201.28 $194.50 $211.12 $249.02 $284.53 
NASDAQ CompositeNASDAQ Composite$141.19  $149.75  $159.56  $163.69  $174.51  $187.44  $155.03  $181.08  $188.09  $188.43  NASDAQ Composite$100.00 $108.71 $106.07 $105.82 $116.42 $118.35 $130.34 $135.77 $144.00 $153.43 $157.40 
PHLX SemiconductorPHLX Semiconductor$170.59  $193.86  $208.10  $221.52  $220.25  $230.10  $195.52  $237.27  $249.56  $267.81  PHLX Semiconductor$100.00 $110.57 $113.37 $116.60 $141.43 $154.05 $172.53 $177.48 $201.69 $216.50 $230.47 

6/189/1812/183/196/199/1912/193/206/209/20
CMC Materials, Inc.$286.77 $275.07 $256.40 $302.19 $298.28 $382.64 $393.45 $312.68 $383.49 $392.47 
NASDAQ Composite$167.81 $180.24 $149.07 $174.13 $180.86 $181.19 $203.77 $175.34 $229.60 $255.40 
PHLX Semiconductor$229.14 $239.39 $203.41 $246.85 $259.64 $278.63 $332.10 $272.48 $361.77 $408.20 

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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for each year of the five-year period ended September 30, 20192020 has been derived from the audited consolidated financial statements.

(In thousands, except per share amounts)Year Ended September 30,
20201,2,3
20191,2,3
20183
20172016
Consolidated Statements of Income:
Revenue$1,116,270 $1,037,696 $590,123 $507,179 $430,449 
Gross profit488,601 442,653 314,105 254,129 210,202 
Operating income216,905 110,496 160,118 111,988 74,508 
Net income142,828 39,215 110,043 86,952 59,849 
Diluted earnings per share$4.83 $1.35 $4.19 $3.40 $2.43 
Dividends declared per share$1.74 $1.66 $1.40 $0.78 $0.54 
Consolidated Balance Sheets:
Cash and cash equivalents$257,354 $188,495 $352,921 $397,890 $287,479 
Property, plant and equipment, net362,067 276,818 111,403 106,361 106,496 
Total assets4
2,376,467 2,261,766 780,973 834,100 727,230 
Long-term debt910,764 928,463 — 132,997 146,961 
Stockholders' equity1,074,313 980,377 666,692 595,037 497,648 
Total liabilities and stockholders' equity4
2,376,467 2,261,766 780,973 834,100 727,230 
Consolidated Statement of Cash Flows:
Net cash provided by operating activities$287,284 $174,981 $168,865 $141,369 $95,211 
Net cash used in investing activities(124,252)(1,232,976)(22,751)(19,783)(144,429)
Net cash provided by (used in) financing activities(97,656)894,432 (197,562)(7,015)(24,409)
Other Financial Data:
Adjusted EBITDA5
$357,801 $333,418 
Adjusted EBITDA margin5
32.1 %32.1 %
1The information set forth below is not necessarily indicative of results of future operationsthe Acquisition have been included in the financial results since the Acquisition Date. In addition, as part of the Acquisition, the Company entered into a new credit agreement, which was amended in fiscal 2020. See Notes 4 and should be read in conjunction with "Management's Discussion and Analysis13 of Financial Condition and Results of Operations", "Consolidated Financial Statements" and "Notes“Notes to the Consolidated Financial Statements"Statements” included in Items 7 andItem 8 of Part II of this Annual Report on Form 10-K as well as "Risk Factors"for a discussion of the Acquisition and Debt, respectively.
2 The results of fiscal 2020 and 2019 have been impacted by the impairment of the wood treatment reporting unit. See Note 10 of “Notes to the Consolidated Financial Statements” included in Item 1A8 of Part III of this Annual Report on Form 10-K.10-K for a discussion of the impact of the impairments.

3
The Tax Act was passed in December 2017 and has impacted the effective tax rates for our fiscal years beginning in 2018. See Note 19 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of this Annual Report on Form 10-K for a discussion of the impact of the Tax Act.
CABOT MICROELECTRONICS CORPORATION
SELECTED FINANCIAL DATA - FIVE YEAR SUMMARY
(Amounts4 The new accounting standards for Leases, adopted 10/1/2019, brought operating leases onto the balance sheet. See Note 14 of “Notes to the Consolidated Financial Statements” included in thousands, except per share amounts)
Year Ended September 30,
20192018201720162015
Consolidated Statements of Income Data:
Revenue$1,037,696  $590,123  $507,179  $430,449  $414,097  
Cost of sales595,043  276,018  253,050  220,247  201,866  
Gross profit442,653  314,105  254,129  210,202  212,231  
Operating expenses:
Research, development and technical51,707  51,950  54,798  58,532  59,778  
Selling, general and administrative213,078  102,037  86,483  77,162  77,413  
Asset impairment charges67,372  —  860  —  —  
Total operating expenses332,157  153,987  142,141  135,694  137,191  
Operating income110,496  160,118  111,988  74,508  75,040  
Interest expense45,681  2,905  4,529  4,723  4,524  
Interest income2,346  4,409  2,351  949  365  
Other income (expense), net(4,055) 89  (438) (296) 316  
Income before income taxes63,106  161,711  109,372  70,438  71,197  
Provision for income taxes23,891  51,668  22,420  10,589  15,051  
Net income$39,215  $110,043  $86,952  $59,849  $56,146  
Basic earnings per share$1.37  $4.31  $3.47  $2.47  $2.32  
Weighted average basic shares outstanding28,571  25,518  25,015  24,077  24,040  
Diluted earnings per share$1.35  $4.19  $3.40  $2.43  $2.26  
Weighted average diluted shares outstanding29,094  26,243  25,512  24,477  24,632  
Item 8 of Part II of this Annual Report on Form 10-K for a discussion of the impact of this new accounting standard.

5
See “Use of Certain GAAP and Non-GAAP Financial Information” later in Item 7 of this Report on Form 10-K for definitions and reconciliations of adjusted EBITDA and adjusted EBITDA margin. Prior to fiscal 2019, the Company did not provide these financial metrics.
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As of September 30,
20192018201720162015
Consolidated Balance Sheets Data:
Cash and cash equivalents$188,495  $352,921  $397,890  $287,479  $354,190  
Other current assets320,061  169,860  153,092  149,351  140,318  
Property, plant and equipment, net276,818  111,403  106,361  106,496  93,743  
Other assets1,476,392  146,789  176,757  183,904  72,223  
Total assets$2,261,766  $780,973  $834,100  $727,230  $660,474  
Current liabilities$171,460  $101,154  $91,213  $65,885  $60,644  
Long-term debt928,463  —  132,997  146,961  155,313  
Other long-term liabilities181,466  13,127  14,853  16,736  15,553  
Total liabilities1,281,389  114,281  239,063  229,582  231,510  
Stockholders' equity980,377  666,692  595,037  497,648  428,964  
Total liabilities and stockholders' equity$2,261,766  $780,973  $834,100  $727,230  $660,474  

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ITEM 7. 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), as well as disclosures included elsewhere in this Annual Report on Form 10-K, include "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. 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 Annual Report on Form 10-K are forward-looking and 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. 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.

The following discussion and analysis should be read in conjunction with our historical financial statements and "Notes to the Consolidated Financial Statements"Statements," which are included in Item 8 of Part II of this Annual Report on Form 10-K.









For management's discussion and analysis of our results of operations for fiscal 2019 as compared to fiscal 2018 please refer to Part II, Item 7 "Management's discussion and analysis of financial condition and results of operations" on Form 10-K for our fiscal year ended September 30, 2019, filed with the SEC on November 27, 2019, which is incorporated herein by reference.

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OVERVIEW

Cabot Microelectronics Corporation ("Cabot Microelectronics'', "the Company'', "us'', "we'', or "our'')CMC is a leading global supplier of consumable materials to semiconductor manufacturers and pipeline companies. As discussed above, on November 15, 2018 (“Acquisition Date”), we completed our acquisitionThe Company’s electronic materials products play a critical role in the production of KMG Chemicals, Inc. (“KMG”), which producesadvanced semiconductor devices, helping to enable the manufacture of smaller, faster and distributes specialty chemicals and performance materials for the semiconductor industry, pipeline operations and adjacent industries, and industrial wood preservation industry (“Acquisition”).more complex devices by its customers. The Acquisition has extended and strengthened our position as one of the leading suppliers of consumable materials to the semiconductor industry and has expanded our portfolio with the addition of KMG’s performance materials business, which enables us to be a leading global provider of performanceCompany’s PIM products and services toprovide solutions for optimizing pipeline throughput and maximizing performance and safety.
Recent Developments and Items Impacting Comparability
The Company completed the pipeline operations industry. TheAcquisition on the Acquisition Date and the Consolidated Financial Statements included in this Annual Report on Form 10-K include the financial results of KMG from the Acquisition Date. Subsequent to the Acquisition, 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 recently-acquired KMG electronic chemicals business. The Performance Materials segment includes KMG’s heritage pipeline performance and wood treatment businesses, and our heritage QED business.since that date. For additional information, refer to Part 1, Item 1, “Business”, in this Annual Report on Form 10-K.

In the Electronic Materials segment, we recorded record revenue infourth quarter of fiscal 2019, primarily duewe made a decision to close KMG-Bernuth’s Matamoros, Mexico and Tuscaloosa, Alabama wood treatment facilities and cease participating in the Acquisition. We had lower CMP slurries revenuewood treatment business by approximately the end of calendar year 2021, and focus our strategy and future capital investments on our core businesses.Until the planned closure of the Matamoros and Tuscaloosa facilities, we intend to continue to operate the existing facilities and serve our wood treatment customers.
The global spread of the Pandemic has created significant uncertainty and economic disruption worldwide and in fiscal 2019 comparedthe countries and locations in which we and our customers and suppliers operate. Our primary focus has been and continues to fiscal year 2018, which was partially offset by higher revenue in CMP padsbe on the health and well-being of our employees and the additionongoing operation of revenueour facilities worldwide according to our business continuity plans, which we update on an ongoing basis.
To date, we have not seen a meaningful impact from the Pandemic on our ability to manufacture and 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 electronic chemicals. We believe this decline in CMP slurries revenue was due to the softness in thelower demand for our PIM products. Demand from our semiconductor industry in fiscal 2019, primarily in the memory sector. CMP slurries have a high participation in the memory sector, and were adversely impacted by the decrease in DRAM and NAND production at our customers, during our fiscal 2019. In logic applications, the transition to advanced nodes by manywhich represents approximately 80% of our top customers is driving increased demand for materials, particularly electronic chemicals. We believe that new applicationsrevenue, remained stable in our fourth fiscal quarter as the work-from-home and remote learning environments benefited certain areas such as mobile, artificial intelligence (AI),cloud, PCs and blockchain will continue to drive demand for advanced logic semiconductor devices going forward. In addition, the legacy logicservers, offsetting weakness in industrial and foundry areaautomotive sectors of the industry continuesindustry.
The extent to benefit from growth in applications such as internet of things, autonomous driving, industrial automation, cloud and high-performance computing, virtual reality, and 5G. We believe we remain well-positioned to benefit from these long-term demand trends. Despite some industry headwinds that impacted demand for our CMP slurries, performance in CMP pads andwhich the acquired KMG businesses more than offset these headwinds, reflecting the strength of our acquired KMG businesses, the resiliency of our heritage CMP business, and the breadth of our product offerings. Later in fiscal 2019, as channel inventories appeared to be reduced and demand from multiple end markets improved, we began to see signs of stabilization in the semiconductor industry and improvement in demand for our CMP slurries from advanced logic, foundry and memory customers. However, there are many factors that make it difficult for us to predict future revenue trends forPandemic may further impact our business, including those discussed in Part I, Item 1A entitled “Risk Factors” in this Annual Reportoperations, results of operations and financial condition going forward is uncertain and difficult to estimate, and depends on Form 10-K.numerous evolving and potentially unknown factors.

In
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the changes in balances on the consolidated statement of income along with the percentage of revenue of certain line items included in our Performance Materials segment, we recorded record revenuehistorical statements of income:
Year Ended September 30,
(In thousands)20202019$ Change% Change
Revenue$1,116,270 100.0 %$1,037,696 100.0 %$78,574 7.6 %
Cost of sales627,669 56.2 %595,043 57.3 %32,626 5.5 %
Gross profit488,601 43.8 %442,653 42.7 %45,948 10.4 %
Research, development and technical52,311 4.7 %51,707 5.0 %604 1.2 %
Selling, general and administrative217,071 19.4 %213,078 20.5 %3,993 1.9 %
Asset impairment charges2,314 0.2 %67,372 6.5 %(65,058)(96.6)%
Total operating expenses271,696 24.3 %332,157 32.0 %(60,461)(18.2)%
Operating income216,905 19.4 %110,496 10.6 %106,409 96.3 %
Interest expense42,510 3.8 %45,681 4.4 %(3,171)(6.9)%
Interest income670 0.1 %2,346 0.2 %(1,676)(71.4)%
Other income (expense), net(1,718)(0.2)%(4,055)(0.4)%2,337 57.6 %
Income before income taxes173,347 15.5 %63,106 6.1 %110,241 174.7 %
Provision for income taxes30,519 2.7 %23,891 2.3 %6,628 27.7 %
Net income$142,828 12.8 %$39,215 3.8 %$103,613 264.2 %


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YEAR ENDED SEPTEMBER 30, 2020, AS COMPARED TO YEAR ENDED SEPTEMBER 30, 2019
REVENUE
Revenue was $1,116.3 million in fiscal 2019,2020, which represented an increase of 7.6%, or $78.6 million, from fiscal 2019. The increase in revenue was primarily driven by the Acquisition. We have experienced strong demandThe increase was primarily due to the addition of the KMG businesses for our DRAsthe full period in our pipeline performance business. These products enable pipeline operators to optimize the efficiencyfiscal 2020, selected price increases, and throughputincreased revenue from CMP slurries, offset by lower revenue from CMP pads.
COST OF SALES
Total Cost of oil transportsales was $627.7 million in both United States and international oil production.

Revenue for fiscal 2019 was $1,037.7 million,2020, which represented an increase of 75.8%5.5%, or $32.6 million, from the $590.1 million reported for fiscal 2018,2019. The increase was primarily due to addition of the Acquisition.KMG businesses for the full period in fiscal 2020.

GROSS MARGIN
Net incomeOur gross margin was $39.243.8% in fiscal 2020 compared to 42.7% in fiscal 2019. The increase was primarily due to price increases for our wood treatment products.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $217.1 million in fiscal 2019,2020, which represented a decreasean increase of 64.4%1.9%, or $70.8$4.0 million, from $110.0fiscal 2019. This was primarily due to a $24.7 million increase in fiscal 2018. Results benefited from the Acquisition, but were more than offset by Acquisition-related expenses, asset impairment charges and a restructuring charge related to wood treatment, increased amortization and depreciationexpense associated with re-valuing KMG assets to fair value cleanupduring fiscal 2019 and disposal$3.3 million increase in staffing-related costs, including incentive compensation costs primarily resulting from higher expense from the Short-Term Incentive Program (“STIP”), our annual cash incentive program, partially offset by a $24.4 million decrease in Acquisition and integration related expenses, as well as a $3.3 million decrease in travel expenses.
ASSET IMPAIRMENT CHARGES
Asset impairment charges were $2.3 million in fiscal 2020 compared to $67.4 million in fiscal 2019 due to impairment of the long-lived assets and intangible assets in the wood treatment asset group as a result of the planned closure of its facilities. See Note 10 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of this Annual Report on Form 10-K.
INTEREST EXPENSE
Interest expense was $42.5 million in fiscal 2020, which represented a decrease of $3.2 million, from fiscal 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 balance due to repayments, and a lower interest rate on our borrowings resulting from the refinancing of our Amended Credit Agreement in the first quarter of fiscal 2020. The decrease was partially offset by the longer period of time during which the Term Loan Facility was outstanding within the twelve months ended September 30, 2020 compared to the twelve months ended September 30, 2019.
PROVISION FOR INCOME TAXES
Our effective income tax rate was 17.6% in fiscal 2020 compared to 37.9% in fiscal 2019. The decrease in the effective tax rate during fiscal 2020 was primarily due to the absence of a discrete charge recorded in fiscal 2019 related to the final regulations issued under the Tax Act and the absence of unfavorable tax treatment of certain non-deductible costs related to the Acquisition.
NET INCOME
Net income was $142.8 million in fiscal 2020, which represented an increase of 264.2%, or $103.6 million, from fiscal 2019.  Net income benefited from the addition of the KMG businesses for the full period in fiscal 2020, lower Acquisition and integration-related expenses, and lower Asset impairment charges related to the wood treatment business, partially offset by amortization associated with re-valuing KMG assets to fair value.

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SEGMENT COMPARISON FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2020 AND SEPTEMBER 30, 2019
Revenue from external customers by segment and adjusted EBITDA/Margin are as follows:
(In thousands)Year Ended September 30,
20202019$ Change% Change
Segment Revenue:
Electronic Materials$882,824 $833,051 $49,773 6.0 %
Performance Materials233,446 204,645 28,801 14.1 %
Total Revenues$1,116,270 $1,037,696 $78,574 7.6 %
Adjusted EBITDA:
Electronic Materials$299,037 $294,902 $4,135 1.4 %
Performance Materials106,797 91,372 15,425 16.9 %
Unallocated corporate expenses(48,033)(52,856)4,823 9.1 %
Consolidated Adjusted EBITDA$357,801 $333,418 $24,383 7.3 %
Adjusted EBITDA Margin:
Electronic Materials33.9 %35.4 %-150 bpts
Performance Materials45.7 %44.6 %110 bpts


ELECTRONIC MATERIALS

The $49.8 million increase in Electronic Materials revenue was driven by a warehouse fire atfull year of KMG’s electronic chemicals business post-Acquisition and increased sales volume of CMP slurries, partially offset by lower CMP pads sales. The $4.1 million increase in adjusted EBITDA for Electronic Materials was driven by the revenue increases, as well as stronger profitability in CMP slurries, partially offset by higher fixed manufacturing costs. The 150 basis points decrease in adjusted EBITDA margin was primarily due to product mix.

PERFORMANCE MATERIALS

The $28.8 million increase in Performance Materials revenue was driven by higher selling prices for our wood treatment facilityproducts and a full year of KMG’s performance materials businesses post-Acquisition. The $15.4 million increase in Tuscaloosa, Alabama,Performance Materials adjusted EBITDA and 110 basis points increase in Performance Materials adjusted EBITDA margin were primarily driven by higher Interest expenseselling prices for wood treatment products.
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USE OF CERTAIN GAAP AND NON-GAAP FINANCIAL INFORMATION
Certain financial measures contained in this Annual Report on Form 10-K adjust for the impact of specified items and are not calculated in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP” or “GAAP”). We provide certain non-GAAP financial measures, 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 the Company’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. 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 and asset impairment 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 measures provided are 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. 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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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.

(In thousands)Year Ended September 30,
202020192018
Net income$142,828 $39,215 $110,043 
Interest expense42,510 45,681 2,905 
Interest income(670)(2,346)(4,409)
Income taxes30,519 23,891 51,668 
Depreciation and amortization127,737 98,592 25,876 
EBITDA342,924 205,033 186,083 
Acquisition and integration related expense10,852 34,709 3,861 
Charges related to asset impairment of wood treatment business2,314 67,372 — 
Cost related to KMG-Bernuth warehouse fire, net of insurance recovery1,083 9,905 — 
Costs related to the Pandemic, net of grants received849 — — 
Charge for fair value write-up of acquired inventory sold— 14,869 — 
Net costs related to restructuring of the wood treatment business1
(221)1,530 — 
Adjusted EBITDA$357,801 $333,418 $189,944 
1 Represents adjustments to previously recorded severance liability related to the wood treatment business.


(In thousands)Year Ended September 30,
202020192018
Adjusted EBITDA
Electronic Materials$299,037 $294,902 $222,019 
Performance Materials106,797 91,372 7,191 
Unallocated Corporate Expenses(48,033)(52,856)(39,266)
Consolidated Adjusted EBITDA$357,801 $333,418 $189,944 


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LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2020, we had $257.4 million of cash and cash equivalents compared with $188.5 million as of September 30, 2019. On September 30, 2020, $159.4 million of cash and cash equivalents was held in foreign subsidiaries. Our total liquidity as of September 30, 2020 was $457.4 million compared to $388.5 million as of September 30, 2019 (including $200.0 million of borrowing availability under our Revolving Credit Facility in both periods, which includes our letter of credit sub-facility). The increase in liquidity reflects the cash flow provided by operating activities, partially offset by the cash used by additions of property, plant and equipment, the repurchases of our common stock, and payments of quarterly cash dividends.
Total debt, consisting of principal outstanding on our Term Loan Facility, amounted to $921.4 million ($936.4 million in aggregate principal amount less $14.9 million of debt issuance costs) as of September 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.
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. In September 2020, the Company repaid the amount outstanding under the Revolving Credit Facility, which had been unused in full, and as of September 30, 2020, had no remaining balance outstanding under the Revolving Credit Facility.
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. As of September 30, 2020, our maximum first lien secured net leverage ratio was 1.81 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. We believe we are in compliance with these covenants as of September 30, 2020 and we expect to remain in compliance with our debt covenants during fiscal 2021 and beyond.
In January 2016, our Board of Directors authorized an increase in the amount available under our share repurchase program to $150.0 million. In fiscal 2020, we repurchased 318 thousand shares under this program, and $36.3 million authorization remained at the end of the year. 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 on hand, and anticipate we will continue to do so.
Our Board of Directors authorized the initiation of our regular quarterly cash dividend program in January 2016, and since that time has increased the dividend to its current 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.
We believe that cash on hand, cash available from future operations, and available borrowing capacity under our Amended Credit Agreement will be sufficient to financefund 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.
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Operating Activities
We generated $287.3 million in cash flows from operating activities in fiscal 2020, $175.0 million in fiscal 2019 and $168.9 million in fiscal 2018. Our cash provided by operating activities in fiscal 2020 reflected Net income of $142.8 million, $137.8 million in non-cash reconciling items, and decreases in working capital of $6.7 million. Non-cash reconciling items in fiscal 2020 included $127.7 million of depreciation and amortization expense, $16.4 million of share-based compensation expense, partially offset by $11.3 million of deferred income tax benefit. Our cash provided by operating activities in fiscal 2019 reflected Net income of $39.2 million and $175.2 million in non-cash reconciling items, partially offset by increases in working capital of $39.4 million. Non-cash reconciling items in fiscal 2019 included $98.6 million of depreciation and amortization expense, $67.4 million of wood treatment asset impairment charges, $18.2 million of share-based compensation expense, and $14.9 million of inventory step-up on acquired inventory sold, partially offset by $27.2 million of deferred income tax benefit. Our cash provided by operating activities in fiscal 2018 reflected Net income of $110.0 million and $66.8 million in non-cash reconciling items, partially offset by increases in working capital of $7.9 million. Non-cash reconciling items in fiscal 2018 included $25.9 million of depreciation and amortization expense, $18.5 million of share-based compensation expense, $11.3 million of deemed repatriation transition tax, and $10.8 million deferred income tax expense.
Investing Activities
In fiscal 2020, cash flows used in investing activities were $124.3, representing property, plant and equipment additions of $125.8 million, net of cash inflows of $1.6 million from the disposition of property. In fiscal 2019, cash flows used in investing activities were $1,233.0 million, representing property, plant and equipment additions of $56.0 million and $1,182.2 million used for the Acquisition, net of cash inflows of $5.2 million from insurance policies and newly issued final regulationsdisposition of property. The remainder of the Acquisition was satisfied with the issuance of common stock.  In fiscal 2018, cash flows used in investing activities were $22.8 million for purchases of property, plant and equipment.
Financing Activities
In fiscal 2020, cash flows used in financing activities were $97.7 million, which included $50.4 million of dividend payments, $38.2 million of cash used in stock repurchases, and $23.3 million of repayments on long-term debt. In fiscal 2019, cash flows provided from financing activities were $894.4 million. During the first quarter of fiscal 2019, we received $1,043.6 million in debt proceeds, net of $18.7 million in debt issuance costs and $2.7 million original discount fees, which was used for the Acquisition. This was partially offset by $105.3 million of repayments on this debt and $46.3 million of dividend payments during fiscal 2019. In fiscal 2018, cash used in financing activities were $197.6 million, which included $144.4 million of repayments on long-term debt, $30.7 million of dividend payments, and $44.3 million of cash used in stock repurchases.

OFF-BALANCE SHEET ARRANGEMENTS
At September 30, 2020 and 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.

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TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The following summarizes our contractual obligations at September 30, 2020, and the effect such obligations are expected to have on our liquidity and cash flow in future periods.
CONTRACTUAL OBLIGATIONS
(In thousands)
TotalLess Than
1 Year
1-3
Years
3-5
Years
After 5
Years
Debt$936,363 $10,650 $21,300 $21,300 $883,113 
Interest expense and fees150,708 33,430 64,411 48,829 4,038 
Purchase obligations71,740 55,964 15,103 673 — 
Operating leases35,515 7,196 12,317 7,741 8,261 
Severance agreements896 891 — — 
Other long-term liabilities 1
27,939 256 13,455 264 13,964 
Total contractual obligations$1,223,161 $108,387 $126,591 $78,807 $909,376 
1We have excluded $112.2 million in deferred tax liabilities and $15.5 million of liabilities for uncertain tax positions from the other long-term liability amounts presented, as the amounts and timing of payments to be settled in cash are not known. We have also excluded $26.0 million related to the United States Tax Cutfair value of our interest rate swap.
INTEREST AND FEES ON LONG-TERM DEBT
Interest payments on long-term debt reflect interest rates in effect at September 30, 2020. The interest payments reflect LIBOR rates currently in effect on $365.4 million of our outstanding debt, and Jobs Act ("Tax Act"),reflect fixed interest rates on $571.0 million of outstanding debt for which impactedwe have executed interest rate swaps. Commitment fees are based on our reserves for uncertain tax positions. For the same reasons, Diluted earnings per share decreased from $4.19estimated consolidated leverage ratio in fiscal 2018 to $1.35 in fiscal 2019.future periods. See Note 2113 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of this Annual Report on Form 10-K for additional information regarding our long-term debt.
PURCHASE OBLIGATIONS
Purchase obligations include contractual commitments related to abrasive particle and non-water-based carrier fluid agreements.
OPERATING LEASES
Operating leases include future lease payments under operating leases.
SEVERANCE AGREEMENTS
Liabilities for severance agreements at September 30, 2020 represent payments to be made to former or to be former employees in accordance with individual agreements.
OTHER LONG-TERM LIABILITIES
Other long-term liabilities at September 30, 2020 primarily consist of $11.8 million asset retirement obligations and $9.3 million of liabilities related to our foreign benefit plans in Japan, South Korea, and France.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company’s accounting policies are more fully described in Note 2 of "Notes to the Consolidated Financial Statements" included in Part II, Item 8 of this Annual Report on Form 10-K.

Adjusted EBITDA was $333.4 million in fiscal 2019. This represents an increase of $143.5 million, or 75.5% from $189.9 million in fiscal 2018. Adjusted EBITDA benefited from the Acquisition10-K of the KMG businesses, partially offset byConsolidated Financial Statements. As disclosed in Note 2, the softer industry conditions that resulted in lower demand for our heritage CMP products. Refer to the “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 32.1% and 32.2% for fiscal 2019 and 2018, respectively.


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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
This MD&A, as well as disclosures included elsewhere in this Annual Report on Form 10-K, are based upon our audited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingencies. On an ongoing basis, we evaluate the estimates used, including those related to business combinations, asset retirement obligations, impairment of long-lived assets, goodwill and other intangible assets, income taxes and contingencies. We base our estimates on historical experience, current conditions and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources, as well as for identifying and assessing our accounting treatment with respect to commitments and contingencies. Actual results may differ from these estimates under different assumptions or conditions. We believeThe Company believes that the following discussion addresses the Company’s most critical accounting policies, involve significant judgmentswhich are those that are most important to the portrayal of the Company’s financial condition and estimates used in the preparationresults of our consolidated financial statements.operations and require management’s most difficult, subjective and complex judgments.
BUSINESS COMBINATIONSGOODWILL AND OTHER INTANGIBLE ASSETS
We account for our acquisitions under the current standardsperform an annual impairment assessment of accounting for business combinations.  These standards require assetsgoodwill and liabilities of an acquired business to be recognized at their estimated fair value.  We engage independent third-party appraisal firms to assist us in determining the fair values of assets and liabilities acquired.  This valuation requires management to make significant estimates and assumptions, especially with respect to long-lived and intangible assets.  Goodwill represents the residual value of the purchase price over the fair value of net assets acquired, including identifiable intangible assets.
Critical estimates in valuing certain of theother intangible assets include but are not limited to: future expected cash flows related to customer relationships, trade names, acquired developed technologies, and patents and assumptions about the period of time the technologies will continue to be used in the Company's product portfolio; expected costs to develop the in-process technology into commercially viable products and estimated cash flows from the products when completed; and, discount rates.  Management's estimates of value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable.  Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur that may cause actual realized values to be different from management's estimates.
ASSET RETIREMENT OBLIGATIONS
Asset Retirement Obligations (AROs) are the obligations associated with the retirement of tangible long-lived assets. The Company recognizes an ARO liability in the period in which it is incurred, including upon acquisition, if a reasonable estimate of fair value can be made. If a reasonable estimate of fair value cannot be made in the period in which the ARO is incurred, the liability shall be recognized when a reasonable estimate of fair value can be made.

The Company recognizes AROs for the removal or storage of hazardous materials, decontamination or demolition of above ground storage tanks (ASTs), and certain restoration and decommissioning obligations related to certain of our owned and leased properties. AROs are initially recorded at an estimate of fair value by discounting to present value the expected future cash flows. In subsequent periods, the Company recognizes accretion expense in Cost of sales increasing the ARO balances, such that the balance will ultimately equal the expected cash flows at the timereporting unit level as of settlement.

The Company has multiple production facilities with an indeterminate useful life and there is insufficient information available to estimate a rangeSeptember 30 of potential settlement dates for the obligation. Therefore, the Company cannot reasonably estimate the fair value of the liability.


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IMPAIRMENT OF LONG-LIVED ASSETS

We assess the recoverability of the carrying value of long-lived assets to be held and used whenever eventseach year, or changes inmore frequently if circumstances indicate that the carrying value may not be recoverable. We must exercise judgment in assessingWhere we use the qualitative assessment, we determine based on qualitative factors, such as macroeconomic, industry, legal, and financial performance, whether an event of impairment has occurred. For purposes of recognition and measurement ofit is more likely than not that an impairment loss, long-lived assets are either individually identifiedexists. If the qualitative assessment indicates that it is more likely than not that an impairment exists, then a quantitative assessment is performed.
Qualitative factors include industry and market considerations, overall financial performance, industry, legal and other relevant events and factors affecting the reporting unit. Additionally, as part of this assessment, we may perform a quantitative analysis to support the qualitative factors above by applying sensitivities to assumptions and inputs used in measuring a reporting unit’s fair value.
In our quantitative assessment, estimated fair value is determined using an average of a discounted cash flow model and a market approach based on earnings before interest, taxes, and depreciation for a group of guideline comparable companies. Factors requiring significant judgment include the selection of market comparable companies, projected future revenue and gross margin, discount rates, and terminal growth rates. The wood treatment reporting unit fair value is determined using the discounted cash flow model only. The use of different assumptions, estimates or grouped with otherjudgments could significantly impact the estimated fair value of a reporting unit, and therefore, impact the excess fair value above carrying value of the reporting unit. The reporting unit’s carrying value used in an impairment test represents the assignment of various assets and liabilities, atexcluding certain corporate assets and liabilities, such as cash, investments, and debt.
We test the lowest level for which identifiable cash flows are largely independentreasonableness of the inputs and outcomes of our discounted cash flows of other assets and liabilities. We must exercise judgment in this grouping. The carrying value of a long-lived asset is considered impaired when the total projected undiscounted cash flows from the use and eventual dispositionflow models against available market data. Two of the asset or asset groupCompany’s reporting units, wood treatment and PIM, are separately identifiable and are less thanat risk of failing future impairment tests, as the September 30, 2020 estimates of fair value do not substantially exceed their carrying values. As previously announced, the Company is closing its carrying value. In that event, a loss is recognized based onwood treatment facilities by approximately the amount by which the carrying value exceeds theend of calendar year 2021. The fair value of the long-lived asset. The fair value methodology used is an estimate of fair market value, which is made based on prices of similar assets or other valuation methodologies, including present value techniques. Long-lived assetswood treatment asset group was sufficient such that the recognized impairment was limited to be disposed of by means other than sale are classified as held for use until their disposal. Long-lived assets to be disposed of by sale are classified as held for sale and are reported at the lower of carrying amount or fair market value, less the estimated cost to sell. Depreciation is discontinued for any long-lived assets classifiedand the reporting unit goodwill was not impaired, however, as held for sale.

In the fourth quarterCompany approaches the closure date of fiscal 2019, we recorded an impairmentthe facilities and there are lower estimated future cash flows, the carrying value of $67.4 million of long-lived assets, including a $4.1 million impairment of Property, plant and equipment in the wood treatment asset group. Seegroup and reporting unit will not be recoverable, resulting in future impairments. The carrying value includes $35.0 million and $3.8 million of goodwill and intangible assets as of September 30, 2020, respectively. There is no excess fair value over the carrying value as of September 30, 2020.
For PIM, the estimated fair value of the reporting unit exceeded the carrying value by approximately 8%. PIM’s carrying value includes $318.2 million of goodwill and $46.0 million of trade-name intangible assets. Key assumptions in the goodwill test include projected future revenue and gross margin, a 10.5% discount rate, and a terminal growth rate of 3%. A 50 basis point change in the projected compound annual revenue growth rate, discount rate, or terminal growth assumption would not result in an impairment. The fair values for all other reporting units substantially exceeded their carrying value. Refer to Note 10 of "Notes“Notes to the Consolidated Financial Statements"Statements” included in Item 8 of Part II Item 8 of this Annual Report on Form 10-K for a more detailed discussion of the impairment. We did not record any impairment expense in fiscal 2018. We recorded impairment expense on long-lived assets of $0.9 million in fiscal 2017 related to surplus research and development equipment, which was subsequently sold for a gain.
GOODWILL AND OTHER INTANGIBLE ASSETS
Purchased intangible assets with finite lives are amortized over their estimated useful lives and are evaluated for impairment using a process similar to that used to evaluate other long-lived assets.  Goodwill and indefinite lived intangible assets are not amortized and are tested annually in our fourth fiscal quarter 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.  A component is a reporting unit when it constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of the component.  Components may be combined into one reporting unit when they have similar economic characteristics.  We have six reporting units, all of which had goodwill as of September 30, 2019, the date of our annual impairment test.

regarding wood treatment.
The Company’s Electronic Materials segment is comprised of the three following reporting units: CMP slurries, electronic chemicals, and CMP pads. The Company’s Performance Materials segment is comprised of three additional reporting units: pipeline performance, wood treatment, and precision optics.

Accounting guidance provides an entity the option to assess the fair value of a reporting unit either using a qualitative analysis ("step zero"Flowchem LLC (“Flowchem”) or a quantitative analysis ("step one"). We used a step zero qualitative analysis for the CMP slurries reporting unit in fiscal 2018 and 2019, and for Precision Optics in fiscal 2019. Aside from those previously noted, all other reporting units were assessed for goodwill impairment using a step one approach. The Flowchem trade name, an indefinite-lived intangible asset, was assessed for impairment using a relief from royalty approach.

Factors requiring significant judgment include the selection of valuation approach and assumptions related to futureprojected revenue, discount factors,royalty rates, terminal growth rates, and royalty rates, among others. Changesdiscount rates.
Significant management judgment is required to estimate projected future revenue. All assumptions used in economicour impairment valuation for indefinite-lived intangible assets and goodwill are based on best available information and are consistent with internal forecasts and operating conditions that occur after the annual impairment analysis or an interim impairment analysis that impact these assumptions may result in future impairment charges.

In the fourth quarter of fiscal 2019, the Company performed its annual goodwill impairment assessment, comparing estimated fair values of the reporting units to their carrying amounts. In estimating the fair values, the Company used the average of an income approach, discounting estimated future cash flows, and a market approach based upon relevant market multiples. As a result of asset impairment charges recorded in the fourth quarter of fiscal 2019, the carrying value of the wood treatment reporting unit is equal to its fair value. In this circumstance with no excess of fair value over carrying value, any unfavorable variances from the estimated inputs used in the impairment assessment may result in further impairment of long-lived assets or goodwill. The Company’s Electronic Chemicals reporting unit has goodwill resulting from a recent acquisition, with a greater sensitivity to impairment, due to the extent by which its estimated fair value exceeds its carrying value. Changes to the assumptions requiring significant judgment, noted above, could result in a different outcome for the impairment assessment. Accordingly, the Company performed sensitivity analysis for selected key assumptions.
plans.
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As a result of the review performed in the fourth quarter of fiscal 2019, and the related sensitivity analysis, we determined that there was no impairment of our goodwill as of September 30, 2019. There was no goodwill impairment recorded in fiscal 2018 or 2017.

While no goodwill impairments were recognized in fiscal 2019, the Company recognized asset impairment charges of $67.4 million, of which $63.3 million related to Other intangible assets, net for the wood treatment reporting unit due to triggering events that occurred in the fourth quarter of fiscal 2019. See Note 10 of "Notes to the Consolidated Financial Statements" included in Part II, Item 8 of this Annual Report on Form 10-K. The Company will continue to monitor the wood treatment asset group for indicators of long-lived asset or goodwill impairment. Absent a sale of the business, as the Company approaches the announced closure date of the facilities and there are fewer estimated future cash flows, there is ongoing potential for further impairments of long-lived assets and impairment of goodwill. 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.
ACCOUNTINGASSET IMPAIRMENT CHARGES
Asset impairment charges were $2.3 million in fiscal 2020 compared to $67.4 million in fiscal 2019 due to impairment of the long-lived assets and intangible assets in the wood treatment asset group as a result of the planned closure of its facilities. See Note 10 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of this Annual Report on Form 10-K.
INTEREST EXPENSE
Interest expense was $42.5 million in fiscal 2020, which represented a decrease of $3.2 million, from fiscal 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 balance due to repayments, and a lower interest rate on our borrowings resulting from the refinancing of our Amended Credit Agreement in the first quarter of fiscal 2020. The decrease was partially offset by the longer period of time during which the Term Loan Facility was outstanding within the twelve months ended September 30, 2020 compared to the twelve months ended September 30, 2019.
PROVISION FOR INCOME TAXES
CurrentOur effective income taxes are determined based on estimated taxes payable or refundable on tax returns for the current year.
Deferred income taxes are determined using enacted tax rates for the effect of temporary differences between the book and tax
bases of recorded assets and liabilities.rate was 17.6% in fiscal 2020 compared to 37.9% in fiscal 2019. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in incomedecrease in the period that includeseffective tax rate during fiscal 2020 was primarily due to the enactment date. Provisions are made for both United States and any foreign deferred income tax liability or benefit. We assess whether or not our deferred tax assets will ultimately be realized, and record an estimated valuation allowance on those deferred tax assets that may not be realized. We recognizeabsence of a discrete charge recorded in fiscal 2019 related to the tax benefit of an uncertain tax position only if it is more likely than not that the tax position will be sustained by the taxing authorities, based on the technical merits of the position. In fiscal 2017, we maintained an assertion to permanently reinvest the earnings of all of our foreign subsidiaries. In light offinal regulations issued under the Tax Act and the absence of unfavorable tax treatment of certain non-deductible costs related to the Acquisition.
NET INCOME
Net income was $142.8 million in fiscal 2020, which represented an increase of 264.2%, or $103.6 million, from fiscal 2019.  Net income benefited from the addition of the KMG businesses for the full period in fiscal 2020, lower Acquisition and integration-related expenses, and lower Asset impairment charges related to the wood treatment business, partially offset by amortization associated with re-valuing KMG assets to fair value.

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SEGMENT COMPARISON FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2020 AND SEPTEMBER 30, 2019
Revenue from external customers by segment and adjusted EBITDA/Margin are as follows:
(In thousands)Year Ended September 30,
20202019$ Change% Change
Segment Revenue:
Electronic Materials$882,824 $833,051 $49,773 6.0 %
Performance Materials233,446 204,645 28,801 14.1 %
Total Revenues$1,116,270 $1,037,696 $78,574 7.6 %
Adjusted EBITDA:
Electronic Materials$299,037 $294,902 $4,135 1.4 %
Performance Materials106,797 91,372 15,425 16.9 %
Unallocated corporate expenses(48,033)(52,856)4,823 9.1 %
Consolidated Adjusted EBITDA$357,801 $333,418 $24,383 7.3 %
Adjusted EBITDA Margin:
Electronic Materials33.9 %35.4 %-150 bpts
Performance Materials45.7 %44.6 %110 bpts


ELECTRONIC MATERIALS

The $49.8 million increase in Electronic Materials revenue was driven by a full year of KMG’s electronic chemicals business post-Acquisition and increased sales volume of CMP slurries, partially offset by lower CMP pads sales. The $4.1 million increase in adjusted EBITDA for Electronic Materials was driven by the revenue increases, as well as stronger profitability in CMP slurries, partially offset by higher fixed manufacturing costs. The 150 basis points decrease in adjusted EBITDA margin was primarily due to product mix.

PERFORMANCE MATERIALS

The $28.8 million increase in Performance Materials revenue was driven by higher selling prices for our wood treatment products and a full year of KMG’s performance materials businesses post-Acquisition. The $15.4 million increase in Performance Materials adjusted EBITDA and 110 basis points increase in Performance Materials adjusted EBITDA margin were primarily driven by higher selling prices for wood treatment products.
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USE OF CERTAIN GAAP AND NON-GAAP FINANCIAL INFORMATION
Certain financial measures contained in this Annual Report on Form 10-K adjust for the impact of specified items and are not calculated in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP” or “GAAP”). We provide certain non-GAAP financial measures, 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 the Company’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. 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 and asset impairment 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 measures provided are 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. 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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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.

(In thousands)Year Ended September 30,
202020192018
Net income$142,828 $39,215 $110,043 
Interest expense42,510 45,681 2,905 
Interest income(670)(2,346)(4,409)
Income taxes30,519 23,891 51,668 
Depreciation and amortization127,737 98,592 25,876 
EBITDA342,924 205,033 186,083 
Acquisition and integration related expense10,852 34,709 3,861 
Charges related to asset impairment of wood treatment business2,314 67,372 — 
Cost related to KMG-Bernuth warehouse fire, net of insurance recovery1,083 9,905 — 
Costs related to the Pandemic, net of grants received849 — — 
Charge for fair value write-up of acquired inventory sold— 14,869 — 
Net costs related to restructuring of the wood treatment business1
(221)1,530 — 
Adjusted EBITDA$357,801 $333,418 $189,944 
1 Represents adjustments to previously recorded severance liability related to the wood treatment business.


(In thousands)Year Ended September 30,
202020192018
Adjusted EBITDA
Electronic Materials$299,037 $294,902 $222,019 
Performance Materials106,797 91,372 7,191 
Unallocated Corporate Expenses(48,033)(52,856)(39,266)
Consolidated Adjusted EBITDA$357,801 $333,418 $189,944 


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LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2020, we had $257.4 million of cash and cash equivalents compared with $188.5 million as of September 30, 2019. On September 30, 2020, $159.4 million of cash and cash equivalents was held in foreign subsidiaries. Our total liquidity as of September 30, 2020 was $457.4 million compared to $388.5 million as of September 30, 2019 (including $200.0 million of borrowing availability under our Revolving Credit Facility in both periods, which includes our letter of credit sub-facility). The increase in liquidity reflects the cash flow provided by operating activities, partially offset by the cash used by additions of property, plant and equipment, the repurchases of our common stock, and payments of quarterly cash dividends.
Total debt, consisting of principal outstanding on our Term Loan Facility, amounted to $921.4 million ($936.4 million in aggregate principal amount less $14.9 million of debt issuance costs) as of September 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.
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. In September 2020, the Company repaid the amount outstanding under the Revolving Credit Facility, which had been unused in full, and as of September 30, 2020, had no remaining balance outstanding under the Revolving Credit Facility.
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. As of September 30, 2020, our maximum first lien secured net leverage ratio was 1.81 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. We believe we are in compliance with these covenants as of September 30, 2020 and we expect to remain in compliance with our debt covenants during fiscal 2021 and beyond.
In January 2016, our Board of Directors authorized an increase in the amount available under our share repurchase program to $150.0 million. In fiscal 2020, we repurchased 318 thousand shares under this program, and $36.3 million authorization remained at the end of the year. 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 on hand, and anticipate we will continue to do so.
Our Board of Directors authorized the initiation of our regular quarterly cash dividend program in January 2016, and since that time has increased the dividend to its current 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.
We believe that cash on hand, cash available from future operations, and available borrowing capacity under our Amended Credit 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.
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Operating Activities
We generated $287.3 million in cash flows from operating activities in fiscal 2020, $175.0 million in fiscal 2019 and $168.9 million in fiscal 2018. Our cash provided by operating activities in fiscal 2020 reflected Net income of $142.8 million, $137.8 million in non-cash reconciling items, and decreases in working capital of $6.7 million. Non-cash reconciling items in fiscal 2020 included $127.7 million of depreciation and amortization expense, $16.4 million of share-based compensation expense, partially offset by $11.3 million of deferred income tax benefit. Our cash provided by operating activities in fiscal 2019 reflected Net income of $39.2 million and $175.2 million in non-cash reconciling items, partially offset by increases in working capital of $39.4 million. Non-cash reconciling items in fiscal 2019 included $98.6 million of depreciation and amortization expense, $67.4 million of wood treatment asset impairment charges, $18.2 million of share-based compensation expense, and $14.9 million of inventory step-up on acquired inventory sold, partially offset by $27.2 million of deferred income tax benefit. Our cash provided by operating activities in fiscal 2018 reflected Net income of $110.0 million and $66.8 million in non-cash reconciling items, partially offset by increases in working capital of $7.9 million. Non-cash reconciling items in fiscal 2018 included $25.9 million of depreciation and amortization expense, $18.5 million of share-based compensation expense, $11.3 million of deemed repatriation transition tax, and $10.8 million deferred income tax expense.
Investing Activities
In fiscal 2020, cash flows used in investing activities were $124.3, representing property, plant and equipment additions of $125.8 million, net of cash inflows of $1.6 million from the disposition of property. In fiscal 2019, cash flows used in investing activities were $1,233.0 million, representing property, plant and equipment additions of $56.0 million and $1,182.2 million used for the Acquisition, net of cash inflows of $5.2 million from insurance policies and disposition of property. The remainder of the Acquisition was satisfied with the issuance of common stock.  In fiscal 2018, cash flows used in investing activities were $22.8 million for purchases of property, plant and equipment.
Financing Activities
In fiscal 2020, cash flows used in financing activities were $97.7 million, which included $50.4 million of dividend payments, $38.2 million of cash used in stock repurchases, and $23.3 million of repayments on long-term debt. In fiscal 2019, cash flows provided from financing activities were $894.4 million. During the first quarter of fiscal 2019, we received $1,043.6 million in debt proceeds, net of $18.7 million in debt issuance costs and $2.7 million original discount fees, which was used for the Acquisition. This was partially offset by $105.3 million of repayments on this debt and $46.3 million of dividend payments during fiscal 2019. In fiscal 2018, cash used in financing activities were $197.6 million, which included $144.4 million of repayments on long-term debt, $30.7 million of dividend payments, and $44.3 million of cash used in stock repurchases.

OFF-BALANCE SHEET ARRANGEMENTS
At September 30, 2020 and 2019, we did not have any unconsolidated entities or financial partnerships, such as entities often referred to a modified territorialas structured finance or special purpose entities, which might have been established for the purpose of facilitating off-balance sheet arrangements.

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TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The following summarizes our contractual obligations at September 30, 2020, and the effect such obligations are expected to have on our liquidity and cash flow in future periods.
CONTRACTUAL OBLIGATIONS
(In thousands)
TotalLess Than
1 Year
1-3
Years
3-5
Years
After 5
Years
Debt$936,363 $10,650 $21,300 $21,300 $883,113 
Interest expense and fees150,708 33,430 64,411 48,829 4,038 
Purchase obligations71,740 55,964 15,103 673 — 
Operating leases35,515 7,196 12,317 7,741 8,261 
Severance agreements896 891 — — 
Other long-term liabilities 1
27,939 256 13,455 264 13,964 
Total contractual obligations$1,223,161 $108,387 $126,591 $78,807 $909,376 
1We have excluded $112.2 million in deferred tax system, we no longer consider our foreign earningsliabilities and $15.5 million of liabilities for uncertain tax positions from the other long-term liability amounts presented, as the amounts and timing of payments to be indefinitely reinvested.settled in cash are not known. We have also excluded $26.0 million related to the fair value of our interest rate swap.
INTEREST AND FEES ON LONG-TERM DEBT
Interest payments on long-term debt reflect interest rates in effect at September 30, 2020. The interest payments reflect LIBOR rates currently in effect on $365.4 million of our outstanding debt, and reflect fixed interest rates on $571.0 million of outstanding debt for which we have executed interest rate swaps. Commitment fees are based on our estimated consolidated leverage ratio in future periods. See Note 1913 of "Notes“Notes to the Consolidated Financial Statements"Statements” included in Item 8 of Part II Item 8 of this Annual Report on Form 10-K for additional information on income taxes.regarding our long-term debt.
COMMITMENTSPURCHASE OBLIGATIONS
Purchase obligations include contractual commitments related to abrasive particle and non-water-based carrier fluid agreements.
OPERATING LEASES
Operating leases include future lease payments under operating leases.
SEVERANCE AGREEMENTS
Liabilities for severance agreements at September 30, 2020 represent payments to be made to former or to be former employees in accordance with individual agreements.
OTHER LONG-TERM LIABILITIES
Other long-term liabilities at September 30, 2020 primarily consist of $11.8 million asset retirement obligations and $9.3 million of liabilities related to our foreign benefit plans in Japan, South Korea, and France.
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CRITICAL ACCOUNTING POLICIES AND CONTINGENCIESESTIMATES
We have entered into certain unconditional purchase obligations, which include noncancelable purchase commitments and take-or-pay arrangements with suppliers.  We review our agreements on a quarterly basis and make an assessment of the likelihood of a shortfallThe Company’s accounting policies are more fully described in purchases and determine if it is necessary to record a liability.  In addition, we are subject to the possibility of various loss contingencies arising in the ordinary course of business, such as a legal proceeding or claim.  An estimated loss contingency is accrued when it is probable that an asset has been impaired, or a liability has been incurred and the amount of the loss can be reasonably estimated.  We regularly evaluate information available to us to determine whether such accruals should be adjusted and whether new accruals are required.
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2 of "Notes to the Consolidated Financial Statements" included in Part II, Item 8 of this Annual Report on Form 10-K for a description of recentthe Consolidated Financial Statements. As disclosed in Note 2, the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingencies. Actual results may differ from these estimates under different assumptions or conditions.The Company believes that the following discussion addresses the Company’s most critical accounting pronouncements includingpolicies, which are those that are most important to the expected datesportrayal of adoptionthe Company’s financial condition and effects on our results of operations and require management’s most difficult, subjective and complex judgments.
GOODWILL AND OTHER INTANGIBLE ASSETS
We perform an annual impairment assessment of goodwill and other intangible assets at the reporting unit level as of September 30 of each year, or more frequently if circumstances indicate that the carrying value may not be recoverable. Where we use the qualitative assessment, we determine based on qualitative factors, such as macroeconomic, industry, legal, and financial positionperformance, whether it is more likely than not that an impairment exists. If the qualitative assessment indicates that it is more likely than not that an impairment exists, then a quantitative assessment is performed.
Qualitative factors include industry and market considerations, overall financial performance, industry, legal and other relevant events and factors affecting the reporting unit. Additionally, as part of this assessment, we may perform a quantitative analysis to support the qualitative factors above by applying sensitivities to assumptions and inputs used in measuring a reporting unit’s fair value.
In our quantitative assessment, estimated fair value is determined using an average of a discounted cash flows.flow model and a market approach based on earnings before interest, taxes, and depreciation for a group of guideline comparable companies. Factors requiring significant judgment include the selection of market comparable companies, projected future revenue and gross margin, discount rates, and terminal growth rates. The wood treatment reporting unit fair value is determined using the discounted cash flow model only. The use of different assumptions, estimates or judgments could significantly impact the estimated fair value of a reporting unit, and therefore, impact the excess fair value above carrying value of the reporting unit. The reporting unit’s carrying value used in an impairment test represents the assignment of various assets and liabilities, excluding certain corporate assets and liabilities, such as cash, investments, and debt.

We test the reasonableness of the inputs and outcomes of our discounted cash flow models against available market data. Two of the Company’s reporting units, wood treatment and PIM, are at risk of failing future impairment tests, as the September 30, 2020 estimates of fair value do not substantially exceed their carrying values. As previously announced, the Company is closing its wood treatment facilities by approximately the end of calendar year 2021. The fair value of the wood treatment asset group was sufficient such that the recognized impairment was limited to long-lived assets and the reporting unit goodwill was not impaired, however, as the Company approaches the closure date of the facilities and there are lower estimated future cash flows, the carrying value of the wood treatment asset group and reporting unit will not be recoverable, resulting in future impairments. The carrying value includes $35.0 million and $3.8 million of goodwill and intangible assets as of September 30, 2020, respectively. There is no excess fair value over the carrying value as of September 30, 2020.
For PIM, the estimated fair value of the reporting unit exceeded the carrying value by approximately 8%. PIM’s carrying value includes $318.2 million of goodwill and $46.0 million of trade-name intangible assets. Key assumptions in the goodwill test include projected future revenue and gross margin, a 10.5% discount rate, and a terminal growth rate of 3%. A 50 basis point change in the projected compound annual revenue growth rate, discount rate, or terminal growth assumption would not result in an impairment. The fair values for all other reporting units substantially exceeded their carrying value. Refer to Note 10 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of this Annual Report on Form 10-K for more information regarding wood treatment.
The Flowchem LLC (“Flowchem”) trade name, an indefinite-lived intangible asset, was assessed for impairment using a relief from royalty approach. Factors requiring significant judgment include projected revenue, royalty rates, terminal growth rates, and discount rates.
Significant management judgment is required to estimate projected future revenue. All assumptions used in our impairment valuation for indefinite-lived intangible assets and goodwill are based on best available information and are consistent with internal forecasts and operating plans.
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of revenue of certain line items included in our historical statements of income:
Year Ended September 30,
201920182017
Revenue100.0 %100.0 %100.0 %
Cost of sales57.3  46.8  49.9  
Gross profit42.7  53.2  50.1  
Research, development and technical5.0  8.8  10.8  
Selling, general and administrative20.5  17.2  17.1  
Asset impairment charges6.5  —  0.2  
Operating income10.7  27.1  22.1  
Interest expense4.4  0.5  0.9  
Interest income0.2  0.7  0.5  
Other income (expense), net(0.4) 0.1  (0.1) 
Income before income taxes6.1  27.4  21.5  
Provision for income taxes2.3  8.8  4.4  
Net income3.8 %18.6 %17.1 %


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YEAR ENDED SEPTEMBER 30, 2019, VERSUS YEAR ENDED SEPTEMBER 30, 2018
REVENUE
Revenue was $1,037.7 million in fiscal 2019, which represented an increase of 75.8%, or $447.6 million, from fiscal 2018. The increase in revenue was primarily driven by the Acquisition. Revenue from Cabot Microelectronics' heritage businesses decreased by $3.3 million, or 0.6%, driven by a $30.9 million decrease due to lower sales volume and a $5.6 million decrease due to foreign exchange fluctuations, partially offset by a $30.3 million increase due to a higher value product mix, and $2.9 million increase due to price changes.
COST OF SALES
Total Cost of sales was $595.0 million in fiscal 2019, which represented an increase of 115.6%, or $319.0 million, from fiscal 2018. The increase in Cost of sales was primarily due to the Acquisition. The Cost of sales from Cabot Microelectronics’ heritage businesses decreased by $7.5 million. The decrease was driven by a $6.2 million decrease due to lower sales volume, and a $3.2 million decrease due to foreign exchange fluctuations, partially offset by a $3.0 million increase in freight and packaging costs. Cost of sales included $14.9 million fair value write-up of KMG-acquired inventory sold and $9.5 million related to the KMG-Bernuth warehouse fire.
GROSS MARGIN
Our gross margin was 42.7% in fiscal 2019 compared to 53.2% in fiscal 2018. The gross margin was adversely impacted by the inclusion of the KMG businesses, which reduced margin by 11.6%, of which 1.4% was due to the impact of the fair value write-up of acquired inventory sold, 0.9% was due to the costs related to the KMG-Bernuth warehouse fire, and 0.7% was due amortization of Acquisition-related costs. Within Cabot Microelectronics’ heritage businesses, gross margin increased by 1.0%, which was primarily due to a higher value product mix, partially offset by lower volume and higher freight and packaging costs.
RESEARCH, DEVELOPMENT AND TECHNICAL
Total Research, development and technical expenses were $51.7 million in fiscal 2019, which represented a decrease of 0.5%, or $0.2 million, from fiscal 2018.  The decrease was primarily due to lower staffing-related costs of $2.4 million, including incentive compensation costs, partially offset by higher supplies and equipment costs used in research and development of $2.1 million.
Our Research, development and technical efforts are focused on the areas of research related to fundamental CMP technology; development of new and enhanced CMP consumable products, including collaboration on joint development projects with technology-leading customers and suppliers; process development to support rapid and effective commercialization of new products; technical support of CMP products in our customers’ research, development and manufacturing facilities; and, development of polishing and metrology applications outside of the semiconductor industry.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $213.1 million in fiscal 2019, which represented an increase of 108.8%, or $111.0 million, from fiscal 2018.  The increase was primarily due to $45.5 million of amortization expense related to the Acquisition, $38.4 million in incremental KMG-related costs associated with the post-Acquisition period during fiscal 2019, and $34.7 million of Acquisition and integration related costs. These items were partially offset by the absence of executive officer transition costs of $4.2 million that occurred in the first quarter of fiscal 2018.
ASSET IMPAIRMENT CHARGES

Asset impairment charges were $2.3 million in fiscal 2020 compared to $67.4 million in fiscal 2019 due to impairment of the long-lived assets and intangible assets in the wood treatment asset group.group as a result of the planned closure of its facilities. See Note 10 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of this Annual Report on Form 10-K.
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INTEREST EXPENSE
Interest expense was $45.7$42.5 million in fiscal 2019, which represented an increase of $42.8 million, from fiscal 2018. The increase resulted from the debt borrowing to finance the Acquisition.
INTEREST INCOME
Interest income was $2.3 million in fiscal 2019,2020, which represented a decrease of 46.8%, or $2.1$3.2 million, from fiscal 2018 due to lower cash balances.
OTHER INCOME (EXPENSE), NET
Other expense was $4.1 million in fiscal 2019, which increased from Other income of $0.1 million in fiscal 2018.2019. The increasedecrease was primarily due to higher loss on foreign exchange,a decline in the absenceLIBOR rate for the unhedged portion of the gain on sale of assets of $1.0 million,Company's Term Loan Facility, a lower outstanding term loan balance due to repayments, and gain on the termination ofa lower interest rate swap agreements that occurredon our borrowings resulting from the refinancing of our Amended Credit Agreement in the first quarter of fiscal 2018.2020. The decrease was partially offset by the longer period of time during which the Term Loan Facility was outstanding within the twelve months ended September 30, 2020 compared to the twelve months ended September 30, 2019.
PROVISION FOR INCOME TAXES
Our effective income tax rate was 17.6% in fiscal 2020 compared to 37.9% in fiscal 2019 compared to 32.0% in fiscal 2018.2019. The increasedecrease in the effective tax rate during fiscal 20192020 was primarily due to newly issued final regulationsthe absence of a discrete charge recorded in fiscal 2019 related to the final regulations issued under the Tax Act which impacted our reserves for uncertain tax positions,and the absence of unfavorable tax treatment of certain Acquisition-relatednon-deductible costs such as compensation deduction limitations, as well as non-deductibility of certain professional fees. Partially offsetting these adverse items,related to the Tax Act reduced the corporate income tax rate to 21.0% effective January 1, 2018, resulting in a change in our blended tax rate of 24.5% in fiscal 2018 to 21.0% beginning with our fiscal 2019.Acquisition.
NET INCOME
Net income was $39.2$142.8 million in fiscal 2019,2020, which represented a decreasean increase of 64.4%264.2%, or $70.8$103.6 million, from fiscal 2018.  The fiscal 20192019.  Net income was adversely impacted bybenefited from the assetaddition of the KMG businesses for the full period in fiscal 2020, lower Acquisition and integration-related expenses, and lower Asset impairment and restructuring charges related to the wood treatment business, of $68.9 million, Acquisition-related expenses of $34.7 million, a charge for fair value write-up of acquired inventory sold of $14.9 million, costs related to the KMG-Bernuth warehouse fire of $9.9 million, and increased tax expense related to newly issued final regulations related to the Tax Act, which impacted the Company’s reserves for uncertain tax positions,partially offset by the increase dueamortization associated with re-valuing KMG assets to the addition of KMG businesses.fair value.

28
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YEAR ENDED SEPTEMBER 30, 2018, VERSUS YEAR ENDED SEPTEMBER 30, 2017
REVENUE
Revenue was $590.1 million in fiscal 2018, which represented an increase of 16.4%, or $82.9 million, from fiscal 2017.  The increase in revenue was driven by a $52.9 million increase due to higher sales volume, a $27.5 million increase due to a higher value product mix, and a $4.4 million increase due to foreign exchange fluctuations, partially offset by a $1.8 million decrease due to price changes.  The increase in sales volume was consistent with continued overall strong demand conditions in the global semiconductor industry.
COST OF SALES
Total Cost of sales was $276.0 million in fiscal 2018, which represented an increase of 9.1%, or $23.0 million, from fiscal 2017.  The increase in Cost of sales was primarily driven by a $12.4 million increase due to higher sales volume, a $6.6 million increase in fixed manufacturing costs, including higher staffing-related expenses, a $2.9 million increase due to product mix, a $2.0 million increase due to foreign exchange fluctuations, partially offset by a $1.0 million decrease in other variable manufacturing costs, including material costs. Fixed manufacturing costs included $5.2 million of NexPlanar amortization expense compared to $4.8 million in the same period of fiscal 2017.
GROSS MARGIN
Our gross margin was 53.2% in fiscal 2018 compared to 50.1% for fiscal 2017.  The increase in gross margin from fiscal 2017 was primarily due to higher sales volume and a higher value product mix, partially offset by higher fixed manufacturing costs, including higher staffing-related expenses.
RESEARCH, DEVELOPMENT AND TECHNICAL
Total Research, development and technical expenses were $52.0 million in fiscal 2018, which represented a decrease of 5.2%, or $2.8 million, from fiscal 2017.  The decrease was primarily due to lower professional expenses of $1.3 million, lower staffing-related costs of $1.0 million, and lower depreciation and amortization expense of $0.7 million, partially offset by the absence of a gain on equipment disposal of $1.8 million that occurred in fiscal 2017.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $102.0 million in fiscal 2018, which represented an increase of 18.0%, or $15.6 million, from fiscal 2017.  The increase was primarily due to $4.2 million in costs associated with executive officer transitions, $3.9 million in Acquisition and integration related costs in connection with the Acquisition, higher long-term incentive compensation expenses of $2.5 million, higher staffing-related costs of $1.6 million, and higher professional expenses of $1.5 million.
INTEREST EXPENSE
Interest expense was $2.9 million in fiscal 2018, which represented a decrease of 35.9%, or $1.6 million, from fiscal 2017. The decrease resulted from the payoff of our Term Loan in April 2018.
INTEREST INCOME
Interest income was $4.4 million in fiscal 2018, which represented an increase of 87.5%, or $2.1 million, from fiscal 2017. The increase resulted from higher investment balances and higher average interest rates.

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OTHER INCOME (EXPENSE), NET
Other income was $0.1 million in fiscal 2018, an increase of $0.5 million from fiscal 2017.  The increase was primarily due to the gain on the sale of certain assets of $1.0 million in the second quarter of fiscal 2018.

PROVISION FOR INCOME TAXES
Our effective income tax rate was 32.0% in fiscal 2018 compared to 20.5% in fiscal 2017.  The increase in the effective tax rate during fiscal 2018 was primarily due to the unfavorable initial impact of the Tax Act, which was enacted in the first quarter of fiscal 2018, and the absence of benefits of the tax holiday in South Korea, which expired as of October 2017. These items were partially offset by the benefit from the adoption of ASU 2016-09 in fiscal 2018, which requires excess tax benefits of share based exercises to be recorded as a reduction to the Provision for income taxes, rather than an increase to equity.  See Note 19 of "Notes to the Consolidated Financial Statements" included in Part II, Item 8 of this Annual Report on Form 10-K for more information on our income tax provision.
NET INCOME
Net income was $110.0 million in fiscal 2018, which represented an increase of 26.6%, or $23.1 million, from fiscal 2017.  The increase was primarily due to higher revenue and a higher gross margin, partially offset by higher operating expenses and the $18.2 million unfavorable initial impact of the enactment of the Tax Act in December 2017.
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SEGMENT ANALYSIS

Segment data is presented for our two reportable segments for the fiscal year ended SeptemberCOMPARISON FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2020 AND SEPTEMBER 30, 2019 and 2018. The segment data should be read in conjunction with our Consolidated Financial Statements and related notes included elsewhere in this Annual Report on Form 10-K.
Revenue from external customers by segment and adjusted EBITDA/Margin are as follows:
(In thousands)(In thousands)Year Ended September 30,
Twelve Months Ended September 30,20202019$ Change% Change
201920182017
Segment Revenue
Segment Revenue:Segment Revenue:
Electronic MaterialsElectronic Materials$833,051  $559,944  $485,034  Electronic Materials$882,824 $833,051 $49,773 6.0 %
Performance MaterialsPerformance Materials204,645  30,179  22,145  Performance Materials233,446 204,645 28,801 14.1 %
Total$1,037,696  $590,123  $507,179  
Total RevenuesTotal Revenues$1,116,270 $1,037,696 $78,574 7.6 %
Adjusted EBITDA:Adjusted EBITDA:
Electronic MaterialsElectronic Materials$299,037 $294,902 $4,135 1.4 %
Performance MaterialsPerformance Materials106,797 91,372 15,425 16.9 %
Unallocated corporate expensesUnallocated corporate expenses(48,033)(52,856)4,823 9.1 %
Consolidated Adjusted EBITDAConsolidated Adjusted EBITDA$357,801 $333,418 $24,383 7.3 %
Adjusted EBITDA Margin:Adjusted EBITDA Margin:
Electronic MaterialsElectronic Materials33.9 %35.4 %-150 bpts
Performance MaterialsPerformance Materials45.7 %44.6 %110 bpts

Twelve Months Ended September 30,
201920182017
Segment Adjusted EBITDA:  
  Electronic Materials$294,902  $222,019  $169,044  
  Performance Materials91,372  7,191  2,516  
  Unallocated corporate expenses(52,856) (39,266) (34,050) 
     Total$333,418  $189,944  $137,510  

Twelve Months Ended September 30,
201920182017
Adjusted EBITDA Margin
Electronic Materials35.4 %39.7 %34.9 %
Performance Materials44.6 %23.8 %11.4 %


THE YEAR ENDED SEPTEMBER 30, 2019, VERSUS YEAR ENDED SEPTEMBER 30, 2018

ELECTRONIC MATERIALS

The $273.1$49.8 million increase in Electronic Materials revenue was primarily driven by the additiona full year of KMG’s electronic chemicals business since the Acquisition. Further increase was driven by higher value product mixpost-Acquisition and strong organic demand for the Company’s heritageincreased sales volume of CMP pads product line, which increased 13.8%, primarily on higher sales volume,slurries, partially offset by the decrease in Company's heritagelower CMP slurries products due to the softer industry conditions.pads sales. The $4.1 million increase in adjusted EBITDA for Electronic Materials increased from the prior year was driven by the addition of KMG’s electronic chemicals,revenue increases, as well as stronger profitability drivenin CMP slurries, partially offset by the leverage achieved on higher sales volume of the Company’s legacy CMP polishing pads product line.fixed manufacturing costs. The lower150 basis points decrease in adjusted EBITDA margin was primarily due to change in mix of products as a result of the Acquisition.product mix.

PERFORMANCE MATERIALS

The $174.5$28.8 million increase in Performance Materials revenue was primarily driven by the additionhigher selling prices for our wood treatment products and a full year of KMG’s performance materials businessbusinesses post-Acquisition. The $15.4 million increase in Performance Materials’Materials adjusted EBITDA and 110 basis points increase in Performance Materials adjusted EBITDA margin expanded from the prior year due to the addition of KMG’s heritage performance materials business.

were primarily driven by higher selling prices for wood treatment products.
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USE OF CERTAIN GAAP AND NON-GAAP FINANCIAL INFORMATION

Certain financial measures contained in this Annual Report on Form 10-K adjust for the impact of specified items and are not calculated in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP” or “GAAP”). We provide certain non-GAAP financial information,measures, 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'sthe Company’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 a basisone of the performance metric forgoals of our fiscal 20192020 Short-Term Incentive Program (STIP).Program. 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 and asset impairment 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 informationmeasures provided isare 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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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.


Twelve Months Ended September 30,
201920182017
Segment Adjusted EBITDA
Electronic Materials$294,902  $222,019  $169,044  
Performance Materials91,372  7,191  2,516  
Unallocated Corporate Expenses(52,856) (39,266) (34,050) 
Total$333,418  $189,944  $137,510  
(In thousands)Year Ended September 30,
202020192018
Net income$142,828 $39,215 $110,043 
Interest expense42,510 45,681 2,905 
Interest income(670)(2,346)(4,409)
Income taxes30,519 23,891 51,668 
Depreciation and amortization127,737 98,592 25,876 
EBITDA342,924 205,033 186,083 
Acquisition and integration related expense10,852 34,709 3,861 
Charges related to asset impairment of wood treatment business2,314 67,372 — 
Cost related to KMG-Bernuth warehouse fire, net of insurance recovery1,083 9,905 — 
Costs related to the Pandemic, net of grants received849 — — 
Charge for fair value write-up of acquired inventory sold— 14,869 — 
Net costs related to restructuring of the wood treatment business1
(221)1,530 — 
Adjusted EBITDA$357,801 $333,418 $189,944 

1
Represents adjustments to previously recorded severance liability related to the wood treatment business.


Twelve Months Ended September 30,
201920182017
Net income$39,215  $110,043  $86,952  
Interest expense45,681  2,905  4,529  
Interest income(2,346) (4,409) (2,351) 
Income taxes23,891  51,668  22,420  
Depreciation and amortization98,592  25,876  25,930  
EBITDA*205,033  186,083  137,480  
Acquisition and integration related expense34,709  3,861  —  
Charge for fair value write-up of acquired inventory sold14,869  —  —  
Cost related to KMG-Bernuth warehouse fire9,905  —  —  
Costs related to restructuring of wood treatment business1,530  —  —  
Charges related to asset impairment of wood treatment business67,372  —  —  
Adjusted EBITDA**$333,418  $189,944  $137,480  
* 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.
(In thousands)Year Ended September 30,
202020192018
Adjusted EBITDA
Electronic Materials$299,037 $294,902 $222,019 
Performance Materials106,797 91,372 7,191 
Unallocated Corporate Expenses(48,033)(52,856)(39,266)
Consolidated Adjusted EBITDA$357,801 $333,418 $189,944 


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LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2020, we had $257.4 million of cash and cash equivalents compared with $188.5 million as of September 30, 2019. On September 30, 2020, $159.4 million of cash and cash equivalents was held in foreign subsidiaries. Our total liquidity as of September 30, 2020 was $457.4 million compared to $388.5 million as of September 30, 2019 (including $200.0 million of borrowing availability under our Revolving Credit Facility in both periods, which includes our letter of credit sub-facility). The increase in liquidity reflects the cash flow provided by operating activities, partially offset by the cash used by additions of property, plant and equipment, the repurchases of our common stock, and payments of quarterly cash dividends.
Total debt, consisting of principal outstanding on our Term Loan Facility, amounted to $921.4 million ($936.4 million in aggregate principal amount less $14.9 million of debt issuance costs) as of September 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.
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. In September 2020, the Company repaid the amount outstanding under the Revolving Credit Facility, which had been unused in full, and as of September 30, 2020, had no remaining balance outstanding under the Revolving Credit Facility.
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. As of September 30, 2020, our maximum first lien secured net leverage ratio was 1.81 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. We believe we are in compliance with these covenants as of September 30, 2020 and we expect to remain in compliance with our debt covenants during fiscal 2021 and beyond.
In January 2016, our Board of Directors authorized an increase in the amount available under our share repurchase program to $150.0 million. In fiscal 2020, we repurchased 318 thousand shares under this program, and $36.3 million authorization remained at the end of the year. 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 on hand, and anticipate we will continue to do so.
Our Board of Directors authorized the initiation of our regular quarterly cash dividend program in January 2016, and since that time has increased the dividend to its current 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.
We believe that cash on hand, cash available from future operations, and available borrowing capacity under our Amended Credit 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.
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Operating Activities
We generated $175.0$287.3 million in cash flows from operating activities in fiscal 2020, $175.0 million in fiscal 2019 and $168.9 million in fiscal 2018 and $141.42018. Our cash provided by operating activities in fiscal 2020 reflected Net income of $142.8 million, $137.8 million in non-cash reconciling items, and decreases in working capital of $6.7 million. Non-cash reconciling items in fiscal 2017.2020 included $127.7 million of depreciation and amortization expense, $16.4 million of share-based compensation expense, partially offset by $11.3 million of deferred income tax benefit. Our cash provided by operating activities in fiscal 2019 reflected Net income of $39.2 million and $175.2 million in non-cash items reconciling items, including $67.4 million related to the wood treatment asset impairment charges partially offset by increases in working capital of $39.4 million. Non-cash reconciling items in fiscal 2019 included $98.6 million of depreciation and amortization expense, $67.4 million of wood treatment asset impairment charges, $18.2 million of share-based compensation expense, and $14.9 million of inventory step-up on acquired inventory sold, partially offset by $27.2 million of deferred income tax benefit. Our cash provided by operating activities in fiscal 2018 reflected Net income of $110.0 million and $66.8 million in non-cash reconciling items. The increaseitems, partially offset by increases in cash flows from operating activitiesworking capital of $7.9 million. Non-cash reconciling items in fiscal 2018 was primarily due to higher revenueincluded $25.9 million of depreciation and gross margin, partially offset by an increaseamortization expense, $18.5 million of share-based compensation expense, $11.3 million of deemed repatriation transition tax, and $10.8 million deferred income tax expense.
Investing Activities
In fiscal 2020, cash flows used in working capital.
investing activities were $124.3, representing property, plant and equipment additions of $125.8 million, net of cash inflows of $1.6 million from the disposition of property. In fiscal 2019, cash flows used in investing activities were $1,233.0 million, representing property, plant and equipment additions of $56.0 million and $1,182.2 million used for the Acquisition, net of cash inflows of $5.2 million from insurance policies and disposition of property. The remainder of the Acquisition was satisfied with the issuance of common stock.  In fiscal 2018, cash flows used in investing activities were $22.8 million representing $21.3 million for purchases of property, plant and equipment, net of inflows related to purchases and sales of investments.  equipment.
Financing Activities
In fiscal 2017, we2020, cash flows used $19.8in financing activities were $97.7 million, which included $50.4 million of dividend payments, $38.2 million of cash used in investing activities representing $21.2stock repurchases, and $23.3 million for purchases of property, plant and equipment, net of $1.2 million in proceeds from sales of property, plant and equipment, and cash inflows from other investing cash activity.
repayments on long-term debt. In fiscal 2019, cash flows provided from financing activities were $894.4 million. During the first quarter of fiscal 2019, we received $1,043.6 million in debt proceeds, net of $18.7 million in debt issuance costs and $2.7 million original discount fees, which was used for the Acquisition. In fiscal 2019, we paidThis was partially offset by $105.3 million of repayments on this debt. In addition, ourdebt and $46.3 million of dividend payments increased $15.6 million to $46.3 million.

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”). The Term Loan Facility and the Revolving Credit Facility are referred to 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. We made a total prepayment of $100.0 million during fiscal 2019. The Revolving Credit Facility requires that the Company maintain a maximum first lien secured net leverage ratio, as definedIn fiscal 2018, cash used in the Credit Agreement,financing activities were $197.6 million, which included $144.4 million of 4.00 to 1.00 asrepayments on long-term debt, $30.7 million of the last day of each fiscal quarter if any revolving loans are outstanding, commencing with the first full fiscal quarter after the Acquisition Date. Additionally, the 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 restricteddividend 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. In the second quarter of fiscal 2019, we entered into a floating-to-fixed interest rate swap agreement to hedge the variability in our LIBOR-based interest payments on approximately 70% of our Team Loan balance. See Note 13 of "Notes to the Consolidated Financial Statements" included in Item 8 of Part II of this Annual Report on Form 10-K for additional information regarding the Credit Agreement.
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.  As of September 30, 2019, $71.3 million remains available under our share repurchase program.  Share repurchases are made from time to time, depending on market and other conditions.  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, 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.

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Our Board of Directors authorized the initiation of our regular quarterly cash dividend program in January 2016, and since that time has increased the dividend twice, to its current level of $0.42 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.

As of September 30, 2019, we had $188.5$44.3 million of cash and cash equivalents, $124.3 million of which was heldused in foreign subsidiaries.  See Part I, Item 1A entitled "Risk Factors" in this Annual Report on Form 10-K for additional discussion of our foreign operations.

We believe that our current balance of cash, cash generated by our operations, cash repatriation to the United States, and available borrowing capacity under our Credit Facilities will be sufficient to fund our operations, expected capital expenditures, dividend payments, and share repurchases for at least the next twelve months. However, 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.stock repurchases.

OFF-BALANCE SHEET ARRANGEMENTS
At September 30, 20192020 and September 30, 2018,2019, 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.

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TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The following summarizes our contractual obligations at September 30, 2019,2020, and the effect such obligations are expected to have on our liquidity and cash flow in future periods.
CONTRACTUAL OBLIGATIONS
(In millions)
TotalLess Than
1 Year
1-3
Years
3-5
Years
After 5
Years
CONTRACTUAL OBLIGATIONS
(In thousands)
CONTRACTUAL OBLIGATIONS
(In thousands)
TotalLess Than
1 Year
1-3
Years
3-5
Years
After 5
Years
DebtDebt959.7  13.3  21.3  21.3  903.8  Debt$936,363 $10,650 $21,300 $21,300 $883,113 
Interest expense and feesInterest expense and fees229.7  48.9  71.6  68.7  40.5  Interest expense and fees150,708 33,430 64,411 48,829 4,038 
Purchase obligationsPurchase obligations61.1  58.7  2.4  —  —  Purchase obligations71,740 55,964 15,103 673 — 
Operating leasesOperating leases36.0  7.0  9.2  7.8  12.0  Operating leases35,515 7,196 12,317 7,741 8,261 
Severance agreementsSeverance agreements3.2  3.1  0.1  —  —  Severance agreements896 891 — — 
Other long-term liabilities *27.5  —  13.6  0.5  13.4  
Other long-term liabilities 1
Other long-term liabilities 1
27,939 256 13,455 264 13,964 
Total contractual obligationsTotal contractual obligations$1,317.2  $131.0  $118.2  $98.3  $969.7  Total contractual obligations$1,223,161 $108,387 $126,591 $78,807 $909,376 
*1We have excluded $122.0$112.2 million in deferred tax liabilities and $12.1$15.5 million of liabilities for uncertain tax positions from the other long-term liability amounts presented, as the amounts and timing of payments to be settled in cash are not known. We have also excluded $18.8$26.0 million related to the fair value of our interest rate swap and $0.8 million in deferred rent as the rent payments are included in the table above under the caption "Operating leases."swap.
INTEREST AND FEES ON LONG-TERM DEBT
Interest payments on long-term debt reflect interest rates in effect at September 30, 2019.2020. The interest payments reflect LIBOR rates currently in effect on $260.7$365.4 million of our outstanding debt, and reflect fixed interest rates on $699$571.0 million of outstanding debt for which we have executed interest rate swaps. Commitment fees are based on our estimated consolidated leverage ratio in future periods. See Note 13 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of this Annual Report on Form 10-K for additional information regarding our long-term debt.
PURCHASE OBLIGATIONS

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 a particular abrasive particle, the current term of which runs through December 31, 2019. Purchase obligations include an aggregate amount of $5.9 million of contractual commitments related to this agreement. In addition, we have purchase commitment of $9.7 million to purchaseabrasive particle and non-water-based carrier fluid and have another purchase contract to purchase $4.1 million of abrasive particles.

agreements.
OPERATING LEASES
WeOperating leases include future lease certain vehicles, warehouse facilities, office space, machinery and equipmentpayments under cancelable and noncancelable operating leases, most of which expire within ten years of their respective commencement dates and may be renewed by us.leases.
SEVERANCE AGREEMENTS
Liabilities for severance agreements at September 30, 20192020 represent payments to be made to former or to be former employees in accordance with individual agreements.

OTHER LONG-TERM LIABILITIES
Other long-term liabilities at September 30, 20192020 primarily consist of $12.7$11.8 million asset retirement obligations and $8.8$9.3 million of liabilities related to our foreign benefit plans in Japan, South Korea, and South Korea.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company’s accounting policies are more fully described in Note 2 of "Notes to the Consolidated Financial Statements" included in Part II, Item 8 of this Annual Report on Form 10-K of the Consolidated Financial Statements. As disclosed in Note 2, the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingencies. Actual results may differ from these estimates under different assumptions or conditions.The Company believes that the following discussion addresses the Company’s most critical accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective and complex judgments.
GOODWILL AND OTHER INTANGIBLE ASSETS
We perform an annual impairment assessment of goodwill and other intangible assets at the reporting unit level as of September 30 of each year, or more frequently if circumstances indicate that the carrying value may not be recoverable. Where we use the qualitative assessment, we determine based on qualitative factors, such as macroeconomic, industry, legal, and financial performance, whether it is more likely than not that an impairment exists. If the qualitative assessment indicates that it is more likely than not that an impairment exists, then a quantitative assessment is performed.
Qualitative factors include industry and market considerations, overall financial performance, industry, legal and other relevant events and factors affecting the reporting unit. Additionally, as part of this assessment, we may perform a quantitative analysis to support the qualitative factors above by applying sensitivities to assumptions and inputs used in measuring a reporting unit’s fair value.
In our quantitative assessment, estimated fair value is determined using an average of a discounted cash flow model and a market approach based on earnings before interest, taxes, and depreciation for a group of guideline comparable companies. Factors requiring significant judgment include the selection of market comparable companies, projected future revenue and gross margin, discount rates, and terminal growth rates. The wood treatment reporting unit fair value is determined using the discounted cash flow model only. The use of different assumptions, estimates or judgments could significantly impact the estimated fair value of a reporting unit, and therefore, impact the excess fair value above carrying value of the reporting unit. The reporting unit’s carrying value used in an impairment test represents the assignment of various assets and liabilities, excluding certain corporate assets and liabilities, such as cash, investments, and debt.
We test the reasonableness of the inputs and outcomes of our discounted cash flow models against available market data. Two of the Company’s reporting units, wood treatment and PIM, are at risk of failing future impairment tests, as the September 30, 2020 estimates of fair value do not substantially exceed their carrying values. As previously announced, the Company is closing its wood treatment facilities by approximately the end of calendar year 2021. The fair value of the wood treatment asset group was sufficient such that the recognized impairment was limited to long-lived assets and the reporting unit goodwill was not impaired, however, as the Company approaches the closure date of the facilities and there are lower estimated future cash flows, the carrying value of the wood treatment asset group and reporting unit will not be recoverable, resulting in future impairments. The carrying value includes $35.0 million and $3.8 million of goodwill and intangible assets as of September 30, 2020, respectively. There is no excess fair value over the carrying value as of September 30, 2020.
For PIM, the estimated fair value of the reporting unit exceeded the carrying value by approximately 8%. PIM’s carrying value includes $318.2 million of goodwill and $46.0 million of trade-name intangible assets. Key assumptions in the goodwill test include projected future revenue and gross margin, a 10.5% discount rate, and a terminal growth rate of 3%. A 50 basis point change in the projected compound annual revenue growth rate, discount rate, or terminal growth assumption would not result in an impairment. The fair values for all other reporting units substantially exceeded their carrying value. Refer to Note 10 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of this Annual Report on Form 10-K for more information regarding wood treatment.
The Flowchem LLC (“Flowchem”) trade name, an indefinite-lived intangible asset, was assessed for impairment using a relief from royalty approach. Factors requiring significant judgment include projected revenue, royalty rates, terminal growth rates, and discount rates.
Significant management judgment is required to estimate projected future revenue. All assumptions used in our impairment valuation for indefinite-lived intangible assets and goodwill are based on best available information and are consistent with internal forecasts and operating plans.
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ACCOUNTING FOR INCOME TAXES
SUPPLEMENTAL UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATIONWe are subject to income taxes in the U.S. and numerous foreign jurisdictions. Accordingly, the determination of our provision for income taxes requires judgment, the use of estimates in certain cases and the interpretation and application of complex tax laws. Our effective income tax rate is affected by many factors, including changes in our assessment of certain tax contingencies, increases and decreases in valuation allowances, changes in tax law, outcomes of audits, and the mix of earnings among our U.S. and international operations.

We assess whether or not our deferred tax assets will ultimately be realized, and record an estimated valuation allowance on those deferred tax assets that may not be realized.
Many factors are considered when assessing whether it is more likely than not that the deferred tax assets will be realized, including recent cumulative earnings, expectations of future taxable income, carryforward periods and other relevant quantitative and qualitative factors. The following Unaudited Pro Forma Condensed Combined Financial Information is presented to illustrate the estimated effectsrecoverability of the Acquisition, which was consummateddeferred tax assets is evaluated by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. This evaluation is based on November 15, 2018 (the “Acquisition Date”),best available information and are consistent with internal forecasts and operating plans.
We recognize the tax benefit of an uncertain tax position only if it is more likely than not that the tax position will be sustained by the taxing authorities, based on the historical resultstechnical merits of operationsthe position. When facts and circumstances change, we reassess these probabilities and record any changes in the financial statements as appropriate. This determination requires the use of Cabot Microelectronicsjudgment in evaluating our tax positions and KMG. assessing the timing and amounts of deductible and taxable items. See Note 419 of "Notes to the Consolidated Financial Statements" included in Part II, Item 8 of this Annual Report on Form 10-K for additional information on the Acquisition. The following Unaudited Pro Forma Condensed Combined Statements of Income for the 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.

income taxes.
The historical Cabot Microelectronics Consolidated Statements of Income for the twelve months ended September 30, 2019 and September 30, 2018 were derived from the consolidated financial statements included elsewhere in this Annual Report on Form 10-K. 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 twelve months ended September 30, 2018 include 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.EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS

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 and finalized in the fourth quarter of fiscal 2019.

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.

In contrast, under the ASC 805 presentation inSee Note 42 of "Notes to the Consolidated Financial Statements" included in Part II, Item 8 of this Annual Report on Form 10-K these expenses are required to be included in prior year pro forma results.

for a description of recent accounting pronouncements.
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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 the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K, 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 Statements of Income
For the Year Ended September 30, 2019 and 2018
(in thousands, except per share data)
Year Ended September 30,
2019  2018  
Revenue$1,099,674  $1,063,563  
Cost of sales623,303  598,049  
Gross profit476,371  465,514  
Operating expenses:
Research, development and technical 51,707  51,950  
Selling, general and administrative expenses221,758  204,875  
Asset impairment charges51,186  —  
Total operating expenses324,651  256,825  
Operating income151,720  208,689  
Interest expense53,743  51,804  
Interest income2,397  4,493  
Other income (expense), net(4,313) (1,073) 
Income before income taxes96,061  160,305  
Provision for income taxes26,388  33,925  
Net income$69,673  $126,380  
Basic earnings per share $2.40  $4.40  
Weighted average basic shares outstanding 28,979  28,755  
Diluted earnings per share $2.36  $4.29  
Weighted average diluted shares outstanding29,502  29,480  


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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, 2018Presentation 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 technical51,707  —  —  —  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 outstanding28,571  —  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 September 30, 2019 and heritage KMG from November 15, 2018 to September 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.
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CABOT MICROELECTRONICS CORPORATION
Unaudited Pro Forma Condensed Combined Statements 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, 2018Presentation
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 taxes51,668  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 outstanding 25,518  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 Annual Report on Form 10-K for the fiscal year 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.
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CABOT MICROELECTRONICS CORPORATION
Summary of Pro Forma Adjustments
(in thousands, except per share data)
Year Ended September 30, 2019Year Ended September 30, 2018
Impact to Cost of sales:
Depreciation and amortization, net (a) $1,855  $13,575  
Inventory step-up (b) (14,870) —  
Impact to Cost of sales$(13,015) $13,575  
Impact to Operating expense:
   Depreciation and amortization, net (a)30,689  48,806  
   Asset impairment true up (c)(16,186) —  
   Compensation expense (d)(38,099) 263  
   Deal costs (e)(24,414) (8,794) 
   Historical KMG amortization in other operating expenses removal (a)(1,943) (14,690) 
Impact to Operating expenses$(49,953) $25,585  
Impact to Other income (expense), net:
   Loss on the extinguishment of debt (f)—  (6,858) 
   Derivative fair value gain (f)(567) 5,685  
Impact to Other income (expense), net$(567) $(1,173) 
Impact to Interest expense:
  Interest expense (g)(475) 30,000  
Impact to Interest expense$(475) $30,000  
Adjustments included in the accompanying Unaudited Pro Forma Condensed Combined Statements of Income are as follows:

a.Depreciation and amortization expense are adjusted by removing depreciation and amortization associated with heritage KMG assets and assigning a pro forma expense based on the fair value of the assets on the date of the Acquisition. For periods after the date of the Acquisition, there is no pro forma adjustment for Depreciation and actual booked depreciation is reflected on a straight-line basis. Depreciation costs are allocated to Cost of sales and Selling, general and administrative expenses based on historical KMG allocations. Amortization costs are allocated to Cost of sales or Selling, general and administrative expense based on the use of the asset, where applicable.
b.Cost of sales is impacted by increased inventory balance caused by the non-cash impact of the step up to fair value of the inventory. The incremental costs of sales driven by the inventory step-up during the period have been removed.
c.During the three months ended September 30, 2019, Asset impairment charges in the amount of $67.4 million were incurred related to the wood treatment business, which was acquired from KMG. It was determined that the facts and circumstances that triggered the impairment were not known, or could not have been reasonably known, at the time of the transaction. Further, it was determined that the Asset impairment charges were not directly attributable to the Acquisition and therefore, would not be wholly removed for purposes of pro forma reporting. Since the Asset impairment charges taken for September 2019 reported results were based on the Acquisition Date while the pro forma financials are based upon an October 1, 2017 acquisition date, the pro forma adjustment of $16.2 million to reduce the asset impairment charges to $51.2 million for pro forma results is required. This adjustment reflects the difference between amortization and depreciation expense recognized post-Acquisition from the earlier pro forma acquisition date vs. the amortization and depreciation expense recognized in reported results from the Acquisition Date. The impairment adjustment is tax effected at 25.3%, which considers the taxing jurisdictions where the impaired assets are held (United States and Mexico) and the period for which the impairment is deemed to have occurred (the three months ended September 30, 2019).
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d.Directly attributable and non-recurring compensation expense related to non-recurring retention expenses and stock award vesting directly attributable to the Acquisition are removed for pro forma purposes. For KMG stock awards that were replaced by Company stock awards in connection with the Acquisition (“Replacement Awards”), the vesting for on-going service expenses are added as a pro forma adjustment.
e.The elimination of non-recurring deal costs incurred in connection with the Acquisition.
f.As a result of the Acquisition, there were non-recurring costs incurred by KMG as a result of retiring old debt. The costs associated with retiring the old debt facility and other financial instruments are removed for pro forma purposes. These instruments were retired as a result of the Acquisition and are not included in the pro forma results, which are presented as if the Acquisition had occurred on October 1, 2017.
g.Changes in Interest expense as a result of financing associated with the Acquisition. The adjustments remove heritage KMG interest costs, including unused revolver fees and adds the costs associated with the new financing facilities as if the Acquisition occurred on October 1, 2017. The calculation of Interest expense considers the changing LIBOR rate and uses monthly period end averages from October 1, 2017 to September 30, 2019.

We calculated the income tax effect of the pro forma adjustments using a 21.4% and 23.4% tax rate, which represent the weighted average statutory tax rate for the years ended September 30, 2019 and September 30, 2018, respectively.

In addition, for the 2018 periods presented, we calculated the unaudited pro forma weighted average number of basic shares outstanding by adding the Cabot Microelectronics weighted average number of basic shares outstanding from the share amounts disclosed in the historical Quarterly and Annual Reports on Form 10-Q and 10-K, respectively, to the amount of shares issued in connection with the Acquisition, as if the shares were held for the entire period.

We calculated the unaudited pro forma weighted average number of diluted shares outstanding by adding the number of shares issued in the Acquisition to the amount disclosed in the historical Cabot Microelectronics Quarterly and Annual Reports on Form 10-Q and 10-K, respectively.

The basic and diluted EPS calculation takes pro forma Net income divided by the applicable number of shares outstanding.


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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
EFFECT OF CURRENCY EXCHANGE RATES AND EXCHANGE RATE RISK MANAGEMENT

We conduct business operations outside of the United StatesU.S. through our foreign operations. SomeMost 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% of our revenue is transacted in currencies other than the U.S. dollar. However, outside of the United States,U.S., 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.

Currency fluctuations have not had a material impact on our Consolidated Statements of Income during fiscal years 2020, 2019 2018 and 2017.2018.  While currency fluctuations of the yen and wondid not have not had a significant impact on other comprehensive income on our Consolidated Balance Sheets in fiscal 2018, they did have a significant impact in fiscal years 20192020 and 2017.2019.  We recorded $19.3 million in currency translation gains and $8.5 million in currency translation losses, and $6.7 million in currency translation gains, net of tax, during fiscal years2020 and 2019, and 2017, respectively, which was included in other comprehensive income.
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 September 30, 2019,2020, 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Page
Consolidated Financial Statements:
60 39
63 41
64 42
65 43
63 44
65 46
67 48
109 79
Financial Statement Schedule:
110 79
111 80
All other schedules are omitted, because they are not required, are not applicable, or the information is included in the consolidated financial statements and notes thereto.
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Report of Independent Registered Public Accounting Firm

To theBoard of Directors and Stockholders of Cabot Microelectronics Corporation

CMC Materials, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Cabot Microelectronics CorporationCMC Materials, Inc. and its subsidiaries (the “Company”) as of September 30, 20192020 and 2018,2019, and the related consolidated statements of income, of comprehensive income (loss), of changes in stockholders’stockholders' equity and of cash flows for each of the three years in the period ended September 30, 2019,2020, including the related notes and financial statement schedule listed in the accompanying index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of September 30, 2019,2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidatedfinancial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and 2019, and 2018, and the results of itsoperations and itscash flows for each of the three years in the period ended September 30, 20192020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2019,2020, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.

Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases as of October 1, 2019.
Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded KMG Chemicals, Inc. (“KMG”) from its assessment of internal control over financial reporting as of September 30, 2019, because it was acquired by the Company in a purchase business combination during fiscal 2019. We have also excluded KMG from our audit of internal control over financial reporting. KMG is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 14.0% and 43.5%, respectively, of the related consolidated financial statement amounts as of and for the year ended September 30, 2019.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
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(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide
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reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit mattersmatter communicated below are mattersis a matter arising from the current period audit of the consolidated financial statements that werewas communicated or required to be communicated to the audit committee and that (i) relaterelates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing a separate opinionsopinion on the critical audit mattersmatter or on the accounts or disclosures to which they relate.it relates.
Goodwill Impairment Assessment - Pipeline and Industrial Materials (“PIM”) and CMP Pads Reporting Units

Valuation of Acquired Customer Relationships Intangible Assets Related to Flowchem and Electronic Chemicals

As described in Note 4Notes 2 and 9 to the consolidated financial statements, the Company completed the acquisition of KMG for total consideration of $1,536.5Company’s consolidated goodwill balance was $718.6 million in fiscal year 2019,at September 30, 2020, which included $595.0 million of customer relationships intangible assets being recorded related to Flowchemthe PIM and Electronic chemicals. TheCMP Pads reporting units.Goodwill is tested for impairment annually on September 30, or between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of acquired identifiable intangible assets, including customer relationships, wasa reporting unit below its carrying amount. The goodwill impairment assessment is performed comparing the estimated fair value of the reporting units to their carrying amounts. Estimated fair values are determined using the income approach on an individual asset basis. The key assumptions used by management in the calculationaverage of thea discounted cash flowsflow model and a market approach based on earnings before interest, taxes, and depreciation for a group of guideline comparable companies. Factors requiring significant judgment include projected revenues, operating expenses,the selection of valuation approach and assumptions related to future revenue and gross margin, discount rates, and terminal growth rates, and customer attrition rates.

The principal considerations for our determination that performing procedures relating to the valuationgoodwill impairment assessment of the acquired customer relationships intangible assets related to FlowchemPIM and Electronic chemicalsCMP Pads reporting units is a critical audit matter are there was(i) the significant judgment by management when determining the fair value estimate of the customer relationships intangible assets acquired. This in turn led to areporting units using the discounted cash flow models; (ii) the high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidencethe significant assumptions used in management’s fair value estimate related to management’s significant assumptions, including the projected revenues, operating expenses, discount rates,future revenue, gross margin, terminal growth rates,rate and customer attrition rates. In addition,the discount rate for the PIM reporting unit, and future revenue and gross margin for the CMP Pads reporting unit; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting,management’s goodwill impairment assessment, including controls over management’sthe valuation of the intangible assetsCompany’s PIM and controls over development of the assumptions related to the valuation of these assets, including projected revenues, operating expenses, discount rates, terminal growth rates, and customer attrition rates. CMP Pads reporting units.These procedures alsoincluded, among others, testing management’s process for determining the fair value estimate of the customer relationships intangible assets;PIM and CMP Pads reporting units; evaluating the appropriateness of using the average of a discounted cash flow model and the reasonableness of significant assumptions, including the projected revenues, operating expenses, discount rates, terminal growth rates, and customer attrition rates; anda market approach based upon relevant market multiples; testing the completeness accuracy, and relevance of underlying data used in the discounted cash flows. Evaluating the reasonableness of the projected revenues and operating expenses involved considering the past performance of the acquired business, as well as economic and industry forecasts. Professionals with specialized skill and knowledge were used to assist in the evaluation of the discounted cash flow model and certain significant assumptions, including the discount rates, terminal growth rates, and customer attrition rates.

Long-Lived Asset Impairment Assessment - Wood Treatment

As described in Notes 2 and 10 to the consolidated financial statements, in the fourth quarter of the fiscal year ended September 30, 2019, the Company recognized a pre-tax impairment of $67.4 million in the Performance Materials segment related to certain long-lived assets within the wood treatment reporting unit, which is also an asset group. The carrying value of the long-lived assets after impairment was $13.9 million. Management assesses the recoverability of the carrying value of its long-lived assets to be held and used whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Management believes events subsequent to the acquisition date of KMG, including management’s decision to cease
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capital investment in the wood treatment business, and shifting market perceptions of environmental risks and costs, resulted in a triggering event to assess the asset group for impairment. The asset group did not pass the recoverability test and the Company proceeded to measure an impairment. Management estimated the fair value of the asset group and recognized an impairment loss for the amount that fair value exceeded carrying value. Fair value of the asset group was estimated by management using an income approach based on a discounted cash flow model. Management used probability-weighted cash flows, including scenarios for continued operations and potential for a sale of the business. Management’s fair-value estimate for the wood treatment asset group included significant judgments and assumptions relating to projected revenues through the expected closure of the existing facilities.

The principal considerations for our determination that performing procedures relating to the long-lived asset impairment assessment of the wood treatment asset group is a critical audit matter are there was significant judgment by management when determining the fair value of the asset group. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s significant assumptions, including projected revenues through the expected closure of the existing facilities. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of the wood treatment asset group. These procedures also included, among others, testing management’s process for determining the fair value of the asset group; evaluating the appropriateness of the discounted cash flow model; testing the completeness, accuracy and relevance of underlying data used in the discounted cash flow model;models; and evaluating the reasonableness of significant assumptions used by management includingrelated to future revenue, gross margin, terminal growth rate and the projected revenues throughdiscount rate for the expected closure ofPIM reporting unit, and future revenue and gross margin for the existing facilities.CMP Pads reporting unit. Evaluating management’s assumptions related to future revenue, gross margin, and terminal growth rate involved evaluating whether the reasonableness of projected revenues through the expected closure of the existing facilities involvedassumptions used were reasonable considering (i) the current and past performance of the asset group,reporting units, (ii) the consistency with external market and industry data, and (iii) whether thethese assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the discounted cash flow model.

models and market approach and the reasonableness of the PIM discount rate assumption.

/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
November 27, 201917, 2020

We have served as the Company’s auditor since 1999.
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CABOT MICROELECTRONICS CORPORATIONCMC MATERIALS, INC
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Year Ended September 30,Year Ended September 30,
201920182017202020192018
RevenueRevenue$1,037,696  $590,123  $507,179  Revenue$1,116,270 $1,037,696 $590,123 
Cost of salesCost of sales595,043  276,018  253,050  Cost of sales627,669 595,043 276,018 
Gross profitGross profit442,653  314,105  254,129  Gross profit488,601 442,653 314,105 
Operating expenses:Operating expenses:Operating expenses:
Research, development and technicalResearch, development and technical51,707  51,950  54,798  Research, development and technical52,311 51,707 51,950 
Selling, general and administrativeSelling, general and administrative213,078  102,037  86,483  Selling, general and administrative217,071 213,078 102,037 
Asset impairment chargesAsset impairment charges67,372  —  860  Asset impairment charges2,314 67,372 
Total operating expensesTotal operating expenses332,157  153,987  142,141  Total operating expenses271,696 332,157 153,987 
Operating incomeOperating income110,496  160,118  111,988  Operating income216,905 110,496 160,118 
Interest expenseInterest expense45,681  2,905  4,529  Interest expense42,510 45,681 2,905 
Interest incomeInterest income2,346  4,409  2,351  Interest income670 2,346 4,409 
Other income (expense), netOther income (expense), net(4,055) 89  (438) Other income (expense), net(1,718)(4,055)89 
Income before income taxesIncome before income taxes63,106  161,711  109,372  Income before income taxes173,347 63,106 161,711 
Provision for income taxesProvision for income taxes23,891  51,668  22,420  Provision for income taxes30,519 23,891 51,668 
Net incomeNet income$39,215  $110,043  $86,952  Net income$142,828 $39,215 $110,043 
Basic earnings per share$1.37  $4.31  $3.47  
Basic earnings per share (in dollars per share)Basic earnings per share (in dollars per share)$4.90 $1.37 $4.31 
Weighted-average basic shares outstanding28,571  25,518  25,015  
Weighted average basic shares outstandingWeighted average basic shares outstanding29,136 28,571 25,518 
Diluted earnings per share$1.35  $4.19  $3.40  
Diluted earnings per share (in dollars per share)Diluted earnings per share (in dollars per share)$4.83 $1.35 $4.19 
Weighted-average diluted shares outstanding29,094  26,243  25,512  
Weighted average diluted shares outstandingWeighted average diluted shares outstanding29,580 29,094 26,243 
The accompanying notes are an integral part of these consolidated financial statements.
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CABOT MICROELECTRONICS CORPORATIONCMC MATERIALS, INC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)thousands)
Year Ended September 30,Year Ended September 30,
201920182017202020192018
Net incomeNet income$39,215  $110,043  $86,952  Net income$142,828 $39,215 $110,043 
Other comprehensive income (loss), net of tax:Other comprehensive income (loss), net of tax:Other comprehensive income (loss), net of tax:
Foreign currency translation adjustmentsForeign currency translation adjustments(8,548) 679  (6,746) Foreign currency translation adjustments19,286 (8,548)679 
Minimum pension liability adjustmentMinimum pension liability adjustment(449) (26) 276  Minimum pension liability adjustment1,047 (449)(26)
Net unrealized (loss) gain on cash flow hedges(18,780) (63) 863  
Net unrealized loss on cash flow hedgesNet unrealized loss on cash flow hedges(10,711)(18,780)(63)
Other comprehensive income (loss), net of taxOther comprehensive income (loss), net of tax(27,777) 590  (5,607) Other comprehensive income (loss), net of tax9,622 (27,777)590 
Comprehensive incomeComprehensive income$11,438  $110,633  $81,345  Comprehensive income$152,450 $11,438 $110,633 
The accompanying notes are an integral part of these consolidated financial statements.
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CABOT MICROELECTRONICS CORPORATIONCMC MATERIALS, INC
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
September 30,September 30,
2019201820202019
ASSETSASSETSASSETS
Current assets:Current assets:Current assets:
Cash and cash equivalentsCash and cash equivalents$188,495  $352,921  Cash and cash equivalents$257,354 $188,495 
Accounts receivable, less allowance for doubtful accounts of $2,377 at September 30, 2019, and $1,900 at September 30, 2018146,113  75,886  
Accounts receivable, less allowance for doubtful accounts of $583 at September 30, 2020, and $2,377 at September 30, 2019Accounts receivable, less allowance for doubtful accounts of $583 at September 30, 2020, and $2,377 at September 30, 2019134,023 146,113 
InventoriesInventories145,278  71,926  Inventories159,134 145,278 
Prepaid expenses and other current assetsPrepaid expenses and other current assets28,670  22,048  Prepaid expenses and other current assets26,558 28,670 
Total current assetsTotal current assets508,556  522,781  Total current assets577,069 508,556 
Property, plant and equipment, netProperty, plant and equipment, net276,818  111,403  Property, plant and equipment, net362,067 276,818 
GoodwillGoodwill710,071  101,083  Goodwill718,647 710,071 
Other intangible assets, netOther intangible assets, net754,044  35,202  Other intangible assets, net670,964 754,044 
Deferred income taxesDeferred income taxes6,566  5,840  Deferred income taxes7,713 6,566 
Other long-term assetsOther long-term assets5,711  4,664  Other long-term assets40,007 5,711 
Total assetsTotal assets$2,261,766  $780,973  Total assets$2,376,467 $2,261,766 
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:Current liabilities:Current liabilities:
Accounts payableAccounts payable$54,529  $18,171  Accounts payable$49,254 $54,529 
Current portion of long-term debtCurrent portion of long-term debt13,313  —  Current portion of long-term debt10,650 13,313 
Accrued expenses, income taxes payable and other current liabilitiesAccrued expenses, income taxes payable and other current liabilities103,618  82,983  Accrued expenses, income taxes payable and other current liabilities121,442 103,618 
Total current liabilitiesTotal current liabilities171,460  101,154  Total current liabilities181,346 171,460 
Long-term debt, net of current portion, less prepaid debt issuance cost of $17,900 at September 30, 2019 and $0 at September 30, 2018928,463  —  
Long-term debt, net of current portionLong-term debt, net of current portion910,764 928,463 
Deferred income taxesDeferred income taxes121,993  81  Deferred income taxes112,212 121,993 
Other long-term liabilitiesOther long-term liabilities59,473  13,046  Other long-term liabilities97,832 59,473 
Total liabilitiesTotal liabilities1,281,389  114,281  Total liabilities1,302,154 1,281,389 
Commitments and contingencies (Note 20)Commitments and contingencies (Note 20)Commitments and contingencies (Note 20)
Stockholders' equity:
Common Stock: Authorized: 200,000,000 shares, $0.001 par value; Issued: 39,592,468 shares at September 30, 2019 and 35,862,465 shares at September 30, 201840  36  
Stockholders’ equity:Stockholders’ equity:
Common Stock Authorized: 200,000 shares, $0.001 par value; Issued: 39,914 shares at September 30, 2020 and 39,592 shares at September 30, 2019Common Stock Authorized: 200,000 shares, $0.001 par value; Issued: 39,914 shares at September 30, 2020 and 39,592 shares at September 30, 201940 40 
Capital in excess of par value of common stockCapital in excess of par value of common stock988,980  622,498  Capital in excess of par value of common stock1,019,803 988,980 
Retained earningsRetained earnings461,501  471,673  Retained earnings553,718 461,501 
Accumulated other comprehensive (loss) income(23,238) 4,539  
Treasury stock at cost, 10,491,252 shares at September 30, 2019 and 10,356,147 shares at September 30, 2018(446,906) (432,054) 
Total stockholders' equity980,377  666,692  
Accumulated other comprehensive lossAccumulated other comprehensive loss(14,104)(23,238)
Treasury stock at cost, 10,834 shares at September 30, 2020 and 10,491 shares at September 30, 2019Treasury stock at cost, 10,834 shares at September 30, 2020 and 10,491 shares at September 30, 2019(485,144)(446,906)
Total stockholders’ equityTotal stockholders’ equity1,074,313 980,377 
Total liabilities and stockholders' equity$2,261,766  $780,973  
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$2,376,467 $2,261,766 
The accompanying notes are an integral part of these consolidated financial statements.
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CABOT MICROELECTRONICS CORPORATIONCMC MATERIALS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended September 30,Year Ended September 30,
201920182017202020192018
Cash flows from operating activities:Cash flows from operating activities:Cash flows from operating activities:
Net incomeNet income$39,215  $110,043  $86,952  Net income$142,828 $39,215 $110,043 
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 amortizationDepreciation and amortization98,592  25,876  25,930  Depreciation and amortization127,737 98,592 25,876 
Accretion on ARO - Liabilities530  —  —  
Accretion on Asset Retirement ObligationsAccretion on Asset Retirement Obligations599 530 
Provision for doubtful accountsProvision for doubtful accounts432  185  26  Provision for doubtful accounts443 432 185 
Share-based compensation expenseShare-based compensation expense18,227  18,517  13,004  Share-based compensation expense16,396 18,227 18,517 
Deemed repatriation transition taxDeemed repatriation transition tax—  11,340  —  Deemed repatriation transition tax11,340 
Deferred income tax expense (benefit)Deferred income tax expense (benefit)(27,150) 10,835  392  Deferred income tax expense (benefit)(11,267)(27,150)10,835 
Non-cash foreign exchange (gain)/loss839  (873) 435  
Loss/(Gain) on disposal of property, plant and equipment(36) 91  (1,820) 
Non-cash foreign exchange (gain) lossNon-cash foreign exchange (gain) loss(266)839 (873)
(Gain) on sale of assets(Gain) on sale of assets(71)(36)(865)
Impairment of assetsImpairment of assets67,372  —  860  Impairment of assets2,314 67,372 
Realized loss on the sale of available-for-sale securitiesRealized loss on the sale of available-for-sale securities—  96  —  Realized loss on the sale of available-for-sale securities96 
Non-cash charge on inventory step up of acquired inventory soldNon-cash charge on inventory step up of acquired inventory sold14,869  —  —  Non-cash charge on inventory step up of acquired inventory sold14,869 
Amortization of debt issuance costsAmortization of debt issuance costs2,884  —  —  Amortization of debt issuance costs3,123 2,884 
(Gain) on sale of assets—  (956) —  
OtherOther(1,362) 1,666  188  Other(1,239)(1,362)1,666 
Changes in operating assets and liabilities:Changes in operating assets and liabilities:Changes in operating assets and liabilities:
Accounts receivableAccounts receivable(6,156) (12,068) (3,986) Accounts receivable13,075 (6,156)(12,068)
InventoriesInventories(20,993) (442) (1,220) Inventories(12,337)(20,993)(442)
Prepaid expenses and other assetsPrepaid expenses and other assets6,830  (5,818) (1,576) Prepaid expenses and other assets8,645 6,830 (5,818)
Accounts payableAccounts payable1,163  128  892  Accounts payable(2,861)1,163 128 
Accrued expenses, income taxes payable and other liabilitiesAccrued expenses, income taxes payable and other liabilities(20,275) 10,245  21,292  Accrued expenses, income taxes payable and other liabilities165 (20,275)10,245 
Net cash provided by operating activitiesNet cash provided by operating activities174,981  168,865  141,369  Net cash provided by operating activities287,284 174,981 168,865 
Cash flows from investing activities:Cash flows from investing activities:Cash flows from investing activities:
Additions to property, plant and equipmentAdditions to property, plant and equipment(55,972) (21,308) (21,174) Additions to property, plant and equipment(125,839)(55,972)(21,308)
Proceeds from the sale of property, plant and equipment—  —  1,216  
Acquisition of business, net of cash acquired(1,182,187) —  —  
Proceeds from the sale of assetsProceeds from the sale of assets1,587 1,224 3,027 
Acquisition of a business, net of cash acquiredAcquisition of a business, net of cash acquired(1,182,187)
Cash settlement of life insurance policyCash settlement of life insurance policy3,959  —  —  Cash settlement of life insurance policy3,959 
Proceeds from the sales of assets1,224  3,027  —  
Purchases of available-for-sale securitiesPurchases of available-for-sale securities—  (209,048) —  Purchases of available-for-sale securities(209,048)
Proceeds from the sale and maturities of investment securities—  214,460  175  
Proceeds from the sale and maturities of available-for-sale securitiesProceeds from the sale and maturities of available-for-sale securities214,460 
Settlement of net investment hedgeSettlement of net investment hedge—  (9,882) —  Settlement of net investment hedge(9,882)
Net cash used in investing activitiesNet cash used in investing activities(1,232,976) (22,751) (19,783) Net cash used in investing activities(124,252)(1,232,976)(22,751)
Cash flows from financing activities:Cash flows from financing activities:Cash flows from financing activities:
Repayment of long-term debtRepayment of long-term debt(105,326) (144,375) (10,938) Repayment of long-term debt(23,313)(105,326)(144,375)
Dividends paidDividends paid(46,324) (30,730) (19,041) Dividends paid(50,383)(46,324)(30,730)
Repurchases of common stockRepurchases of common stock(14,720) (44,288) (14,208) Repurchases of common stock(38,238)(14,720)(44,288)
Net proceeds from issuance of stock17,210  23,031  30,615  
Issuance of long-term debt1,062,337  —  —  
Debt issuance costs(18,745) —  —  
Proceeds from issuance of stockProceeds from issuance of stock14,427 17,210 23,031 
Proceeds from issuance of long-term debtProceeds from issuance of long-term debt1,062,337 
Proceeds from revolving line of creditProceeds from revolving line of credit150,000 
Repayment on revolving line of creditRepayment on revolving line of credit(150,000)
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Principal payments under capital lease obligations—  (1,200) —  
Tax benefits associated with share-based compensation expense—  —  6,557  
Debt issuance costsDebt issuance costs(18,745)
Other financing activitiesOther financing activities(149)(1,200)
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities894,432  (197,562) (7,015) Net cash provided by (used in) financing activities(97,656)894,432 (197,562)
Effect of exchange rate changes on cashEffect of exchange rate changes on cash(863) 6,479  (4,160) Effect of exchange rate changes on cash3,483 (863)6,479 
Increase (decrease) in cash(164,426) (44,969) 110,411  
Increase (decrease) in cash and cash equivalentsIncrease (decrease) in cash and cash equivalents68,859 (164,426)(44,969)
Cash and cash equivalents at beginning of yearCash and cash equivalents at beginning of year352,921  397,890  287,479  Cash and cash equivalents at beginning of year188,495 352,921 397,890 
Cash and cash equivalents at end of yearCash and cash equivalents at end of year$188,495  $352,921  $397,890  Cash and cash equivalents at end of year$257,354 $188,495 $352,921 
Supplemental disclosure of cash flow information:Supplemental disclosure of cash flow information:Supplemental disclosure of cash flow information:
Cash paid for income taxes (net of refunds received)Cash paid for income taxes (net of refunds received)35,432  20,345  13,321  Cash paid for income taxes (net of refunds received)$44,535 $35,432 $20,345 
Cash paid for interestCash paid for interest39,181  2,464  4,128  Cash paid for interest45,281 39,181 2,464 
Supplemental disclosure of non-cash investing and financing activities:
Purchases of property, plant and equipment in accrued liabilities and accounts payable at the end of period$8,690  $1,975  $1,488  
Equity Consideration related to the Acquisition$331,048  $—  $—  
Purchases of property, plant and equipment in accrued liabilities and accounts payable at the end of the periodPurchases of property, plant and equipment in accrued liabilities and accounts payable at the end of the period5,365 8,690 1,975 
Equity consideration related to the acquisition of KMG Chemicals, IncEquity consideration related to the acquisition of KMG Chemicals, Inc331,048 
Cash paid during the period for lease liabilitiesCash paid during the period for lease liabilities7,554 
Right of use asset obtained in exchange for lease liabilitiesRight of use asset obtained in exchange for lease liabilities7,435 
The accompanying notes are an integral part of these consolidated financial statements.
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CABOT MICROELECTRONICS CORPORATIONCMC MATERIALS, INC
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)thousands, except per share amounts)
Common
Stock
Capital
In Excess
Of Par
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Treasury
Stock
Total
Balance at September 30, 2016$34  $530,840  $330,776  $9,556  $(373,558) $497,648  
Share-based compensation expense13,004  13,004  
Repurchases of common stock under share repurchase plans, at cost(12,035) (12,035) 
Repurchases of common stock - other, at cost(2,173) (2,173) 
Exercise of stock options 27,665  27,666  
Issuance of Cabot Microelectronics stock under Employee Stock Purchase Plan2,986  2,986  
Tax benefits from share-based compensation plans6,443  6,443  
Net income86,952  86,952  
Dividends ($0.78 per share in dollars)(19,847) (19,847) 
Foreign currency translation adjustment(6,746) (6,746) 
Interest rate swaps863  863  
Minimum pension liability adjustment276  276  
Balance at September 30, 2017$35  $580,938  $397,881  $3,949  $(387,766) $595,037  
Share-based compensation expense18,518  18,518  
Repurchases of common stock under share repurchase plans, at cost(40,726) (40,726) 
Repurchases of common stock - other, at cost(3,562) (3,562) 
Exercise of stock options 19,278  19,279  
Issuance of Cabot Microelectronics stock under Deposit Share Program300  300  
Issuance of Cabot Microelectronics stock under Employee Stock Purchase Plan3,464  3,464  
Net income110,043  110,043  
Dividends ($1.40 per share in dollars)(36,251) (36,251) 
Foreign currency translation adjustment679  679  
Interest rate swaps(63) (63) 
Minimum pension liability adjustment(26) (26) 
Balance at September 30, 2018$36  $622,498  $471,673  $4,539  $(432,054) $666,692  
Share-based compensation expense18,227  18,227  
Repurchases of common stock, at cost under share Repurchase Program(10,002) (10,002) 
Repurchases of common stock - other, at cost(4,850) (4,850) 
Exercise of stock options 13,194  13,195  
Issuance of common stock in connection with the Acquisition 331,045  331,048  
Issuance of Cabot Microelectronics restricted stock under Deposit Share Program75  75  
Common
Stock
(shares)
Treasury
Stock
(shares)
Common
Stock
Capital
In Excess
of Par
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Balance at September 30, 201735,231 9,948 $35 $580,938 $397,881 $3,949 $(387,766)$595,037 
Share-based compensation expense18,518 18,518 
Repurchases of common stock under Share Repurchase Program370 (40,726)(40,726)
Repurchases of common stock - other38 (3,562)(3,562)
Exercise of stock options488 19,278 19,279 
Issuance of restricted stock under Deposit Share Program93 300 300 
Issuance of stock under Employee Stock Purchase Plan50 3,464 3,464 
Net income110,043 110,043 
Dividends ($1.40 per share in dollars)(36,251)(36,251)
Foreign currency translation adjustment679 679 
Cash flow hedges(63)(63)
Minimum pension liability adjustment(26)(26)
Balance at September 30, 201835,862 10,356 $36 $622,498 $471,673 $4,539 $(432,054)$666,692 
Share-based compensation expense18,227 18,227 
Repurchases of common stock under Share Repurchase Program88 (10,002)(10,002)
Repurchases of common stock - other47 (4,850)(4,850)
Exercise of stock options313 13,194 13,195 
Issuance of common stock in connection with acquisition of KMG Chemicals, Inc.3,237 331,045 331,048 
Issuance of restricted stock under Deposit Share Program131 75 75 
Issuance of stock under Employee Stock Purchase Plan49 3,941 3,941 
Net income39,215 39,215 
Dividends ($1.66 per share in dollars)(48,454)(48,454)
Effect of the adoption of revenue recognition accounting standard(933)(933)
Foreign currency translation adjustment(8,548)(8,548)
Cash flow hedges(18,780)(18,780)
Minimum pension liability adjustment(449)(449)
Balance at September 30, 201939,592 10,491 $40 $988,980 $461,501 $(23,238)$(446,906)$980,377 
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Issuance of Cabot Microelectronics stock under Employee Stock Purchase Plan3,941  3,941  
Common
Stock
(shares)
Treasury
Stock
(shares)
Common
Stock
Capital
In Excess
of Par
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock
Total
Balance at September 30, 2019Balance at September 30, 201939,592 10,491 $40 $988,980 $461,501 $(23,238)$(446,906)$980,377 
Share-based compensation expenseShare-based compensation expense16,396 16,396 
Repurchases of common stock under Share Repurchase ProgramRepurchases of common stock under Share Repurchase Program318 (35,009)(35,009)
Repurchases of common stock - otherRepurchases of common stock - other25 (3,229)(3,229)
Exercise of stock optionsExercise of stock options181 9,491 9,491 
Issuance of restricted stock under Deposit Share ProgramIssuance of restricted stock under Deposit Share Program95 150 150 
Issuance of stock under Employee Stock Purchase PlanIssuance of stock under Employee Stock Purchase Plan46 4,786 4,786 
Net incomeNet income39,215  39,215  Net income142,828 142,828 
Dividends ($1.66 per share in dollars)(48,454) (48,454) 
Effect of the adoption of revenue recognition accounting standards(933) (933) 
Dividends ($1.74 per share in dollars)Dividends ($1.74 per share in dollars)(51,099)(51,099)
Effect of the adoption of the stranded tax effect accounting standardEffect of the adoption of the stranded tax effect accounting standard488 (488)
Foreign currency translation adjustmentForeign currency translation adjustment(8,548) (8,548) Foreign currency translation adjustment19,286 19,286 
Interest rate swaps(18,780) (18,780) 
Cash flow hedgesCash flow hedges(10,711)(10,711)
Minimum pension liability adjustmentMinimum pension liability adjustment(449) (449) Minimum pension liability adjustment1,047 1,047 
Balance at September 30, 2019$40  $988,980  $461,501  $(23,238) $(446,906) $980,377  
Balance at September 30, 2020Balance at September 30, 202039,914 10,834 $40 $1,019,803 $553,718 $(14,104)$(485,144)$1,074,313 
The accompanying notes are an integral part of these consolidated financial statements.
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CABOT MICROELECTRONICS CORPORATIONCMC MATERIALS, INC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
1. BACKGROUND AND BASIS OF PRESENTATION

On October 1, 2020, Cabot Microelectronics Corporation changed its name to CMC Materials, Inc. (“Cabot Microelectronics”CMC”, “the Company”, “us”, “we”, or “our”'). CMC is a leading global supplier of consumable materials to semiconductor manufacturers and customerspipeline companies. The Company's products play a critical role in the pipelineproduction of advanced semiconductor devices, helping to enable the manufacture of smaller, faster and adjacent industries. On November 15, 2018 (“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 (“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 products and services to pipeline and adjacent industry companies.more complex devices by its customers. The Consolidated Financial Statements included in this Annual Report on Form 10-K include the financial results of KMG fromChemicals, Inc. (“KMG”) since the Acquisition Date. Subsequent toCompany’s acquisition of 100% of the outstanding stock of KMG (the “Acquisition”) on November 15, 2018 (the “Acquisition Date”).
Since the Acquisition, we have operatedoperate our business within two2 reportable segments: Electronic Materials and Performance Materials. The Electronic Materials segment consists of our heritagechemical mechanical planarization (“CMP”) slurries business, CMP slurriespads business, and polishing pads businesses, as well as the KMG electronic chemicals business. The Performance Materials segment includes KMG’s heritageconsists of our pipeline performance and industrial materials (“PIM”) business, wood treatment businesses,business and our heritage QED Technologies International, Inc. (“QED”) business.
The audited consolidated financial statements have been prepared by usCMC 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”)We operate predominantly
In Note 19. Income Taxes of this Annual Report on Form 10-K, the presentation for the table with the reconciliation between the Federal statutory rate and the Provision for income taxes at our effective tax rate has been updated for the fiscal year’s 2019 and 2018 to conform to the current year’s presentation. The amounts for those fiscal years that related to a change in 2 reportable segments - Electronic Materialsreserve position and Performance Materials.included in “U.S. benefits from research and experimentation activities” and “Other, net” previously, are now presented separately under “Change in reserve positions.”

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statementsConsolidated Financial Statements include the accounts of Cabot MicroelectronicsCMC Materials, Inc. and its subsidiaries. All intercompany transactions and balances between the companies have been eliminated in the consolidated financial statements as of September 30, 2019.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 toimpairment of long-lived assets, business combinations, assets retirement obligations, goodwill and 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.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
We consider investments in all highly liquid financial instruments with original maturities of three months or less to be cash equivalents. Short-term investments include securities generally having maturities of 90 days to one year. We did not own any securities that were considered short-term investments as of September 30, 20192020 or 2018. See Note 5 of this Annual Report on Form 10-K for a more detailed discussion of other financial instruments.2019.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. We maintain an allowance for doubtful accounts for estimated losses resulting from the potential inability of our customers to make required payments. Our allowance for doubtful accounts is based on historical collection experience, adjusted for any specific known conditions or circumstances such as customer bankruptcies and increased risk due to economic conditions. Uncollectible account balances are charged against the allowance when we believe that it is probable that the receivable will not be recovered. Amounts charged to bad debt expense are recorded in Selling, general and administrative expenses. A portion of our receivables and the related allowance for doubtful accounts is denominated in foreign currencies, so they are subject to foreign exchange fluctuations which are included in the table below under deductions and adjustments.
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Our allowance for doubtful accounts changed during the fiscal year ended September 30, 2020 and 2019 as follows:

Balance as of September 30, 2018$1,900 
Amounts charged to expense432 
Deductions and adjustments45 
Balance as of September 30, 2019$2,377 
20202019
Beginning Balance$2,377 $1,900 
Amount of charge (benefit) to expense(1,122)432 
Deductions and adjustments(672)45 
Ending Balance at September 30$583 $2,377 
CONCENTRATION OF CREDIT RISK
Financial instruments that subject us to concentrations of credit risk consist principally of accounts receivable. We perform ongoing credit evaluations of our customers' financial conditions and generally do not require collateral to secure accounts receivable. Our exposure to credit risk associated with nonpayment is affected principally by conditions or occurrences within the semiconductor industry, pipeline and adjacent industries, and the global economy. We have not experienced significant losses relating to accounts receivable from individual customers or groups of customers.

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Customers who represented more than 10% of consolidated revenue, all of which are in the Electronic Materials segment, are as follows:
Year Ended September 30, 2019Year Ended September 30,
201920182017202020192018
IntelIntel14 %  Intel15 %14 %*
Samsung Group (Samsung)Samsung Group (Samsung)11 %18 %16 %Samsung Group (Samsung)11 %11 %18 %
Taiwan Semiconductor Manufacturing Co. (TSMC)Taiwan Semiconductor Manufacturing Co. (TSMC) 12 %13 %Taiwan Semiconductor Manufacturing Co. (TSMC)**12 %
SK Hynix Inc.SK Hynix Inc. 10 % SK Hynix Inc.**10 %
Micron Technology Inc.  10 %
* Not a customer withCustomer did not represent more than 10% of consolidated revenue.
Intel accounted for 8.1% and 3.9%Of those customers who represented more than 10% of consolidated revenue, their net accounts receivable at September 30, 2019 and 2018, respectively. Samsung accounted for 5.5% and 11.4%as a percentage of total net accounts receivable at September 30, 2019 and 2018, respectively. TSMC accounted for 8.2% and 7.9% of net accounts receivable at September 30, 2019 and 2018, respectively. SK Hynix accounted for 1.6% and 3.4% of net accounts receivable at September 30, 2019 and 2018, respectively. Micron accounted for 6.8% and 13.1% of net accounts receivable at September 30, 2019 and 2018, respectively.are as follows:
September 30,
20202019
Intel8.5 %8.1 %
Samsung Group (Samsung)7.0 %5.5 %

FAIR VALUES OF FINANCIAL INSTRUMENTS
The recorded amounts of cash, accounts receivable, and accounts payable approximate their fair values due to their short-term, highly liquid characteristics. See Note 5Fair value is defined as the price that would be received from the sale of this Annual Reportan 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 Form 10-Kthe measurement date. The Financial Accounting Standards Board ("FASB") established a three-level hierarchy for a more detailed discussiondisclosure based on the extent and level of thejudgment used to estimate fair valuevalue.  Level 1 inputs consist of financial instruments.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.
INVENTORIES
Inventories are recorded on the first-in, first-out (FIFO) basis and are stated at the lower of cost determined on the first-in, first-out (FIFO) basis, or net realizable value. Finished goods and work in process inventories include material, labor and manufacturing overhead costs. We regularly review and write down the value of inventory as required for estimated obsolescence or lack of marketability. An inventory reserve is maintained based upon a historical percentage of actual inventories written off and applied against inventory value at the end of the period, adjusted for known conditions and circumstances.
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PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is based on the following estimated useful lives of the assets using the straight-line method:

Land Improvements10-20 years
Buildings15-30 years
Machinery and equipment3-20 years
Furniture and fixtures5-10 years
Vehicles5-8 years
Information systems3-5 years
Assets under capitalfinancing leasesTermThe shorter of the term of the lease or estimated useful life
Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures
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 major renewalsoperating leases. The Company applies 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 betterments are capitalizedlease components together as a single lease component for all asset classes. The Company’s lease transactions primarily consist of leases for facilities, equipment, and depreciated overvehicles under operating leases. The Company does not have any material finance leases. Certain of the remaining useful lives. As assets are retired or sold,Company’s leases have an option to extend the related costlease term and accumulated depreciation are removed from the accounts and any resulting gain or lossrenewal period is included in determining the results of operations. We capitalizelease term for leases where the costs relatedrenewal option is reasonably certain to the design and development of software used for internal purposes.

be exercised.

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The new standard was adopted in our first quarter of fiscal 2020 using the modified retrospective transition method; however, we applied the optional transition adjustment that permits us to continue applying Topic 840 within the comparative periods disclosed.
ASSET RETIREMENT OBLIGATIONS

Asset Retirement Obligations (AROs) are the obligation associated with theOur asset retirement of tangible long-lived assets. The Company recognizes AROsobligations (“AROs”) include reclamation requirements as regulated by government authorities or contractual obligations for the removal or storage of hazardous materials, decontamination or demolition of above ground storage tanks, (ASTs), and certain restoration and decommissioning obligations related to certain of our owned and leased properties. The Company recognizes an ARO liability in the period in which it is incurred, including upon Acquisition, if a reasonable estimate of fair value can be made. IfThe accounting for ARO requires estimates by management about when and how the assets will be retired, the cost of retirement obligations, discount and inflation rates used in determining fair values and the methods of remediation associated with our AROs. We generally use assumptions and estimates that reflect the most likely remediation method. Our estimated liability for AROs is revised annually, and whenever events or changes in circumstances indicate that a reasonablerevision to the estimate is necessary.
In subsequent periods, the Company recognizes accretion expense in Cost of fair value cannot be made in the periodsales increasing the ARO is incurred,balances, such that the liability shall be recognized when a reasonable estimatebalance will ultimately equal the expected cash flows at the time of fair value can be made. settlement. AROs are included in Other long-term liabilities on the Consolidated Balance Sheets.
The Company has multiple production facilities with an indeterminate useful life and there is insufficient information available to estimate a range of potential settlement dates for the obligation. Therefore, the Company cannot reasonably estimate the fair value of the liability.

When a reasonable estimate of fair value can be made, an ARO amount is calculated using present value techniquesasset retirement obligation will be recorded, and such amounts may be material to the consolidated financial statements in the period in which estimates of future cash outlays associated with the asset retirementsthey are discounted using a credit-adjusted risk-free rate. Estimates of the timing and amounts of future cash outlays are based on projections of when and how the assets will be retired and the cost of future removal / decommissioning activities. Cost estimates for AROs are based on information using various assumptions related to closure and post-closure costs, timing of future cash outlays, discount rates, and the potential methods for complying with legal and environmental regulations. Material changes to current ARO estimates could result as more information becomes available surrounding these assumption factors.

In subsequent periods, the Company recognizes accretion expense in Cost of sales increasing the ARO balances, such that the balance will ultimately equal the expected cash flows at the time of settlement. See Note 8 of this Annual Report on Form 10-K for the ARO and accretion expense recorded in fiscal 2019.recorded.
IMPAIRMENT OF LONG-LIVED ASSETS
We assess the recoverability of the carrying value of long-lived assets to be held and used, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We must exercise judgment in assessing whether an event of impairment has occurred. For purposes of recognition and measurement of an impairment loss, long-lived assets are either individually identified or grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. We must exercise judgment in this grouping. The carrying value ofWhen a long-lived asset is considered impaired when the total projected undiscounted cash flows from the use and eventual disposition of the asset or asset group are separately identifiable and are less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. The fair value methodology used is an estimate of fair market value, which is made based on prices of similar assets or other valuation methodologies, including present value techniques. Long-lived assets to be disposed of by means other than sale are classified as held for use until their disposal. Long-lived assets to be disposed of by sale are classified as held for sale and are reported at the lower of carrying amount or fair market value, less the estimated cost to sell. Depreciation is discontinued for any long-lived assets classified as held for sale.
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In the fourth quarter of fiscal 2019, we recorded an impairment of $67,372 of long-lived assets, of which $4,063 related to Property, plant and equipment in the wood treatment asset group. See Note 10 of this Annual Report on Form 10-K for a more detailed discussion of the impairment. We did 0t record any impairment expense in fiscal 2018. We recorded impairment expense on long-lived assets of $860 in fiscal 2017 related to surplus research and development equipment, which was subsequently sold for a gain.

GOODWILL AND OTHER INTANGIBLE ASSETS
Purchased intangibleGoodwill represents the excess of the aggregate purchase price over the fair value of the net assets with finiteacquired in business combinations. Goodwill and Intangible assets that have indefinite lives are amortized over their estimated useful lives and are evaluatedtested for impairment using a process similar to that used to evaluate other long-lived assets. Goodwill and indefinite lived intangible assets are not amortized and are tested annually in our fourth fiscal quarter 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. A component is a reporting unit when the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of the component. Components may be combined into one reporting unit when they have similar economic characteristics. We have 6 reporting units, all of which had goodwill as ofon September 30, 2019, the date of ouror between annual impairment test.
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The Company’s Electronic Materials segment is comprised of the 3 following reporting units: CMP slurries, electronic chemicals, and CMP pads. The Company’s Performance Materials segment is comprised of 3 additional reporting units: pipeline performance, wood treatment, and precision optics.

Accounting guidance providestests if an entity the option to assessevent occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company’s reporting units are CMP slurries, CMP pads, electronic chemicals, PIM, wood treatment, and QED.
Intangible assets that have finite lives are amortized over their respective useful lives of 2 to 20 years. Intangible assets are tested for impairment if an event occurs or circumstances change that indicates the carrying value may not be recoverable.
For each reporting unit, the Company has the option to perform either using athe qualitative analysis ("step zero") or a quantitative analysis ("step one"). In the event a reporting unit fails the qualitative assessment, it is required to perform the quantitative test. The goodwill impairment assessment is performed by comparing the estimated fair value of the reporting units to their carrying amounts. Estimated fair values are determined using the average of a discounted cash flows model and a market approach based on earnings before interest, taxes, and depreciation for a group of guideline comparable companies. Factors requiring significant judgment include the selection of valuation approach and assumptions related to future revenue and gross margin, discount rates, and terminal growth rates. If the fair value of the reporting unit is less than its carrying value, the reporting unit will recognize an impairment for the lesser of either the amount by which the reporting unit's carrying amount exceeds the fair value of the reporting unit or the reporting unit’s goodwill carrying value. We used a step zero qualitative analysis for the CMP slurries reporting unit in fiscal 2018, 2019 and 2019,2020, and for precision optics in fiscal 2019.2019 and 2020. Aside from those previously noted, all other reporting units were assessed for goodwill impairment using a step one approach.
The Flowchem LLC (“Flowchem”) trade name, an indefinite-lived intangible asset, was assessed for impairment using a relief from royalty approach.

Factors requiring significant judgment include the selection of valuation approach and assumptions related to futureprojected revenue, discount factors,royalty rates, terminal growth rates, and royalty rates, among others. Changes in economic and operating conditions that occur after the annual impairment analysis or an interim impairment analysis that impact these assumptions may result in future impairment charges.discount rates.

In the fourth quarter of fiscal 2019, theThe Company performed its annual goodwill impairment assessment, comparing estimated fair valuesprovides disclosure of the potential risk of impairment when a reporting units to their carrying amounts. In estimating the fair values, the Company used the average of an income approach, discounting estimated future cash flows, and a market approach based upon relevant market multiples. As a result of a long-lived asset impairment recorded in the fourth quarter of fiscal 2019, the carrying value of the wood treatment reporting unit is equal to its fair value. In this circumstance with no excess of fair value over carrying value, any unfavorable variances from the estimated inputs used in the impairment assessment may result in further impairment of long-lived assets or goodwill. The Company’s Electronic Chemicals reporting unit has goodwill resulting from a recent acquisition, with a greater sensitivity to impairment, due to the extent by which its estimatedunit’s fair value exceeds its carrying value. Changes to the assumptions requiring significant judgment, noted above, could result in a different outcome for the impairment assessment. Accordingly, the Company performed sensitivity analysis for selected key assumptions.

As a result of the review performed in the fourth quarter of fiscal 2019, and the related sensitivity analysis, we determined that there was 0 impairment of our goodwill as of September 30, 2019. There was 0 goodwill impairment recorded in fiscal 2018 or 2017.

While no goodwill impairments were recognized in fiscal 2019, the Company recognized asset impairment charges of $67,372, of which $63,309 related to Other intangible assets, net for the wood treatment asset group due to triggering events that occurred in the fourth quarter of fiscal 2019. See Note 10 of this Annual Report on Form 10-K. The Company will continue to monitor the wood treatment asset group for indicators of long-lived asset or goodwill impairment. Absent a sale of the business, as the Company approaches the announced closure date of the facilities and there are fewer estimated future cash flows, there is ongoing potential for further impairments of long-lived assets and impairment of goodwill. 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 providedvalue by operating activities.
WARRANTY RESERVE
We maintain a warranty reserve that reflects management's best estimate of the cost to replace product that does not meet our specifications and customers' performance requirements.  The warranty reserve is based upon a historical product return rate, adjusted for any specific known conditions or circumstances.  Adjustments to the warranty reserve are recorded in Cost of sales.
FOREIGN CURRENCY TRANSLATION
Certain operating activities in Asia and Europe are denominated in local currency, considered to be the functional currency.  Assets and liabilities of these operations are translated using exchange rates in effect at the end of the year, and revenue and costs are translated using average exchange rates for the year.  The related translation adjustments are reported in comprehensive income in stockholders' equity.

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FOREIGN EXCHANGE MANAGEMENT

We transact business in various foreign currencies, primarily the Korean won, Japanese yen, the New Taiwan dollar, Euro, British pound, and Singapore dollar. Our exposure to foreign currency exchange risks has not been significant because a large portion of our business is denominated in United States dollars. However, we also incur expenses in foreign countries that are transacted in currencies otherless than dollars, which provides natural hedge and mitigates the exposure on our Consolidated Statements of Income. We periodically, enter into certain 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. 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. See Note 13 of this Annual Report on Form 10-K for a discussion of derivative financial instruments.ten percent.
PURCHASE COMMITMENTS

We have entered into unconditional purchase obligations, which include noncancelable purchase commitments and take-or-pay arrangements with suppliers. On an ongoing basis, we review our agreements and assess the likelihood of a shortfall in purchases and determine if it is necessary to record a liability. See Note 20 of this Annual Report on Form 10-K for additional discussion of purchase commitments. To date, we have not recorded such a liability.

REVENUE RECOGNITION
Performance Obligations and Material Rights
AtThe Company recognizes revenue using the five-step process of 1) identifying the contract, inception,2) identifying the Company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each material promisewithin the contract, 3) determining the transaction price, 4) allocating the transaction price to the customer. A performance obligation is a promise in a contract to transfer a distinct good or service, or a bundle of goods or services, toobligations, and 5) recognizing the customer, and is the unit of accounting under ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as the performance obligation is satisfied.obligations are satisfied through the transfer of control. A majority of the Company’s contracts have a single performance obligation which represents, in most cases, the products, equipment or services being sold to the customer. Some contracts include multiple performance obligations, including prospective tiered price discounts or delivery of free product that we have concluded represents a material right. Contracts with prospective tiered price discounts require judgment in determining if that discount represents a material right.
Contracts vary in length and payment terms vary by the type and location of the Company’s customers anddepending on the products or services offered. However,offered, however, the period of time between invoicing and when payment is due is typically not significant and has nosignificant. As a result, we do not have significant financing components. Customers pay in accordance with negotiated terms upon receipt of goods or completion of services. For these contracts, the transactionTransaction price is determined upon establishment of the contract that contains the final terms of the sale, including the description, quantity, and price of goods or services purchased. In certain instances where we receive consideration from a customer prior to transferring goods or services to the customer under the terms of a sales contract. In such cases,contract, we record deferred revenuea contract liability until the performance obligation is satisfied, which represents a contract liability, and is includedsatisfied. Contracts with prospective tiered price discounts require judgment in determining the transaction price. For sales contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation identified in the contract liabilities discussed in Note 3based on relative standalone selling prices or estimates of this Annual Reportsuch prices. When we invoice for products shipped under contracts with multiple performance obligations, we defer a portion of the revenue associated with the material rights on Form 10-K.

the balance sheet as a contract liability.
The Company recognizes revenue related to product sales at a point in time following the transfer of control of such products to the customer, which generally occurs upon shipment, or delivery depending on the terms of the underlying contracts. The Company considers control to have transferred upon shipment or delivery because the Company has a present right to payment at that time, the customer has legal title to the asset, the Company has transferred physical possession of the asset, and the customer has significant risks and rewards of ownership of the asset. Revenue is recognized on consignment sales when control transfers to the customer, generally at the point of customer usage of the product. The Company also records revenue forFor services provided to customers in the pipeline and adjacent industries. These services includeindustries, including preventive maintenance, repair, and specialized isolation sealing on pipelines and training. Revenuetraining, revenue is recorded at a point in time when the services are completed as this is when right to payment and customer acceptance occurs.


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For sales contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation identified in the contract based on relative standalone selling prices or estimates of such prices. Standalone selling price, once established, is then used to allocate total consideration proportionally to the various performance obligations within a contract. Most contracts where we have determined there to be multiple performance obligations relate to where we have identified the existence of a material right such that we provide prospective tiered pricing discounts or free product. When we invoice for products shipped under these contracts, we defer the revenue associated with these rights on the balance sheet as a contract liability. Revenue is recognized when the customer exercises the option to purchase goods at a discount in the case of the prospective tiered pricing discounts or when we ship the free product.

Variable Consideration

The primary type of variable consideration present in the Company’s contracts are rebates and early payment discounts, both of which are immaterial. Early payment discounts are offered on a limited basis and are not significant. The Company also offers rebates based upon cumulative volume of purchases within a quarter and accrues for the rebate obligation within the quarter that the rebate is earned. ASC 606 did not change the accounting for rebates under ASC 605.

Costs to Obtain and Fulfill a Contract

For certain contracts within the Performance Materials segment, commissions are paid to sales agents based upon a percentage of end-customer invoice value. Agents are paid the commissionsvalue after funds are received by the Company from its customers. Under ASC 340, sales commissions are required to be capitalized and expensed over the associated contract period. However, asAs a practical expedient, the Company does not capitalize commissions as the associated contracts are generally one year or less in duration. For shipping and handling activities performed after a customer obtains control of the goods, the Company has elected to account for these costs as activities to fulfill the promise to transfer the goods and included in Cost of sales.
RESEARCH, DEVELOPMENT AND TECHNICAL
Research, development and technical costs are expensed as incurred and consist primarily of staffing costs, materials and supplies, depreciation, utilities and other facilities costs.
LEGAL COSTS
Legal costs are expensed as incurred.
INCOME TAXES

Current income taxes are determined based on estimated taxes payable or refundable on tax returns for the current year. Deferred income taxes are determined using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in income in the period that includes the enactment date. Provisions are made for both U.S. and any foreign deferred income tax liability or benefit. We assess whether or not our deferred tax assets will ultimately be realized and record an estimated valuation allowance on those deferred tax assets that may not be realized. We recognize the tax benefit of an uncertain tax position only if it is more likely than not that the tax position will be sustained by the taxing authorities, based on the technical merits of the position.
The Company recognizes interest and penalties related to unrecognized tax benefits within the Provision for income taxes. Accrued interest and penalties are included in Other long-term liabilities.
DERIVATIVES AND HEDGING
The Company is 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 fiscal 2017, we maintained an assertion to permanently reinvestaddition, all derivatives, whether designated in hedging relationships or not, are recorded on the earnings of all of our foreign subsidiaries. In light of the Tax Act and the associated transition toConsolidated Balance Sheets at fair value on a modified territorial tax system, we no longer consider our foreign earnings to be indefinitely reinvested. See Note 19 of this Annual Report on Form 10-K for additional information on income taxes.gross basis.

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INTEREST RATE SWAPSInterest Rate Swaps
During the second quarter of fiscal 2019, we entered into a floating-to-fixed interest rate swap agreement to hedge the variability in LIBOR-basedLondon Inter-bank Offered Rate (“LIBOR”) based interest payments on a portion of our outstanding variable rate debt. The fair value of our interest rate swaps is estimated using standard valuation models using market-based observable inputs over the contractual term, including one-month LIBOR-based yield curves, among others. We consider the risk of nonperformance, including counterparty credit risk, in the calculation of the fair value. We have designated these swap agreements as cash flow hedges pursuant to ASC 815, "Derivatives and Hedging".hedges. As cash flow hedges, unrealized gains are recognized as assets and unrealized losses are recognized as liabilities. Unrealized gains and losses are designated as effective or ineffective based on a comparison of the changes in fair value of the interest rate swaps and changes in fair value of the underlying exposures being hedged. The effective portion is recorded as a component of accumulated other comprehensive income or loss, while the ineffective portion is recorded as a component of Interest expense. Changes in the method by which we pay interest from one-month LIBOR to another rate of interest could create ineffectiveness in the swaps, and result in amounts being reclassified from other comprehensive income into Net income. Hedge effectiveness is tested quarterly to determine if hedge treatment is appropriate. Realized gains and losses are recorded on the same financial statement line as the hedged item, which is Interest expense.
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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.
SHARE-BASED COMPENSATION
We issue share-based awards underThe Company’s long-term equity incentive plan authorizes the following programs: our Cabot Microelectronics Corporation 2012 Omnibus Incentive Plan, as amended effective March 7, 2017 (OIP); our Cabot Microelectronics Corporation 2007 Employee Stock Purchase Plan, as Amended and Restated January 1, 2010 (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). In March 2017, our stockholders re-approved the material terms of performance-based awards under the OIP for purposes of complying with Section 162(m)Committee of the Internal Revenue CodeBoard of 1986, as amended. For additional information regarding these programs, referDirectors to Note 16provide equity-based compensation in the form of this Annual Report on Form 10-K.

We record share-based compensation expense for all share-based awards, including stock option grants, andoptions, restricted stock, restricted stock unitunits (“RSUs”), and performance share unit ("PSU"units (“PSUs”) awards,for the purpose of providing our employees, officers, and non-employee directors incentives and rewards for performance. We also have an employee stock purchase plan purchases. We calculate(“ESPP”). All grants under 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 datepayment plans are accounted for at fair value of our stock options and employee stock purchase plan 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 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 rateWe recognize expense on share-based awards to employees expected to vest over the service period, which 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 valueshorter of the PSUs at grant date by using a Monte Carlo simulation model. This model simulatesperiod until the stock price movementsemployees’ retirement eligibility dates or the service period 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.award.


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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 (“Replacement Award”), with vesting in three equal installments on the first three anniversaries of the original award date. If the recipient is terminated without cause or resigns with good reason during the 18 months following the Acquisition Date, the Replacement Award will vest as of such termination date in a number of shares equal to 150% of the Replacement Award.

For additional information regarding our share-based compensation plans, refer to Note 16 of this Annual Report on Form 10-K.
EARNINGS PER SHARE
Basic earnings per share (EPS)(“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 byand are included in the calculation using the two-class method under ASC Topic 260, Earnings Per Share (ASC 260).method.  Diluted EPS 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 using the treasury stock method. We adopted ASU 2016-09 in fiscal 2018. Pursuant to the adoption, the proceeds from excess tax benefits are no longer included in the dilutive impact on the weighted average shares outstanding for dilutive EPS. The excess tax benefits were treated as a reduction to tax provision, rather than an increase to equity.
COMPREHENSIVE INCOME
Comprehensive income primarily differs from Net income due to interest rate swap contracts and foreign currency translation adjustments.

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EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No.Accounting Standards Update ("ASU") 2016-02 "Leases"“Leases” (Topic 842). changed the criteria for recognizing leasing transactions. The provisions of ASU 2016-02this guidance require a dual approach for lessee accounting under which a lessee wouldto recognize a right-of-useright of use asset and a corresponding lease liability. Leases will be classified as either finance orliability for operating leases. For finance leases, a lessee will recognize InterestUnder this guidance, rental expense and amortization of the right-of-use asset, and for operating leases, the lessee will recognizecontinues to be recognized on a straight-line totalbasis over the non-cancelable lease expense. The guidance also requires specific qualitative and quantitative disclosures to supplement the amounts recorded in the financial statements, to afford better understandingterm. As of an entity's leasing activities, including any significant judgments and estimates. The guidance was amended through various ASU's subsequent to ASU 2016-02, all of which will be effective for us beginning October 1, 2019. Additional disclosures2019, the Company began applying the provisions of this standard prospectively for our leases will be required beginning inall lease transactions as of and after the first quarter of fiscal 2020.
effective date. The Company will elect to useelected the package of practical expedients inpermitted under the transition guidance within the new standard, to not reassess prior conclusions related to contracts containing leases,which among other things, allowed the historical lease classification and initial direct costs and therefore, does not expect the adoption of Topic 842 to have a significant impact on the Consolidated Statements of Income.carry forward. We willdid not elect the hindsight practical expedient. We will also adoptUpon 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 standard in our first quarter of fiscal 2020 using the modified retrospective transition method; however, we will be applying the optional transition adjustment that permits us to continue applying Topic 840 within the comparative periods disclosed. By electing this optional transition method, we will recognize a cumulative-effect adjustment to the opening retained earnings balance as of October 1, 2019 rather than the earliest period presented. We also plan to make policy electionsguidance did not to apply the balance sheet recognition requirements for qualifying short-term leases for non-real estate assets and not to separate non-lease components from lease components, as applicable.

We are finalizing the review of our population of lease contracts, implementing a new third-party lease software system, and establishing internal controls over financial reporting. Our lease portfolio primarily consists of operating leases, and the existing lease contracts include leases related to buildings, land, office equipment, and vehicles. The Company is in the process of determining the impact of adoption of ASU 2016-02 and anticipate the standard to have a material impact toon our Consolidated Balance Sheets, but do not anticipate a material impact to our consolidated net earningsresults of operations or cash flows.flows for the year ended September 30, 2020. Refer to Note 14 of this Annual Report on Form 10-K for additional information regarding the Company’s lease transactions.
ASU No. 2018-02 “Income Statement – Reporting Comprehensive Income” (Topic 220) allows 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 most significant impact will be the recognition of right of use assets and lease liabilities for operating leases to our Consolidated Balance Sheets as ofCompany adopted this standard effective October 1, 2019. The Company will complete its adoption2019, which resulted in an increase of this standard in the first quarter of fiscal 2020.$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 standard require requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. Ancollected using an allowance account would be established to present the net carrying value at the amount expected to be collected. ASU 2016-13 alsoand 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 beis effective for usthe Company beginning October 1, 2020, but early adoption is permitted as of October 1, 2019.2020. We are currently evaluatingfinalizing the impact of implementation of this standard on our financial statements.

In March 2017, the FASB issued ASU No. 2017-07 "Improving the Presentation of Net Period Pension Coststatements and Net Period Postretirement Benefit Cost" (Topic 715). The provisions of ASU 2017-07 provided specific guidance on the presentation of the components of net benefit cost. We adopted this standard ASU 2017-07 effective October 1, 2018 and applied it retrospectively. Pursuantis not expected to have a material impact to the adoption, net service costs are recorded as fringe benefit expense under CostCompany’s results of sales and Operating expenses, and all other costs are recorded in the Other income (expense), net in our Consolidated Statements of Income. The impact of the retrospective adoption in fiscal year 2018 is not material.

In May 2017, the FASB issued ASU No. 2017-09 "Scope of Modification Accounting" (Topic 718). The provisions of ASU 2017-09 provide specific guidance about which changes to the termoperations or conditions of a share-based payment require an entity to apply modification accounting. We adopted ASU 2017-09 effective October 1, 2018 and will apply this new standard to our share-based compensation awards, to the extent modified.


financial condition.
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In August 2017, the FASB issued ASU No. 2017-12 "Derivatives and Hedging" (Topic 815). The provisions of this standard amend the hedge accounting model in ASC 815 to expand an entity's ability to hedge nonfinancial and financial risk components, reduce complexity in fair value hedges of interest rate risk, eliminate the requirement to separately measure and report hedge ineffectiveness, and generally require the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. We early adopted this guidance effective January 1, 2019, and we did not have any hedges that existed as of the initial application date. We applied the new guidance to the interest rate swap that we entered into during our second quarter of fiscal 2019. Pursuant to the guidance, we performed initial quantitative hedge effectiveness testing upon the inception of the hedge, and determined the hedge to be highly effective. Therefore, unrealized changes in fair value are recorded in other comprehensive income. In addition, we reclassify the realized gains and losses out of other comprehensive income, and into Interest expense in our Consolidated Statements of Income, which is the same financial statement line as the hedged item. We will perform subsequent assessments of hedge effectiveness qualitatively on a quarterly basis.

In February 2018, the FASB issued ASU No. 2018-02 "Income Statement – Reporting Comprehensive Income (Topic 220)". The amendments in this standard allow a company to reclassify the stranded tax effects resulting from the Tax Act from accumulated other comprehensive income to retained earnings. ASU 2018-02 will be effective for us beginning October 1, 2019, but early adoption is permitted. We are currently evaluating and quantifying the amount to be reclassified into retained earnings and expect to record the reclassification on October 1, 2019.

In June 2018, the FASB issued ASU No. 2018-07 " Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting." The ASU simplified the accounting for share-based payments granted to nonemployees for goods and services, therefore guidance on such payments to nonemployees would be mostly aligned with the requirements for share-based payments granted to employees. ASU 2018-07 will be effective for us beginning October 1, 2019, but early adoption is permitted (but no earlier than the adoption date of Topic 606). We do not expect implementation of this standard to have material impact on our financial statements.

In August 2018, the FASB issued ASU No. 2018-13 " Fair“Fair Value MeasurementMeasurement” (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” The ASUMeasurement 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, but early adoption is permitted.2020. We are currently evaluatingfinalizing the impact of implementation of this standard on our disclosures and do not expect the adoption to have a material impact in our disclosures.

In August 2018, the FASB issued ASU No. 2018-15 "Intangibles—“Intangibles—Goodwill and Other—Internal-Use SoftwareSoftware” (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)." The ASU Requires requires an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. ASU 2018-15 will be effective for us beginning October 1, 2020, but early2020. We are finalizing the impact of this standard on our financial statements and do not expect the adoption is permitted.to have a material impact.
ASU No. 2019-12 “Income Taxes” (Topic 740): Simplifying the Accounting for Income Taxes 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. We are currently evaluating the impact of implementation ofimplementing this standard on our financial statements.
ASU No. 2020-04 “Reference Rate Reform” (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting 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.

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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 23 of this Annual Report on Form 10-K for more information.
Contract Balances
The following table provides information about contract liability balances:
September 30, 2019October 1, 2018Consolidated Balance Sheet LocationSeptember 30, 2020September 30, 2019
Contract liabilities (current)Contract liabilities (current)$5,008  $5,310  Contract liabilities (current)Accrued expenses, income taxes payable and other current liabilities$8,501 $5,008 
Contract liabilities (noncurrent)Contract liabilities (noncurrent)1,130  1,239  Contract liabilities (noncurrent)Other long-term liabilities1,288 1,130 

The contract liability balances as of October 1, 2018 in the table above include the amounts recorded upon the adoption of ASC 606.  At September 30, 2019, the current portion of contract liabilities of $5,008 is included in accrued liabilities, taxes payable and other current liabilities, and the noncurrent portion of $1,130 is included in other long-term liabilities in the Consolidated Balance Sheets.  The amount of revenue recognized during the year ended September 30, 2020 and 2019 that was included in the opening current contract liability balances in our Performance Materials segment was $4,989.$3,576 and $4,989, respectively. The amount of revenue recognized during the year ended September 30, 2020 and 2019 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 Year1-3 Years3-5 YearsTotal
Revenue expected to be recognized on contract liability amounts as of September 30, 2019$1,344  $671  $460  $2,475  
Less Than 1 Year1-3 Years3-5 YearsTotal
Revenue expected to be recognized on contract liability amounts as of September 30, 2020$1,446 $1,288 $$2,734 


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4. BUSINESS COMBINATION

On the Acquisition Date, the Company completed itsthe Acquisition, and KMG’s results of operations have been included in our Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Loss) from that date. The Acquisition was accounted for using the acquisition method of 100% ofaccounting and 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 products and services to the pipeline industry. Thetotal 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 shareholders and equity award holders, stock consideration to KMG common shareholders 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 (the “Credit Agreement”), which provided us with a seven-year, $1,065,000 term loan facility (the “Term Loan Facility”), which we drew on the Acquisition Date to fund the Acquisition along with cash on hand, and a five-year, $200,000 revolving credit facility (the “Revolving Credit Facility”), which has not been drawn. In connection with the borrowing, we incurred $21,408 in debt issuance costs and original issue discount fees, $859 of which relates to the Revolving Credit Facility and is recorded as a prepaid asset, and the remaining $20,549 in debt issuance costs relates to the Term Loan Facility and is presented as a reduction of long-term debt. These debt issuance costs are amortized and recorded in Interest expense in the Consolidated Statements of Income over the life of the Revolving Credit Facility and Term Loan Facility, respectively. 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 debt304,648 
Total cash consideration paid1,205,404 
Fair value of Cabot MicroelectronicsCMC common stock issued for KMG outstanding common stock and equity awards331,048 
Total consideration transferred$1,536,452 

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 receivable63,950 
Inventories68,087 
Prepaid expenses and other current assets14,694 
Property, plant and equipment147,170 
Intangible assets844,800 
Other long-term assets5,805 
Accounts payable(28,835)
Accrued expenses and other current liabilities(44,216)
Deferred income taxes liabilities(154,449)
Other long-term liabilities*(15,900)
Total identifiable net assets acquired924,323 
Goodwill612,129 
Total consideration transferred$1,536,452 

*In our fourth fiscal quarter of 2019, as a measurement period adjustment, $12,145 of asset retirement obligations was included in Other long-term liabilities. See Note 8 of this Annual Report on Form 10-K for additional information.

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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. These valuations are based on the information currently available, and the expectations and assumptions that have been deemed reasonable by the Company’s management.
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 revenues, operating expenses, discount rates, terminal growth rates, and customer attrition rates.  The valuations and the underlying assumptions have been deemed reasonable by the Company’s management. There are inherent uncertainties and management judgment required 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:acquired:
Fair ValueEstimated Useful Life
(years)
Acquisition Date Fair ValueEstimated Useful Life
(years)
Customer relationships – Flowchem$315,000  20
Customer relationships -Electronic chemicals280,000  19
Customer relationships - FlowchemCustomer relationships - Flowchem$315,000 20
Customer relationships - Electronic chemicalsCustomer relationships - Electronic chemicals280,000 19
Customer relationships - all otherCustomer relationships - all other109,000  15-16Customer relationships - all other109,000 15-16
Technology and know-howTechnology and know-how85,500  9-11Technology and know-how85,500 9-11
Trade name – Flowchem46,000  Indefinite
Trade name - FlowchemTrade name - Flowchem46,000 Indefinite
Trade name - all otherTrade name - all other7,000  1-15Trade name - all other7,000 1-15
EPA product registration rightsEPA product registration rights2,300  15EPA product registration rights2,300 15
Total intangible assetsTotal intangible assets$844,800  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.
The excess of consideration transferred over For intangible assets related to the fair value of net assets acquired was recorded as goodwill, and is not deductible for income tax purposes. The goodwill is primarily attributablewood treatment business, the remaining useful lives were limited to anticipated revenue growth from the combined company product portfolio, expected synergiesend of the combined company, and the assembled workforce of KMG. calendar year 2021.
The allocation of goodwill to each of the Electronic Materials and Performance Materials segments as a result of the Acquisition was $259,859 and $352,270,$353,475, respectively.
For the year ended September 30, 2019, we recorded $34,709 in Acquisition and integration-related expenses, including transaction costs, stock compensation expense, severance and retention costs. These items are included within Selling, general and administrative in the Consolidated Statements of Income. In the same year ended September 30, 2019, we also recorded a charge of $14,869 related to the fair value write-up of acquired inventory sold, which is included in Cost of sales in the Consolidated Statements of Income.
KMG’s results of operations have been included in our Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Loss) from the Acquisition Date. Net sales of the acquired KMG businesses since the Acquisition Date through September 30, 2019 were $450,945. KMG’s Net loss since the Acquisition Date was $38,500, which includes $22,720 of Acquisition-related costs, $67,372 of impairment expense and a $14,869 charge for fair value write-up of inventory sold. Further, additional amortization and depreciation expense associated with recording KMG’s net assets at fair value decreased KMG’s Net income post-Acquisition.

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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.
Year Ended September 30,Year Ended September 30,
2019201820192018
Revenues$1,099,674  $1,063,563  
RevenueRevenue$1,099,674 $1,063,563 
Net incomeNet income69,673  50,055Net income67,722 50,055 
Earnings per share - basicEarnings per share - basic$2.40  $1.74  Earnings per share - basic$2.34 $1.74 
Earnings per share - dilutedEarnings per share - diluted$2.36  $1.70  Earnings per share - diluted$2.30 $1.70 
The following costs are included in the yearyears ended September 30, 2019 and 2018:
Non-recurring transaction costs of $33,208.$2,495 and $33,208, respectively.
Non-recurring transaction-related employee costs, such as accelerated stock compensation expense,costs, retention and severance expense of $38,132.$427 and $38,132, respectively.
Non-recurring charge for fair value write-up of inventory sold of $14,869.$0 and $14,869, respectively.

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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.

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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 long-term debt, that we measured at fair value on a recurring basis at September 30, 20192020 and 2018.2019.  See Note 13 of this Annual Report on Form 10-K for a detailed discussion of our long-term 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.
September 30, 2019Level 1Level 2Level 3Total
Fair Value
September 30, 2020September 30, 2020Level 1Level 2Level 3Total
Fair Value
Assets:Assets:Assets:
Cash and cash equivalentsCash and cash equivalents$188,495  $—  $—  $188,495  Cash and cash equivalents$257,354 $$$257,354 
Other long-term investmentsOther long-term investments980  —  —  980  Other long-term investments1,214 1,214 
Total assets$189,475  $—  $—  $189,475  
Derivative financial instrumentsDerivative financial instruments27 27 
Liabilities:Liabilities:Liabilities:
Derivative financial instrumentsDerivative financial instruments—  24,244  —  24,244  Derivative financial instruments$$38,157 $$38,157 
Total liabilities$—  $24,244  $—  $24,244  

September 30, 2018Level 1Level 2Level 3Total
Fair Value
September 30, 2019September 30, 2019Level 1Level 2Level 3Total
Fair Value
Assets:Assets:Assets:
Cash and cash equivalentsCash and cash equivalents$352,921  $—  $—  $352,921  Cash and cash equivalents$188,495 $$$188,495 
Other long-term investmentsOther long-term investments1,137  —  —  1,137  Other long-term investments980 980 
Total assets$354,058  $—  $—  $354,058  
Liabilities:Liabilities:Liabilities:
Derivative financial instrumentsDerivative financial instruments—  339  —  339  Derivative financial instruments$$24,244 $$24,244 
Total liabilities$—  $339  $—  $339  
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)our supplemental employee retirement plan (“SERP”), which is a nonqualifiednon-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 nonqualifiednon-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 $980 in the fourth quarter of fiscal 2019 to reflect its fair value as of September 30, 2019.
Our derivative financial instruments include foreign exchange contracts and an interest rate swap.swap contract. During the second quarter of fiscal 2019, we entered into a floating-to-fixed interest rate swap agreementcontract 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 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 1215 of this Annual Report on Form 10-K for more information on our use of derivative financial instruments.

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6. INVENTORIES
Inventories consisted of the following:
September 30,September 30,
2019201820202019
Raw materialsRaw materials$60,157  $35,150  Raw materials$66,591 $60,157 
Work in processWork in process12,940  8,117  Work in process15,148 12,940 
Finished goodsFinished goods72,181  28,659  Finished goods77,395 72,181 
TotalTotal$145,278  $71,926  Total$159,134 $145,278 

7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
September 30,September 30,
2019201820202019
LandLand$36,276  $17,525  Land$36,775 $36,276 
BuildingsBuildings142,585  103,601  Buildings166,907 142,585 
Machinery and equipmentMachinery and equipment257,706  195,434  Machinery and equipment280,432 257,706 
VehiclesVehicles13,497  —  Vehicles18,719 13,497 
Furniture and fixturesFurniture and fixtures9,615  7,575  Furniture and fixtures9,865 9,615 
Information systemsInformation systems46,516  34,271  Information systems56,573 46,516 
Capital lease1,200  1,200  
Finance leasesFinance leases2,514 1,200 
Construction in progressConstruction in progress63,636  17,001  Construction in progress123,441 63,636 
Total property, plant and equipmentTotal property, plant and equipment571,031  376,607  Total property, plant and equipment695,226 571,031 
Less: accumulated depreciationLess: accumulated depreciation(294,213) (265,204) Less: accumulated depreciation(333,159)(294,213)
Net property, plant and equipmentNet property, plant and equipment$276,818  $111,403  Net property, plant and equipment$362,067 $276,818 
Depreciation expense was $39,929, $37,584 $17,255 and $17,195$17,255 for the years ended September 30, 2020, 2019 and 2018, and 2017, respectively.

In fiscal 2020 and 2019, we recorded an impairment charges of $450 and $4,063, respectively, of property, plant and equipment related to the wood treatment asset group, and adjusted the remaining useful lives such that they do not extend beyond the announced plant closures around the end of the calendar year 2021. See Note 10 of this Annual Report on Form 10-K for further information. In fiscal 2017, we recorded $860 in impairment expense related to a surplus research and development asset and we recorded a $1,820 gain on sale of surplus research and development equipment. We did 0t record any impairment expense on property, plant and equipment in fiscal 2018.

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8. ASSET RETIREMENT OBLIGATIONS

The company has asset retirement obligations (AROs) related to storage or removal of hazardous materials, decontamination or demolition of above ground storage tanks (ASTs) and certain restoration and decommissioning obligations related to certain of its owned and leased properties. We measure AROs based upon the applicable accounting guidance, using certain assumptions including estimates provided in decommissioning and demolition cost studies based on multiple alternative scenarios. These cost studies contain significant estimates and assumptions, and are reviewed by Company Management. If operational or regulatory requirements vary from our estimates, we could incur significant additional charges to income and increase in cash expenditures related to those costs.

The Company has multiple production facilities with an indeterminate useful life and there is insufficient information available to estimate a range of potential settlement dates for the obligation. Therefore, the Company cannot reasonably estimate the fair value of the liability. When a reasonable estimate can be made, an asset retirement obligation will be recorded, and such amounts may be material to the consolidated financial statements in the period in which they are recorded.
The following table provides a rollforwardroll-forward of the AROs reflected in the Company’s Consolidated Balance Sheets from October 1, 2018 to September 30, 2019:Sheets:
20202019
Beginning Balance$12,675 $
Purchase Accounting in connection with the Acquisition(860)12,145 
Liabilities settled
Accretion of discount599 530 
Estimate revision(655)
Ending Balance at September 30$11,759 $12,675 

Amount 
Beginning Balance at October 1, 2018$— 
Addition: Purchase Accounting in connection with the Acquisition12,145 
Reduction: Liabilities Settled— 
Addition: Accretion of discount530 
Ending Balance at September 30, 2019$12,675 

Our AROs are recorded in Other long-term liabilities in the Consolidated Balance Sheets. Accretion is recorded in Cost of sales on the Consolidated Statements of Income. See Note 2 of this Annual Report on Form 10-K for additional information on the Company’s accounting policy for AROs.
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9. 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 years ended September 30, 20192020 and 20182019 is shown below:
Electronic MaterialsPerformance MaterialsTotal
Balance at September 30, 2017$96,237  $5,695  $101,932  
Foreign currency translation impact(154) —  (154) 
Sale of certain assets—  (695) (695) 
Balance at September 30, 2018$96,083  $5,000  $101,083  
Foreign currency translation impact(3,145)  (3,141) 
Goodwill arising from the Acquisition259,859  352,270  612,129  
Balance at September 30, 2019$352,797  $357,274  $710,071  

Electronic MaterialsPerformance MaterialsTotal
Balance at September 30, 2018$96,083 $5,000 $101,083 
Foreign currency translation impact(3,145)(3,141)
Goodwill arising from the Acquisition259,859 352,270 612,129 
Balance at September 30, 2019$352,797 $357,274 $710,071 
Foreign currency translation impact7,628 (257)7,371 
Other1,205 1,205 
Balance at September 30, 2020$360,425 $358,222 $718,647 
The components of other intangible assets are as follows:
September 30, 2019September 30, 2018
Gross Carrying
Amount
Accumulated
Amortization
NetGross Carrying
Amount
Accumulated
Amortization
Net
Other intangible assets subject to amortization:
Product technology, trade secrets and know-how$123,948  $37,993  $85,955  $48,825  $25,305  $23,520  
Acquired patents and licenses9,023  8,397  626  8,270  8,252  18  
Customer relationships, distribution rights and other684,764  64,471  620,293  28,068  17,574  10,494  
Total other intangible assets subject to amortization817,735  110,861  706,874  85,163  51,131  34,032  
Other intangible assets not subject to amortization:
Other indefinite-lived intangibles*47,170  —  47,170  1,170  —  1,170  
Total other intangible assets not subject to amortization47,170  —  47,170  1,170  —  1,170  
Total other intangible assets$864,905  $110,861  $754,044  $86,333  $51,131  $35,202  

September 30, 2020September 30, 2019
Gross Carrying
Amount
Accumulated
Amortization
NetGross Carrying
Amount
Accumulated
Amortization
Net
Other intangible assets subject to amortization:
Customer relationships, trade names, and distribution rights$690,716 $140,037 $550,679 $684,764 $64,471 $620,293 
Product technology, trade secrets and know-how122,135 49,228 72,907 123,948 37,993 85,955 
Acquired patents and licenses8,921 8,713 208 9,023 8,397 626 
Total other intangible assets subject to amortization821,772 197,978 623,794 817,735 110,861 706,874 
Other intangible assets not subject to amortization:
Other indefinite-lived intangibles*47,170 — 47,170 47,170 — 47,170 
Total other intangible assets not subject to amortization47,170 — 47,170 47,170 — 47,170 
Total other intangible assets$868,942 $197,978 $670,964 $864,905 $110,861 $754,044 
*Other indefinite-lived intangibles not subject to amortization primarily consist of trade names.

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Gross Carrying Amount
Balance at September 30, 2018  Additions due to the Acquisition  Impairment  FX and OtherBalance at September 30, 2019Accumulated AmortizationNet at September 30, 2019
Other intangible assets subject to amortization:
Customer relationships, trade names, and distribution rights$28,068  711,000  (51,969) $(2,335) $684,764  $64,471  $620,293  
Product technology, trade secrets and know-how48,825  85,500  (9,651) (726) 123,948  37,993  85,955  
Acquired patents and licenses8,270  2,300  (1,689) 142  9,023  8,397  626  
Total other intangible assets subject to amortization85,163  798,800  (63,309) (2,919) 817,735  110,861  706,874  
Other intangible assets not subject to amortization:
Other indefinite-lived intangibles*1,170  46,000  —  —  47,170  —  47,170  
Total other intangible assets not subject to amortization1,170  46,000  —  —  47,170  —  47,170  
Total other intangible assets$86,333  $844,800  $(63,309) $(2,919) $864,905  $110,861  $754,044  


Gross Carrying Amount
Balance at September 30, 2019
Impairment1
FX and OtherBalance at September 30, 2020Accumulated AmortizationNet at September 30, 2020
Other intangible assets subject to amortization:
Customer relationships, trade names, and distribution rights$684,764 $(1,419)$7,371 $690,716 $140,037 $550,679 
Product technology, trade secrets and know-how123,948 (343)(1,470)122,135 49,228 72,907 
Acquired patents and licenses9,023 (102)8,921 8,713 208 
Total other intangible assets subject to amortization817,735 (1,864)5,901 821,772 197,978 623,794 
Other intangible assets not subject to amortization:
Other indefinite-lived intangibles*47,170 — — 47,170 — 47,170 
Total other intangible assets not subject to amortization47,170 — — 47,170 — 47,170 
Total other intangible assets$864,905 $(1,864)$5,901 $868,942 $197,978 $670,964 
As discussed in1 Refer to Note 410 of this Annual Report on Form 10-K we recorded $844,800 of intangible assets related tofor additional information regarding the Acquisition. The allocation of the amount into the various categories of intangible assets, as well as useful lives we have established, are discussed in Note 4 of this Annual Report on Form 10-K

impairment.
Amortization expense was $85,557, $59,931 $7,495 and $7,795$7,495 for fiscal 2020, 2019 2018 and 2017,2018, respectively.  Estimated future amortization expense of intangible assets as of September 30, 20192020 for the five succeeding fiscal years is as follows:
Fiscal YearEstimated
Amortization
Expense
2020$90,811  
202189,801  
202282,175  
202369,538  
202461,627  

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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 2018 and 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 2019. See Note 2 of this Annual Report on Form 10-K for information regarding our accounting policy.

Fiscal YearEstimated
Amortization
Expense
2021$81,985
202274,695
202362,879
202455,664
202550,526
As discussed further in Note 10 of this Annual Report on Form 10-K, inSeptember 30, 2020, the fourth quarter of fiscal 2019, asset impairment charges of $63,309 were recorded related to technology and know-how, customer relationships and EPA product registration rights related to our wood treatment reporting unit. For these intangible assets, the remaining useful lives were limited to the end of the calendar 2021. NaN impairment charges to goodwill were recognized in any periods presented and 0 impairment charges for other intangible assets were recorded in fiscal 2018 and 2017.

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10. LONG-LIVED ASSET IMPAIRMENT -WOOD TREATMENT

The wood treatment asset group produces pentachlorophenol ("penta"), a chemical pesticide supplied to industrial customers to pressure treat certain wood products, primarily utility poles and crossarms, to extend the useful life of such wood products by protecting against insect damage and related decay. It includes operations in Matamoros, Mexico and Tuscaloosa, Alabama, which form a single asset group as their operations are highly interrelated.

In September 2019, as the Company assessed its capital expenditure priorities for fiscal year 2020 and beyond, the Company made a decision to further focus its future capital investments on high-growth businesses complementary to its core, and to cease future investment in the wood treatment business and to not construct a new production facility to replace operations in Matamoros and Tuscaloosa.

The Company is considering various options regarding this business, which may include continued operations of the business until the previously announced closure of the existing facilities by around the end of calendar 2021, or exploration of a possible sale of the business; however, management has not committed to a plan of sale.

Management believes events subsequent to the Acquisition Date, including management's decision to cease capital investment in the wood treatment business, and shifting market perceptions of environmental risks and costs, with the Tuscaloosa warehouse facility fire incident as illustrative, resulted in a triggering event to assess the asset group for impairment. The asset group did not pass the recoverability test and the Company proceeded to measure an impairment.

In the fourth quarter of fiscal 2019, the Company recognized pre-tax asset impairment charges of $67,372, which were recorded within Asset impairment charges and a tax benefit of $17,072 in Provision for income taxes in the Consolidated Statements of Income. The impairment is recognized in the Performance Materials segment and relates to long-lived assets in the wood treatment reporting unit.

The long-lived asset impairment was allocated as follows:

September 30, 2019
Balance Prior to ImpairmentImpairmentBalance after Impairment
Property, plant, and equipment, net$4,902  $4,063  $839  
Other intangible assets – Product technology11,646  9,651  1,995  
Other intangible assets – Acquired patents and licenses2,038  1,689  349  
Other intangible assets – Customer relationships, distribution rights, and other62,708  51,969  10,739  
Total$81,294  $67,372  $13,922  


To determine the measurement of the impairment loss, the Company estimated the fair value of the asset group, which is also aPIM reporting unit and therefore included goodwill, and recognized an impairment to the extent thatexceeded the carrying value exceeded the fair value.by approximately 8% and 0 impairment was recognized. In estimating the fair value, of the wood treatment asset group, the Company used an incomethe average of a discounted cash flows model and a market approach based uponon earnings before interest, taxes, and depreciation for a group of guideline comparable companies. The most significant estimates and assumptions inherent in the discounted cash flows model are the forecasted revenue growth rate, forecasted gross margin, the discount rate and the terminal growth rate. These assumptions are classified as level 3 inputs. The Company’s projections for revenue and gross margin are based on the Company’s multiyear forecast which reflects a recovery from the COVID-19 pandemic (“Pandemic”) during the forecast period. The discount rate was based on an estimated weighted average cost of capital (“WACC”) for the PIM reporting unit. The components of WACC are the cost of equity and the cost of debt, each of which requires judgment by management to estimate. The company developed its cost of equity estimate based on perceived risks and predictability of discounted future cash flows, using a probability-weighted approach, including scenarios for continuedflows.
The extent to which the Pandemic or future geopolitical events in the oil and gas industry may further impact our PIM business, operations, results of operations and financial condition is uncertain and difficult to estimate, however the potential for a sale of the business.impact could negatively affect future revenue and gross margin. The scenarios for estimating cash flows resulting from continued operations reflected management’s best estimates of sales volumes, which may include customer attrition driven by the Company’s announcement to cease investment in the wood treatment business, potentially prompting them to switch to alternative products. The sale case is based upon estimated proceeds from a potential sale of the wood treatment business; however, there is no assurance the Company will pursue or consummate a sale. The fair-value estimate for the wood treatment asset group included significant judgments and assumptions relating to projected revenues through the expected closure of the existing facilities.


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The faircarrying value of the wood treatment asset group was sufficient that the recognized impairment was limited to long-lived assets and thePIM reporting unit includes $318.2 million of goodwill was not impaired. The Company will continue to monitor the wood treatment asset group for indicatorsand $46.0 million of long-lived asset or goodwill impairment. Absent a sale of the business, as the Company approaches the announced closure date of the facilities and there are fewer estimatedtrade-name intangible assets. Potential future cash flows, there is ongoing potential for further impairments of long-lived assets and impairment of goodwill. 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 willwe do not expect them to affect the Company’s reported Net cash provided by operating activities. FollowingNaN impairment charges to goodwill were recognized in any periods presented.
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10. LONG-LIVED ASSET IMPAIRMENT - WOOD TREATMENT
As a result of to the previously announced planned closure of the Company's wood treatment business' facilities by approximately the end of calendar year 2021, the Company recognized non-cash pre-tax impairment charges in the Performance Materials segment of $2,314 and $67,372, for the years ending September 30, 2020 and 2019, respectively, for the wood treatment asset group which is also a reporting unit, has goodwilland adjusted the remaining useful lives such that they do not extend beyond the announced plant closures. The Company recognized a tax benefit of $35,844$608 and $17,072, for the years ending September 30, 2020 and 2019, respectively in Provision for income taxes in the Consolidated Statements of Income.
The Company tested the recoverability of its long-lived assets and determined the carrying amount of $13,922.the assets exceeded the sum of the expected undiscounted future cash flows. The resulting impairment charge of $2,314 was recorded to reduce the carrying values of these assets to fair value and was allocated as follows:
September 30,
20202019
Property, plant, and equipment, net$450 $4,063 
Other intangible assets – Product technology343 9,651 
Other intangible assets – Acquired patents and licenses102 1,689 
Other intangible assets – Customer relationships, distribution rights, and other1,419 51,969 
Total$2,314 $67,372 
Testing the assets for recoverability involves developing estimates of future cash flows directly associated with, and that are expected to arise as a direct result of, the use and eventual disposition of the assets. As the inputs for testing recoverability, including estimates of revenue and expenses, not generally observable in active markets, the Company considers such measurements to be Level 3 measurements in the fair value hierarchy. The duration of the revenue and expense estimates are limited to the period through the closure date.
The fair value of the wood treatment asset group was sufficient such that the recognized impairment was limited to long-lived assets and the reporting unit goodwill was not impaired, however, as the Company approaches the closure date of the facilities and there are lower estimated future cash flows, the carrying value of the wood treatment asset group and reporting unit will not be recoverable, resulting in future impairments. The remaining carrying value of the wood treatment business as of September 30, 2020 includes $35.0 million and $3.8 million of goodwill and intangible assets, respectively, which we anticipate will be periodically impaired through the closure date, resulting in no fair value ascribed to the wood treatment business by the date of closure. The amount of the periodic impairments will vary depending on the timing of the remaining future cash flows of the business.

11. OTHER LONG-TERM ASSETS
Other long-term assets consisted of the following:
September 30,
20192018
Long-term contract asset$1,164  $1,548  
Long-term SERP Investment980  1,137  
Prepaid unamortized debt issuance cost - revolver709  —  
Other long-term assets2,858  1,979  
Total$5,711  $4,664  
September 30,
20202019
Long-term right of use assets$30,999 $
Long-term vendor contract assets2,889 1,164 
Long-term SERP investments1,214 980 
Prepaid unamortized debt issuance costs - revolver537 709 
Other long-term assets4,368 2,858 
Total$40,007 $5,711 

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12. ACCRUED EXPENSES, INCOME TAXES PAYABLE AND OTHER CURRENT LIABILITIES
Accrued expenses, income taxes payable and other current liabilities consisted of the following:
September 30,September 30,
2019201820202019
Accrued compensationAccrued compensation$33,809  $35,367  Accrued compensation$46,465 $33,809 
Income taxes payableIncome taxes payable15,725  18,045  Income taxes payable16,216 15,725 
Dividends payableDividends payable12,953  10,822  Dividends payable13,669 12,953 
KMG - Bernuth warehouse fire related (See Note 20)7,998  —  
Interest rate swap liabilityInterest rate swap liability11,992 5,351 
Contract liabilities (current)Contract liabilities (current)8,501 5,008 
Current portion of operating lease liabilityCurrent portion of operating lease liability6,513 
Taxes, other than income taxesTaxes, other than income taxes6,281  1,976  Taxes, other than income taxes5,044 6,281 
Interest rate swap liability5,351  —  
Deferred revenue and customer advances5,008  4,894  
Accrued Interest3,739  —  
Goods and services received, not yet invoicedGoods and services received, not yet invoiced3,075  1,954  Goods and services received, not yet invoiced3,957 3,075 
Accrued interestAccrued interest29 3,739 
KMG - Bernuth warehouse fire-related (See Note 20)KMG - Bernuth warehouse fire-related (See Note 20)7,998 
OtherOther9,679  9,925  Other9,056 9,679 
TotalTotal$103,618  $82,983  Total$121,442 $103,618 


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13. DEBT

Total debt consisted of the following:
On
September 30,
20202019
Senior Secured Term Loan Facility, one-month LIBOR plus 2.00% and 2.25%, respectively$936,363 $959,676 
Less: Unamortized debt issuance costs(14,949)(17,900)
Total debt921,414 941,776 
Less: Current maturities and short-term debt(10,650)(13,313)
Total long-term debt excluding current maturities$910,764 $928,463 
Term Loan Facility
In connection with the Acquisition, Date, we entered into the Credit Agreement by and among the Company, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent,a credit agreement, which provides for senior secured financing of up to $1,265.0 million consisting of(“Credit Agreement”), which includes the Senior Secured Term Loan Facility in an aggregate principal amount of$1,065.0 million and the Revolving Credit Facility("Term Loan Facility") in an aggregate principal amount of up$1,065.0 million. During the first quarter of fiscal 2020, the Company amended the Credit Agreement ("Amended Credit Agreement") to $200.0 million, including a letter of credit sub-facility of up to $50.0 million. Thereduce the interest rate on the Term Loan Facility and the Revolving Credit Facility are referred to as the “Credit Facilities.”
Facility.
Proceeds of the loans borrowedBorrowings under the Term Loan Facility on the Acquisition Date were used to fund, in part, the Acquisition and certain of KMG’s existing indebtedness, and to pay related fees and expenses. The Revolving Credit Facility remains undrawn.

The Credit Facilities are guaranteed by each of the Company’s wholly-owned domestic subsidiaries, including KMG and its subsidiaries, and are secured by substantially all assets of the Company and of each subsidiary guarantor, in each case subject to certain exceptions.

Borrowings under the Credit Facilities bear interest at a rate per annum equal to, at the Company’s option, 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 Term Loan Facility, 2.25%2.00% for LIBOR loans and 1.25% for base rate loans and, in the case of borrowings under the Revolving Credit Facility, initially, 1.50% for LIBOR loans and 0.50%1.00% for base rate loans. The applicable margin for borrowings under the Revolving Credit Facility varies depending onare guaranteed by each of the Company’s first lienwholly-owned domestic subsidiaries and are secured net leverage ratio. The Company is also required to pay a commitment fee currently equal to 0.25% per annum to the lenders under the Revolving Credit Facility in respectby substantially all assets of the unutilized commitments thereunder. The commitment fee under the Revolving Credit Facility varies depending on the Company’s first lien secured net leverage ratio.

Company and of each subsidiary guarantor, in each case subject to certain exceptions.
The 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.beginning January 1, 2019. In addition, the Company is required to prepay outstanding loans under the Term Loan Facility, subject to certain exceptions, with up to 50% of the Company’s annual excess cash flow, as defined under the Amended Credit Agreement, and 100% of the net cash proceeds of certain recovery events and non-ordinary course asset sales.

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. We made a total prepaymentprepayments on the Term Loan Facility of $10.0 million and $100.0 million during the fiscal yearyears ended September 30, 2020 and 2019, respectively.
At September 30, 2020, the fair value of the Term Loan Facility, using level 2 inputs, approximated its carrying value of $936,363 as the loan bears a floating market rate of interest.
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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 our Term Loan Facility balance. See Note 15 of this Annual Report on Form 10-K for additional information.
The Revolving Credit Facility requires that the Company maintain a maximum first lien secured net leverage ratio, as defined in the Credit Agreement, of 4.00 to 1.00 as of the last day of each fiscal quarter if any revolving loans are outstanding, commencing with the first full fiscal quarter after the Acquisition Date.

TheAmended 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. We believe we are in compliance with these covenants.

The Amended Credit Agreement contains certain events of default, including relating to a change of control. If an event of default occurs, the lenders under the Credit Facilities will be entitled to take various actions, including the acceleration of amounts due under the Credit Facilities.

AtAs of September 30, 2019, the fair value2020, scheduled principal repayments of the Term Loan Facility using level 2 inputs, approximated its carrying valuewere:
Fiscal YearPrincipal Repayments
2021$10,650 
202210,650 
202310,650 
202410,650 
202510,650 
Thereafter883,113 
$936,363 
Revolving Credit Facility
The Company has a revolving credit facility under the Amended Credit Agreement ("Revolving Credit Facility") with an aggregate principal amount of $959,676 asup to $200.0 million, including a letter of credit sub-facility of up to $50.0 million. Borrowings under the loan bearsRevolving Credit Facility bear interest at a floating market rate per annum equal to a base rate in each case, plus an applicable margin of interest. As of September 30, 2019, $13,3131.50% 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 Revolving Facility matures on November 15, 2023, the five-year anniversary of the debt outstanding was classified as short-term, and $17,900 of debt issuance costs related to our Term Loan were presented as a reduction of long-term debt.Acquisition Date.

InDuring the second quarter of fiscal 2019, we entered into2020, the Company drew $150.0 million under the Revolving Credit Facility as a floating-to-fixed interest rate swap agreementprecautionary measure in order to hedgeincrease its cash position and preserve financial flexibility in light of uncertain global economic conditions resulting from the variabilityPandemic. The entire amount, which was unused in our LIBOR-based interest payments on approximately 70%full, was repaid in the fourth quarter of our Term Loan Facility balance. See Note 14fiscal 2020 and 0 amount remains outstanding as of this Annual Report on Form 10-K for additional information.September 30, 2020.

14. LEASES
We lease certain vehicles, warehouse facilities, office space, machinery, and equipment under cancellable and noncancellable leases, most of which expire in five years and may be renewed at our option.  
The components of lease expense are as follows:
Lease ComponentsYear Ended September 30, 2020
Operating lease cost$7,871 
Variable and short-term costs1,637 
Total lease cost$9,508 
Lease expense for the years ended September 30, 2019 and 2018 totaled $7,975 and $4,307, respectively.
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Principal repaymentsSupplemental balance sheet information related to leases is as follows:
Lease ComponentsConsolidated Balance Sheet LocationSeptember 30, 2020
Lease right-of-use assetsOther long-term assets$30,999 
Lease liabilities - currentAccrued expenses, income taxes payable and other current liabilities$6,513 
Lease liabilities - non-currentOther long-term liabilities25,967 
Total lease liabilities$32,480 
Weighted-average remaining lease term (in years)7 years
Weighted-average discount rate3.06 %
Future maturities of operating lease liabilities for the Term Loan Facilityyears ended September 30 are generally made on the last calendar day of each quarter if that day is considered to be a business day.as follows:

Fiscal YearAmount
2021$7,196 
20226,672 
20235,645 
20244,242 
20253,499 
2026 and future years8,261 
Total future lease payments35,515 
Less: Imputed interest3,035 
Operating lease liability32,480 
Less: Current portion of operating lease liability6,513 
Long-term portion of operating lease liability$25,967 
As of September 30, 2019, scheduled principal repaymentsminimum lease payments under non-cancellable operating leases in excess of the Term Loan were:one year are as follows:

Fiscal YearFiscal YearPrincipal RepaymentsFiscal YearAmount
20202020$13,313  2020$6,984 
2021202110,650  20214,941 
2022202210,650  20224,291 
2023202310,650  20234,122 
2024202410,650  20243,710 
ThereafterThereafter903,763  Thereafter12,010 
$959,676  
Total future minimum lease paymentsTotal future minimum lease payments$36,058 

14.15. 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.
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Cash Flow Hedges – Interest Rate Swap AgreementContract
During the second quarter, we entered intoWe have a floating-to-fixed interest rate swap agreementcontract to hedge the variability in LIBOR-based interest payments on a portion of our outstanding variable rate debt.  As of September 30, 2019, theThe notional value of the swap was $699,000 and this valueamount is scheduled to decrease bi-annually and towill expire on January 31, 2024.
We have designated this swap agreement as a cash flow hedge pursuant to ASC 815, "Derivatives and Hedging". 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.
Foreign Currency Contracts Not Designated as Hedges
On a regular basis, weWe 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
The notional amount of September 30, 2019 and 2018, the notional amounts of the forward contracts we held to purchase U.S. dollars in exchange for foreign currencies were $6,239 and $7,652, respectively, and the notional amounts of forward contracts we held to sell U.S. dollars in exchange for foreign currencies were $24,270 and $24,860, respectively.our derivative instruments are as follows:
Net Investment Hedge – Foreign Exchange Contracts
In September 2017, we entered into forward contracts to sell 100 billion Korean won and buy U.S. dollars, which we subsequently terminated in the third quarter of fiscal 2018. We had designated these forward contracts as effective net investment hedges.
September 30,
20202019
Derivatives designated as hedging instruments
Interest rate swap contract$571,000 $699,000 
Derivatives not designated as hedging instruments
Foreign exchange contracts to purchase U.S. dollars8,054 6,239 
Foreign exchange contracts to sell U.S. dollars25,105 24,270 

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The fair value of our derivative instruments included in the Consolidated Balance Sheets which was determined using level 2 inputs, was as follows:
Derivative AssetsDerivative LiabilitiesDerivative AssetsDerivative Liabilities
September 30,September 30,September 30,September 30,
Consolidated Balance Sheets Location2019201820192018Consolidated Balance Sheets Location2020201920202019
Derivatives designated as hedging instrumentsDerivatives designated as hedging instrumentsDerivatives designated as hedging instruments
Interest rate swap contractsAccrued expenses, income taxes payable and other current liabilities$—  $—  $5,351  $—  
Interest rate swap contractInterest rate swap contractAccrued expenses, income taxes payable and other current liabilities$$$11,992 $5,351 
Other long-term liabilities $—  $—  $18,841  $—  Other long-term liabilities26,000 18,841 
Derivatives not designated as hedging instrumentsDerivatives not designated as hedging instrumentsDerivatives not designated as hedging instruments
Foreign exchange contractsForeign exchange contractsPrepaid expenses and other current assets$—  $—  $—  $—  Foreign exchange contractsPrepaid expenses and other current assets27 
Accrued expenses, income taxes payable and other current liabilities $—  $—  $52  $339  Accrued expenses, income taxes payable and other current liabilities165 52 
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The following table summarizes the effect of our derivative instrument on our Consolidated Statements of Income for the fiscal years ended September 30, 2019, 2018 and 2017:Income:
Gain (Loss) Recognized in Consolidated Statements of Income
Fiscal Year Ended September 30,
Consolidated Statements of Income Location 201920182017
Derivatives not designated as hedging instruments
Foreign exchange contractsOther income (expense), net$28  $(1,569) $(1,462) 

Gain (Loss) Recognized in Consolidated Statements of Income
Fiscal Year Ended September 30,
Consolidated Statements of Income Location 202020192018
Derivatives designated as hedging instruments
Interest rate swap contractInterest expense$(9,360)$524 $515 
Derivatives not designated as hedging instruments
Foreign exchange contractsOther income (expense), net(222)28 (1,569)
The interest rate swap agreement has been deemed to be effective, and realized gains and losses were immaterial tofollowing table summarizes the effect of our Consolidated Statements of Income.  We recorded an unrealized loss of $18,780, net of tax, inderivative instrument on Accumulated other comprehensive income during the twelve months ended September 30, 2019 for this interest rate swap.  As of September 30, 2019, during the next 12 months, weincome:
Amount of Gain (Loss) Recognized in Other Comprehensive Income
Fiscal Year Ended September 30,
202020192018
Derivatives designated as hedging instruments
Interest rate swap contract$(23,161)$(23,667)$430 
We expect approximately $5,351$11,992 to be reclassified from Accumulated other comprehensive (loss) income into Interest expense during the next twelve months related to our interest rate swap based on projected rates of the LIBOR forward curve as of September 30, 2019.2020.

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15.16. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The table below summarizes the components of Accumulated other comprehensive income (loss) (AOCI), net of Provision for income taxes/tax expense (benefit), for.
Year Ended September 30,
202020192018
Beginning Balance$(23,238)$4,539 $3,949 
Foreign currency translation adjustment19,642 (7,957)(1,730)
Income tax expense (benefit)(356)(591)2,409 
Foreign currency translation adjustment, net of tax19,286 (8,548)679 
Pension and other postretirement891 (479)(25)
Income tax expense (benefit)156 30 (1)
Pension and other postretirement, net of tax1,047 (449)(26)
Unrealized gain (loss) on cash flow hedges:
Change in fair value(23,161)(23,667)430 
Reclassification adjustment into earnings9,360 (524)(515)
Income tax expense3,090 5,411 22 
Unrealized loss on cash flow hedges, net of tax(10,711)(18,780)(63)
Effect of the adoption of the stranded tax effect accounting standard(497)
Income tax expense
Effect of the adoption of the stranded tax effect accounting standard, net of tax(488)
Net Change9,134 (27,777)590 
Ending Balance$(14,104)$(23,238)$4,539 
During the years ended September 30, 2019, 2018,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 2017.
Foreign
Currency
Translation
Cash
Flow
Hedges
Pension and Other
Postretirement
Liabilities
Total
Balance at September 30, 2016$11,985  $(817) $(1,612) $9,556  
Foreign currency translation adjustment, net of tax of $(2,321)(6,746) —  —  (6,746) 
Unrealized gain (loss) on cash flow hedges:
Change in fair value, net of tax of $(660)—  1,161  —  1,161  
Reclassification adjustment into earnings, net of tax of $170—  (298) —  (298) 
Change in pension and other postretirement, net of tax of $79—  —  276  276  
Balance at September 30, 20175,239  46  (1,336) 3,949  
Foreign currency translation adjustment, net of tax of $(2,409)679  —  —  679  
Unrealized gain (loss) on cash flow hedges:
Change in fair value, net of tax of $111—  319  —  319  
Reclassification adjustment into earnings, net of tax of $(133)—  (382) —  (382) 
Change in pension and other postretirement, net of tax of $1—  —  (26) (26) 
Balance at September 30, 20185,918  (17) (1,362) 4,539  
Foreign currency translation adjustment, net of tax of $591(8,548) —  —  (8,548) 
Unrealized gain (loss) on cash flow hedges:
Change in fair value, net of tax of $(5,297)—  (18,370) —  (18,370) 
Reclassification adjustment into earnings, net of tax of $(114)—  (410) —  (410) 
Change in pension and other postretirement, net of tax of $(30)—  —  (449) (449) 
Balance at September 30, 2019$(2,630) $(18,797) $(1,811) $(23,238) 
The beforeas a result, we reclassified $488 of stranded tax amount reclassifiedeffects from OCIAccumulated other comprehensive income to Net income in fiscal 2019, related to our cash flow hedges, was recorded as Interest expense on our Consolidated Statements of Income. Amounts reclassified from OCI to Net income, related to pension liabilities, were not material in fiscal years 2019, 2018 and 2017.
Retained earnings.

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16.17. SHARE-BASED COMPENSATION PLANS
EQUITY INCENTIVE PLAN AND OMNIBUS INCENTIVE PLAN
In March 2004,We grant share-based compensation to eligible participants under our stockholders approved our Second Amended and Restated Cabot Microelectronics Corporation 2000 Equity Incentive Plan (the "EIP"), as amended and restated September 23, 2008.  In March 2012, our stockholders approved the Cabot Microelectronics Corporation 2012 Omnibus Incentive Plan (the "OIP"), which is the successor plan to the EIP, and which was amended as of March 2017.  All share-based awards have been made from the OIP as of its approval date,2017, and since then the EIP no longer has been available for any awards.  The OIP is administered by the Compensation Committee of the Board of Directors and is intendedprior to provide management with the flexibility to attract, retain and rewardthat under our employees, directors, consultants and advisors.2000 Equity Incentive Plan (the “EIP”).  The OIP allows for the granting of 6 types of equity incentive awards: stock options, restricted stock, restricted stock units, stock appreciation rights (SARs)(“SARs”), performance-based awards, and substitute awards.  The OIP also provides for cash incentive awards to be made.  Substitute awards under the OIP are those awards that, in connection with an acquisition may(in the case of the Acquisition, “Replacement Awards”). The OIP authorizes up to 4,978 shares of stock to be granted thereunder, including up to employees, directors, consultants or advisors2,074 shares of the acquired company, in substitution for equity incentives held by themstock in the selleraggregate of awards other than options or SARs and up to 2,539 incentive stock options.  In addition, shares that become available from awards under the acquired company. For example, inEIP and the OIP because of events such as forfeitures, cancellations or expirations will also be available for issuance under the OIP. Shares issued under our share-based compensation plans are issued from new shares rather than from treasury shares.
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In fiscal 2019, in connection with the Acquisition, we awarded a total of 43,443 restricted stock unit awards to certain KMG employees in substitution for certain unvested restricted stock unit awards that KMG had awarded subsequent to the entry into the definitive agreement for the Acquisition, but prior to the Acquisition Date (“Date. The Replacement Awards”). Also,Awards vest in fiscal 2016, related to our acquisition of NexPlanar, we granted incentive stock options (ISOs), as allowed under3 equal installments on the OIP, to certain NexPlanar employees in substitution for unvested ISOs they had held in NexPlanar at the timefirst three anniversaries of the closingoriginal award date. If the recipient was terminated without cause or resigned with good reason during the 18 months following the Acquisition Date, the Replacement Awards will have vested as of such termination date in a number of shares equal to 150% of the acquisition.  As of September 30, 2019, no SARs have been granted to date under either plan.  No awards of any type have been granted to date to consultants or advisors under either plan.  The OIP authorizes up to 4,977,887 shares of stock to be granted thereunder, including up to 2,074,395 shares of stock in the aggregate of awards other than options or SARs, and up to 2,538,690 incentive stock options.  The 4,977,887 shares of stock represents 2,944,803 shares of newly authorized shares and 2,033,084 shares previously available under the EIP. In addition, shares that become available from awards under the EIP and the OIP because of events such as forfeitures, cancellations or expirations will also be available for issuance under the OIP. Shares issued under our share-based compensation plans are issued from new shares rather than from treasury shares.Replacement Award.

STOCK OPTIONS
Non-qualified stock options issued under the OIP as they were under the EIP, are generally time-based and provide for a ten-yearten-year term, with options generally vesting equally over a four-year period, with first vesting on the first anniversary of the award date.four-year period. Non-qualified stock options granted to non-employee directors on an annual basis vest 100% on the first anniversary of the award date. Under the OIP as under the EIP, employees may also be granted ISOsincentive stock options to purchase common stock at not less than the fair value on the date of the grant.  Priorgrant, but to fiscal 2016, no ISOs had beendate we have not granted under either plan.  Compensation expense related to ourincentive stock option awards was $4,267, $6,392 and $5,500 in fiscal 2019, 2018 and 2017, respectively.  For additional information on our accounting for share-based compensation, see Note 2 of this Annual Report on Form 10-K.options.
Under the OIP, employees and non-employees may be awarded shares of restricted stock or restricted stock units, which generally vest over a four-year period, with first vesting on the anniversary of the grant date.  In general, shares of restricted stock and restricted stock units may not be sold, assigned, transferred, pledged, disposed of or otherwise encumbered.  Holders of restricted stock, and restricted stock units, if specified in the award agreements, have all the rights of stockholders, including voting and dividend rights, subject to the above restrictions.  Holders of restricted stock units awarded as of fiscal 2016 have dividend equivalent rights pursuant to the terms of the OIP and respective award agreements.  Restricted shares under the OIP, as under the EIP, also may be purchased and placed "on deposit" by executive officers pursuant to the 2001 Deposit Share Program.  Shares purchased under this Deposit Share Program receive a 50% match in restricted shares ("Award Shares").  These Award Shares vest at the end of a three-year period, and are subject to forfeiture upon early withdrawal of the deposit shares.  Compensation expense related to our restricted stock and restricted stock unit awards and restricted shares matched at 50% pursuant to the Deposit Share Program for fiscal 2019, 2018 and 2017 was $11,400, $9,186 and $6,730, respectively.
In December 2017, we granted performance share unit ("PSU") awards to certain employees. These PSUs fully vest on the third anniversary of the grant date.  Stock-based compensation for the awards is recognized over the requisite service period (three years) beginning on the date of award through the end of the performance period based on the number of PSUs expected to vest under the awards at the end of the performance period. The expected amount of vesting is determined using certain performance measures and is re-evaluated at the end of each fiscal year through the end of the performance period. In addition, the PSUs 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 the S&P SmallCap 600 Index.  We used a third-party service provider to estimate the fair value of our share-based awards, as shown below, was estimated using the PSUs at grant date by using a Monte Carlo simulation model. ThisBlack-Scholes model simulateswith the following weighted-average assumptions:
Year Ended September 30,
202020192018
Weighted-average grant date fair value$39.68 $27.34 $26.59 
Expected term (in years)6.966.866.68
Expected volatility32 %26 %26 %
Risk-free rate of return1.6 %2.8 %2.4 %
Dividend yield1.3 %1.6 %1.0 %

A summary of stock price movementsoption activity is as follows:
Stock
Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
(in thousands)
Outstanding at September 30, 2019879 $63.44 
Granted121 129.60 
Exercised(182)51.50 
Forfeited or canceled(11)75.59 
Outstanding at September 30, 2020807 $75.87 6.2$54,078 
Exercisable at September 30, 2020499 $58.27 5.1$42,184 
Expected to vest at September 30, 2020308 $104.39 8.1$11,836 

Year Ended September 30,
202020192018
Intrinsic value of options exercised$19,077 $20,711 $30,345 
Cash received from exercise of options9,350 13,193 19,247 
Tax benefit from exercise of options3,629 4,449 7,503 
Fair value of options vested3,765 4,506 5,008 

As of the Company and Index constituents using certain assumptions, including the stock priceSeptember 30, 2020, there was $5,267 of our company and Index constituents, the risk-free interest rate and stock price volatility. We have recorded $1,279 and $2,056total unrecognized share-based compensation expense related to our PSU awards in fiscal 2019 and 2018, respectively.
unvested stock options. That cost is expected to be recognized over a weighted-average period of 2.3 years.
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With respect to the Replacement Awards, which were made in fiscal 2019, they vest in 3 equal installments on the first three anniversaries of the original award date. If the recipient is terminated without cause or resigns with good reason during the 18 months following the Acquisition Date, the Replacement Award will vest as of such termination date in a number of shares equal to 150% of the Replacement Award.
EMPLOYEE STOCK PURCHASE PLAN
In March 2008, our stockholders approved our 2007 Cabot Microelectronics Employee Stock Purchase Plan (the "ESPP"), which amended the ESPP for the primary purpose of increasing the authorized shares of common stock to be purchased under the ESPP from 475,000 designated shares to 975,000 shares.  As of September 30, 2019, a total of 336,684 shares are available for purchase under the ESPP.  The ESPP allows all full-time, and certain part-time, employees of our Company and its designated subsidiaries to purchase shares of our common stock through payroll deductions.  Employees can elect to have up to 10% of their annual earnings withheld to purchase our stock,deductions, subject to a maximum number of shares that a participant may purchase and a maximum dollar expenditure in any six-month offering period, and certain other criteria.  The provisions of the ESPP allow shares to be purchased at a price no less than the lower of 85% of the closing price at the beginning or end of each semi-annual stock purchase period. AAs of September 30, 2020, a total of 48,820, 49,896, and 69,751291 shares were issuedare available for purchase under the ESPP during fiscal 2019, 2018 and 2017, respectively.  Compensation expense related to the ESPP was $1,281, $885 and $774 in fiscal 2019, 2018 and 2017, respectively.
ACCOUNTING FOR SHARE-BASED COMPENSATION
The fair value of our share-based awards, as shown below, was estimated using the Black-Scholes model with the following weighted-average assumptions:
Year Ended September 30,
201920182017
Stock Options
Weighted-average grant date fair value$27.34  $26.59  $16.50  
Expected term (in years)6.866.686.57
Expected volatility26 %26 %27 %
Risk-free rate of return2.8 %2.4 %2.1 %
Dividend yield1.6 %1.0 %1.2 %

Year Ended September 30,
201920182017
ESPP
Weighted-average grant date fair value$25.16  $20.94  $12.49  
Expected term (in years)0.50.50.5
Expected volatility34 %26 %24 %
Risk-free rate of return2.3 %1.5 %0.6 %
Dividend yield1.6 %1.1 %1.3 %
ESPP.
The Black-Scholes model is primarily used in estimating the fair value of short-lived exchange traded options that have no vesting restrictions and are fully transferable.  Because employee stock options and ESPP purchases have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, our use of the Black-Scholes model for estimating the fair value of stock options and ESPP purchases may not provide an accurate measure.  Although the value of our stock options and ESPP purchases are determined in accordance with applicable accounting standards using an option-pricing model, those values may not be indicative of the fair values observed in a willing buyer/willing seller market transaction.

Year Ended September 30,
202020192018
Weighted-average grant date fair value$39.17 $25.16 $20.94 
Shares issued46 49 50 
Expected term (in years)0.50.50.5
Expected volatility52 %34 %26 %
Risk-free rate of return1.7 %2.3 %1.5 %
Dividend yield1.3 %1.6 %1.1 %

RESTRICTED STOCK, RESTRICTED STOCK UNITS, AND PERFORMANCE SHARE UNITS
Under the OIP, employees and non-employees may be awarded shares of restricted stock or RSUs, which generally vest over a four-year period. Restricted shares under the OIP may be purchased and placed "on deposit" by executive officers pursuant to the 2001 Deposit Share Program. Shares purchased under this Deposit Share Program receive a 50% match in restricted shares that vest at the end of a three-year period, and are subject to forfeiture upon early withdrawal of the deposit shares.The fair value of our restricted stock and restricted stock unit awards represents the closing price of our common stock on the date of award. Share-based compensation expense related to restricted stock and restricted stock unitRSU awards is recorded net of expected forfeitures.

In December 2017, we began awarding PSU awards to certain employees on an annual basis. These PSUs fully vest upon certification of performance achieved with respect to the PSU following the third anniversary of the performance period tied to the PSU, according to the terms and conditions of the relevant PSU award agreement. Stock-based compensation for the awards is recognized over the requisite service period (three years) beginning on the date of award through the end of the performance period based on the number of PSUs expected to vest under the awards at the end of the performance period. The expected amount of vesting is determined using certain performance measures and is re-evaluated at the end of each fiscal year through the end of the performance period. In addition, the PSUs 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 the S&P SmallCap 600 Index or the S&P MidCap 400 Index, as specified in the respective PSU award agreement. We estimate fair value of the PSUs at award date by using a Monte Carlo simulation model.
This model simulates the stock price movements of the Company and relevant Index constituents using certain assumptions, including the stock price of our company and relevant Index constituents, the risk-free interest rate and stock price volatility.
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A summary of the activity of the restricted stock awards, RSU awards, and PSU awards is presented below:
Restricted Stock
Awards and Units
Weighted Average
Grant Date Fair
Value
Nonvested at September 30, 2019275 $87.36 
Granted 1
88 125.14 
Vested(100)74.65 
Forfeited(6)83.65 
Nonvested at September 30, 2020257 $104.83 
1 Includes PSUs awarded

Year Ended September 30,
202020192018
Weighted average grant date fair value$104.83 $87.36 $70.42 

The total fair value of restricted stock awards and RSUs vested during fiscal years 2020, 2019 and 2018 was $7,481, $11,060 and $6,669, respectively.  As of September 30, 2020, there was $14,256 of total unrecognized share-based compensation expense related to unvested restricted stock awards and RSUs, including PSUs, under the OIP.  That cost is expected to be recognized over a weighted-average period of 2.09 years.
SHARE-BASED COMPENSATION EXPENSE
Total share-based compensation expense and the classification of that expense in the Consolidated Statements of Income for the years ended September 30, 2020, 2019 2018 and 2017,2018, is as follows:
Year Ended September 30,
201920182017
Consolidated Statements of Income classifications:
Cost of sales$2,727  $2,450  $2,229  
Research, development and technical2,150  1,940  1,792  
Selling, general and administrative13,350  14,128  8,983  
Tax benefit(3,767) (4,306) (4,339) 
Total share-based compensation expense, net of tax$14,460  $14,212  $8,665  

Beginning in December 2017, equity grants included the provisions of stock option grants and restricted stock unit awards such 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, for those employees who have met the retirement eligibility at the grant date, we now record the total
Year Ended September 30,
202020192018
Cost of sales$2,863 $2,727 $2,450 
Research, development and technical2,090 2,150 1,940 
Selling, general and administrative11,443 13,350 14,128 
Tax benefit(3,162)(3,767)(4,306)
Total share-based compensation expense, net of tax$13,234 $14,460 $14,212 

Total gross share-based compensation expense upon award; for those employees who will meet the retirement eligibility during the four-year vesting period, we now record the share-based compensation expense over the period from the grant date through the date of retirement eligibility, rather than over the four-year vesting period stated in the award agreement.  Restricted stock units granted to non-employee directors on an annual basis vest 100% on the first anniversary of the award date.
In fiscal 2019, we recorded $3,253 in share-based compensation expense relatedis attributable to the Replacement Awards, including accelerated vesting, issued in conjunction with the Acquisition. In fiscal 2018, we recorded $2,602 of shared-based compensation expense associated with our executive officer transitions, which is included in the table above as general and administrative expense.following awards:
STOCK OPTION ACTIVITY
A summary of stock option activity under the EIP and OIP as of September 30, 2019, and changes during fiscal 2019 are presented below:
Stock
Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
(in thousands)
Outstanding at September 30, 20181,131,481  $52.68  
Granted148,027  103.23  
Exercised(313,246) 42.12  
Forfeited or canceled(87,238) 67.89  
Outstanding at September 30, 2019879,024  $63.44  6.6$68,363  
Exercisable at September 30, 2019492,218  $50.70  5.5$44,549  
Expected to vest at September 30, 2019386,806  $79.72  8.0$23,783  
The aggregate intrinsic value in the table above represents the total pretax intrinsic value (i.e., for all in-the-money stock options, the difference between our closing stock price per share on the last trading day of fiscal 2019 and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all option holders exercised their options on the last trading day of fiscal 2019.  The total intrinsic value of options exercised was $20,711, $30,345 and $25,213 for fiscal 2019, 2018 and 2017, respectively.
Year Ended September 30,
202020192018
Stock Options$4,406 $4,267 $6,392 
Restricted stock, restricted stock units, and replacement awards8,259 11,400 9,186 
Performance share units1,957 1,279 2,056 
ESPP1,774 1,281 885 

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The total cash received from options exercised was $13,193, $19,247 and $27,666 for fiscal 2019, 2018 and 2017, respectively. The actual tax benefit realized for the tax deductions from options exercised was $4,449, $7,503 and $8,743 for fiscal 2019, 2018 and 2017, respectively.  The total fair value of stock options vested during fiscal years 2019, 2018 and 2017 was $4,506, $5,008 and $5,300, respectively. As of September 30, 2019, there was $7,442 of total unrecognized share-based compensation expense related to unvested stock options granted under the EIP and OIP.  That cost is expected to be recognized over a weighted-average period of 2.1 years.18. EMPLOYEE RETIREMENT PLANS
RESTRICTED STOCK AND RESTRICTED STOCK UNITS
A summary of the status of the restricted stock awards and restricted stock unit awards, including PSUs outstanding that were awarded under the OIP as of September 30, 2019, and changes during fiscal 2019, are presented below:
Restricted Stock
Awards and Units
Weighted Average
Grant Date Fair
Value
Nonvested at September 30, 2018328,147  $70.42  
Granted *152,499  99.41  
Vested(156,900) 69.17  
Forfeited(48,513) 69.42  
Nonvested at September 30, 2019275,233  $87.36  
*Includes PSUs awarded, which may be subject to downward or upward adjustment depending on the performance measures during the particular performance period pursuant to the PSU award agreement.Defined Contribution Plans
The total fair value of restricted stock awards and restricted stock units vested during fiscal years 2019, 2018 and 2017 was $11,060, $6,669 and $6,898, respectively.  As of September 30, 2019, there was $18,824 of total unrecognized share-based compensation expense related to unvested restricted stock awards and restricted stock units, including PSUs, under the OIP.  That cost is expected to be recognized over a weighted-average period of 2.2 years.

17. SAVINGS PLAN

Effective in May 2000, we adopted the Cabot Microelectronics CorporationCompany has 401(k) Plan (the "401(k) Plan"), which is a qualified defined contribution plan,plans covering all eligible heritage Cabot Microelectronics U.S. employees meeting certain minimum age and eligibility requirements, as defined by the 401(k) Plan.  Participants may make elective contributions of up to 60% of their eligible compensation.  All amounts contributed by participants and earnings on these contributions are fully vested at all times.  The 401(k) Plan provides for matching and fixed non-elective contributions by the Company.  Under the 401(k) Plan, the Company will match 100% of the first 4 percent of the participant's eligible compensation and 50% of the next 2 percent of the participant's eligible compensation that is contributed, subject to limitations required by government regulations.  Under the 401(k) Plan, all U.S. employees, even those who do not contribute to the 401(k) Plan, receive a contribution by the Company in an amount equal to four percent of eligible compensation, and thus are participants in the 401(k) Plan.  Participants are 100% vested in all Company contributions at all times.   The Company'sU.S., and the expense for the 401(k) Planplans totaled $6,028,$7,658, $6,698 and $5,562 and $5,256 for the fiscal years ended September 30, 2020, 2019 2018 and 2017,2018, respectively.

KMG has a defined contribution 401(k) plan in which all regular heritage KMG U.S. employees are eligible to participate. KMG makes matching contributions under this plan of up to 4 percent of a participant’s compensation up to the annual regulated maximum amounts. The first 3% of the employee contribution is matched at 100%. The next 2% of the employee contribution is matched at 50%. The KMG expense for the 401(k) Plan totaled $670 for the fiscal year ended September 30, 2019. KMG'sCompany’s United Kingdom and Singapore subsidiaries make contributions to retirement plans that function as defined contribution retirement plans, and theplans. The contributions to those plans were approximately $1,766 and $1,356 for the fiscal yearyears ended September 30, 2019.2020 and 2019, respectively.
Pension Obligations in Foreign Jurisdictions
The Company has defined benefit plans covering employees in Japan, South Korea, and France as required by local law. These plans are unfunded. A summary of these combined plans are:
September 30,
20202019
Projected benefit obligation$11,627 $11,121 
Accumulated benefit obligation8,680 8,314 
Pension cost included in Accumulated other comprehensive income (loss)(764)(1,811)
Weighted average discount rate1.32 %0.73 %
Weighted average rate of increases in future compensation levels3.01 %2.89 %

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18. STOCKHOLDERS' EQUITY
The following is a summaryBenefit costs for the combined plans were $1,403, $1,345 and $1,236 in fiscal years 2020, 2019 and 2018, respectively, consisting primarily of our capital stock activity over the past three years:
Number of Shares
Common
Stock
Treasury
Stock
September 30, 201634,261,304  9,744,642  
Exercise of stock options818,640  
Restricted stock under EIP and OIP, net of forfeitures81,047  
Common stock under ESPP69,751  
Repurchases of common stock under share repurchase plans167,809  
Repurchases of common stock – other35,739  
September 30, 201735,230,742  9,948,190  
Exercise of stock options487,915  
Restricted stock under OIP, net of forfeitures93,817  
Common stock under ESPP49,991  
Repurchases of common stock under share repurchase plans369,791  
Repurchases of common stock – other38,166  
September 30, 201835,862,465  10,356,147  
Shares issued in connection with the Acquisition3,236,865  
Exercise of stock options313,246  
Restricted stock under OIP, net of forfeitures131,072  
Common stock under ESPP48,820  
Repurchases of common stock under share repurchase plans88,403  
Repurchases of common stock – other46,702  
September 30, 201939,592,468  10,491,252  
COMMON STOCK
Each shareservice costs. Net service costs are included in Cost of common stock, including those awarded as restricted stock, but not restricted stock units, entitles the holder to 1 vote onsales and Operating expenses, and all matters submitted to a vote of Cabot Microelectronics' stockholders.  Common stockholdersother costs are entitled to receive ratably the dividends, if any, as may be declared by the Board of Directors.  Holders of restricted stock units awarded as of fiscal 2016 are entitled to dividend equivalents, which are paid to the holder upon the vesting of the restricted stock units.  The number of authorized shares of common stock is 200,000,000 shares.
SHARE REPURCHASES
In January 2016, our Board of Directors authorized an increaserecorded in the amount available underOther income (expense), net in our share repurchase program from $75,000 to $150,000. Under this program, we repurchased 88,403 shares for $10,002 during fiscal 2019, 369,791 shares for $40,726 during fiscal 2018, and 167,809 shares for $12,035 during fiscal 2017. AsConsolidated Statements of September 30, 2019, $71,268 remains available under our share repurchase program.  To date, we have funded share repurchases under our share repurchase program from our existing cash balance, and anticipate we will continue to do so.  The program, which became effective on the authorization date, may be suspended or terminated at any time, at the Company's discretion.  For additional information on share repurchases, see Part II, Item 5, "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" and the section titled "Liquidity and Capital Resources" in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Annual Report of Form 10-K.Income. Estimated future benefit payments are as follows:
Separate from this share repurchase program, a total of 46,702, 38,166 and 35,739 shares were purchased during fiscal 2019, 2018 and 2017, respectively, pursuant to the terms of our OIP as shares withheld from award recipients to cover payroll taxes on the vesting of shares of restricted stock granted under the OIP.
Fiscal YearAmount
2021$519 
2022542 
2023641 
2024661 
20251,209 
2026 to 20305,172 

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19. INCOME TAXES
Income before income taxes was as follows:
Year Ended September 30, 2019Year Ended September 30,
201920182017202020192018
DomesticDomestic$(45,364) $46,254  $33,272  Domestic$94,002 $(45,364)$46,254 
ForeignForeign108,470  115,457  76,100  Foreign79,345 108,470 115,457 
TotalTotal$63,106  $161,711  $109,372  Total$173,347 $63,106 $161,711 
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Taxes on income consisted of the following:
Year Ended September 30, 2019Year Ended September 30,
201920182017202020192018
U.S. federal and state:U.S. federal and state:U.S. federal and state:
CurrentCurrent$23,461  $14,698  $8,606  Current$20,733 $23,461 $14,698 
DeferredDeferred(23,182) 10,347  1,550  Deferred(7,048)(23,182)10,347 
TotalTotal$279  $25,045  $10,156  Total13,685 279 25,045 
Foreign:Foreign:Foreign:
CurrentCurrent$27,580  $26,135  $13,422  Current21,053 27,580 26,135 
DeferredDeferred(3,968) 488  (1,158) Deferred(4,219)(3,968)488 
TotalTotal23,612  26,623  12,264  Total16,834 23,612 26,623 
Total U.S. and foreignTotal U.S. and foreign$23,891  $51,668  $22,420  Total U.S. and foreign$30,519 $23,891 $51,668 
The Provision for income taxes at our effective tax rate differed from the statutory rate as follows:
Year Ended September 30, 2019Year Ended September 30,
201920182017202020192018
Federal statutory rateFederal statutory rate21.0 %24.5 %35.0 %Federal statutory rate21.0 %21.0 %24.5 %
U.S. benefits from research and experimentation activitiesU.S. benefits from research and experimentation activities(2.4) (0.8) (1.0) U.S. benefits from research and experimentation activities(1.5)(2.9)(0.8)
State taxes, net of federal effectState taxes, net of federal effect(4.7) 0.1  0.4  State taxes, net of federal effect1.1 (4.7)0.1 
Foreign income at other than U.S. ratesForeign income at other than U.S. rates10.3  1.2  (14.7) Foreign income at other than U.S. rates1.7 10.3 1.2 
Excess compensationExcess compensation6.4  0.4  0.3  Excess compensation0.4 6.4 0.4 
Share-based compensationShare-based compensation(7.2) (4.3) 0.1  Share-based compensation(2.2)(7.2)(4.3)
U.S. tax reformU.S. tax reform14.1  11.2  0.0  U.S. tax reform14.1 11.2 
Global Intangible Low Taxed Income3.1  —  —  
Foreign Derived Intangible Income(3.9) —  —  
Global Intangible Low Taxed Income ("GILTI")Global Intangible Low Taxed Income ("GILTI")3.1 
Foreign derived intangible incomeForeign derived intangible income(3.4)(3.9)
Change in reserve positionsChange in reserve positions1.9 0.3 (0.5)
Other, netOther, net1.2  (0.3) 0.4  Other, net(1.4)1.4 0.2 
Provision for income taxesProvision for income taxes37.9 %32.0 %20.5 %Provision for income taxes17.6 %37.9 %32.0 %

The Tax Act created new rules that allowdecrease in the Companyeffective tax rate during fiscal 2020 was primarily attributable to make an accounting policy election to treat taxes due on GILTI inclusionsthe absence of a discrete charge recorded in taxable income as either a current period expense or reflect such inclusionsfiscal 2019 related to temporary basis differences in the Company’s measurement of deferred taxes. The GILTI provision offinal regulations issued under the Tax Act became effective for Cabot for the year ended September 30, 2019 and the Company has electedabsence of unfavorable tax treatment of certain non-deductible costs related to treatthe Acquisition. Additionally, the tax rate was favorably impacted by the final tax regulations issued in July 2020, which provided for a high-tax exception for those jurisdictions subject to the GILTI inclusion as a current period expense. Additionally,tax, for which the Tax Act allows a domestic corporation an immediate deduction in U.S. taxable income for a portion of its Foreign Derived Intangible Income (FDII).
Company qualified.
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The increase in the effective tax rate during fiscal 2019 was primarily due to increased tax expense related to newly issuedthe final regulations related to the Tax Act, which impacted our reserves for uncertain tax positions, and also the unfavorable tax treatment of certain Acquisition-related costs, including compensation deduction limitations, and non-deductibility of certain professional fees.costs. Partially offsetting these adverse items, the Tax Act reduced the corporate income tax rate to 21.0% effective January 1, 2018, resulting in a change in our blended tax rate of 24.5% in fiscal 2018 to 21.0% beginning with our fiscal 2019.

The significant increase in our effective tax rate for fiscal 2018 was primarily driven by the changes introduced by the Tax Act in December 2017, which includes the deemed repatriation tax (transition tax). The Company made the decision to take the dividends received deduction (DRD) on its fiscal 2018 tax return and accordingly reflected a section 245A DRD with respect to the section 78 gross-up in its transition tax calculation. Other factors that impacted the Company’s effective tax rate for fiscal 2018 were primarily related to benefits in excess of compensation cost from share-based compensation recorded in the Consolidated Statements of Income (as opposed to equity prior to October 2017) and the absence of benefits of a tax holiday in South Korea that expired as of October 2017.

The accounting guidance regarding uncertainty in income taxes prescribes a threshold for the financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return. Under these standards, we may recognize the tax benefit of an uncertain tax position only if it is more likely than not that the tax position will be sustained by the taxing authorities, based on the technical merits of the position.
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The following table presents the changes in the balance of gross unrecognized tax benefits during the last three fiscal years:

Balance September 30, 20162017$2,089 
Additions for tax positions relating to the current fiscal year381 
Additions for tax positions relating to prior fiscal years44 
Lapse of statute of limitations(244)
Balance September 30, 20172,270 
Additions for tax positions relating to the current fiscal year263 
Additions for tax positions relating to prior fiscal years116 
Lapse of statute of limitations(1,215)
Balance September 30, 20181,434 
Additions for tax positions relating to the current fiscal year271 
Additions for tax positions relating to prior fiscal years9,839 
Balance September 30, 201911,544 
Additions for tax positions relating to the current fiscal year4,691 
Additions for tax positions relating to prior fiscal years140 
Reduction for tax positions relating to prior fiscal years(1,337)
Balance September 30, 2020$11,54415,038 
The entire balance of unrecognized tax benefits shown above as of September 30, 20192020 and 2018,2019, would affect our effective tax rate if recognized.  We recognize interest and penalties related to uncertain tax positions as income tax expense in our financial statements. Additions for tax positions relating to priorof $4,691 recorded in the current fiscal years of $9,839 in fiscal 2019year are mainly due to newly issued regulationsliabilities related to the Tax Act, which impacted the Company's reserves for uncertain tax positions.mix of jurisdictional earnings from intercompany transactions. Interest accrued on our Consolidated Balance Sheets was $281$233 and $69$281 at September 30, 20192020 and 2018,2019, respectively, and any interest and penalties charged to expense in fiscal years 2020, 2019 2018 and 20172018 was immaterial.
At September 30, 2019,2020, the tax periods open to examination by the U.S. federal, state and local governments include fiscal years 20152013 through 2019,2020, and the tax periods open to examination by foreign jurisdictions include fiscal years 20142015 through 2019.2020. We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.
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Significant components of net deferred tax assets and liabilities were as follows:
September 30,
20192018
Deferred tax assets:
Employee benefits$5,719  $3,995  
Inventory3,811  3,026  
Accrued expenses4,202  839  
Share-based compensation expense5,215  5,379  
Credit and other carryforwards9,743  6,419  
Interest rate swap5,412  —  
Other1,088  358  
Valuation allowance(2,574) (133) 
Total deferred tax assets$32,616  $19,883  
Deferred tax liabilities:
Depreciation and amortization$140,092  $8,007  
Withholding on foreign income6,026  5,209  
Other1,926  908  
Total deferred tax liabilities$148,044  $14,124  

September 30,
20202019
Deferred tax assets:
Employee benefits$8,920 $5,719 
Inventory4,657 3,811 
Accrued expenses2,615 4,202 
Share-based compensation expense5,709 5,215 
Credit and other carryforwards5,803 9,743 
Interest rate swap8,506 5,412 
Other1,238 1,088 
Valuation allowance(2,948)(2,574)
Total deferred tax assets$34,500 $32,616 
Deferred tax liabilities:
Depreciation and amortization$131,237 $140,092 
Withholding on transition taxes4,156 6,026 
Other3,606 1,926 
Total deferred tax liabilities$138,999 $148,044 
As of September 30, 2019,2020, the Company had foreign and domestic net operating loss carryforwards (“NOLs”) of $13,465,$11,025, which will expire over the period between fiscal year 20202021 and fiscal year 2039.2040. We have recorded a tax-effected valuation allowance of $2,565$2,948 against the deferred tax assets related to certain foreign and U.S. federal and state NOLs, as well as on certain federal tax credit carryforwards.  As of September 30, 2019,2020, the Company had a U.S. federal and state tax credit carryforward of $2,396,$1,131, which will expire beginning in fiscal years 2021 through 2039.2030.
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Prior to enactment of the Tax Act, the Company did not record income tax expense for the undistributed earnings of its international subsidiaries. As a result of the Tax Act, the Company no longer intends to maintain the indefinite reinvestment assertion.

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20. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS AND OTHER CONTINGENCIES
We periodically become a party to legal proceedings, arbitrations, and regulatory proceedings, inquiries and investigations (“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, Inc.’s (“KMG-Bernuth”), in Tuscaloosa, Alabama, which processes pentapentachlorophenol (“penta”) for sale to customers in the United StatesU.S. 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 havehad 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 have applied these criteriarecorded expense of $1,551 and recorded an undiscounted amount of $9,494 loss contingency regarding disposal costs that can be reasonably estimated at this time.for the years ending September 30, 2020 and 2019, respectively. These disposal costs were charged to Cost of sales. ThereAlthough 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 materials in the warehouse or otherwise impacted by the incident. The fire waste cleanup and disposal costs have been and may continue to be significantincident due to the nature of federally-regulated penta-related requirements. We incurred significant fire waste cleanup and disposal requirements.costs and certain other costs related to the assessment of the impacted warehouse material due to these requirements, and we may incur additional costs related to the fire incident. We willintend 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 atrelated to the fire incident. We received $468 of insurance recovery during the twelve months ended September 30, 2020 which was recorded in Cost of sales. At this point we cannot reasonably estimate whether we will receive any additional insurance recoveries, or if so, the amount of any potential insurancesuch recoveries. As such, no additional insurance recoveries have been recognized as of September 30, 2019.

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 seven7 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 September 30, 2019,2020, the reserve remaining was $728.

$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.
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In addition, our Company is subject to extensive federal, state and local laws, regulations and ordinances in the U.S. 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 U.S., 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 StatesU.S. 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.U.S. 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. The Company records legal costs associated with loss contingencies as expenses in the period in which they are incurred.

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 September 30, 2019,2020, 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.
LEASE COMMITMENTS
We lease certain vehicles, warehouse facilities, office space, machinery and equipment under cancelable and noncancelable leases, most of which expire in five years and may be renewed by us.  Rent expense under such arrangements during fiscal 2019, 2018 and 2017 totaled $7,975, $4,307 and $3,120, respectively.
Future minimum rental commitments under noncancelable leases as of September 30, 2019 are as follows:
Fiscal YearAmount
2020$6,984  
20214,941  
20224,291  
20234,122  
20243,710  
Thereafter12,010  
$36,058  
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 2019.2022. As of September 30, 2019,2020, purchase obligations include $5,897$22,932 of contractual commitments related to this agreement. In addition, we have a purchase commitment of $9.7 million$5,631 to purchase non-water-basednon-water based carrier fluid, and have another purchase contract to purchase $4.1 million of abrasive particles.

fluid.

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POSTRETIREMENT OBLIGATIONS IN FOREIGN JURISDICTIONS
We have defined benefit plans covering employees in certain foreign jurisdictions as required by local law. 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.
Our unfunded plans in Japan, which represent the majority of our pension liability for such plans, had projected benefit obligations of $7,175 and $6,621 as of September 30, 2019 and 2018, respectively, and an accumulated benefit obligation of $5,704 and $5,234 as of September 30, 2019 and 2018, respectively.  Key assumptions used in the actuarial measurement of the Japan pension liability include a weighted average discount rate of 0.25% and 0.50% at September 30, 2019 and 2018, respectively, and an expected rate of compensation increase of 2.50% at September 30, 2019 and 2018, respectively. Total future Japan pension costs included in Accumulated other comprehensive (loss) income are $(1,894) and $(1,735) at September 30, 2019 and 2018, respectively.
Our unfunded plans in South Korea had projected benefit obligations of $2,182 and $1,731 as of September 30, 2019 and 2018 and an accumulated benefit obligation of $1,264 and $1,064 as of September 30, 2019 and 2018, respectively. Key assumptions used in the actuarial measurement of the Korea pension liability include weighted average discount rates of 2.50% and 3.75% at September 30, 2019 and 2018, respectively, and an expected rate of compensation increase of 4.50% at September 30, 2019 and 2018.  Total future Korea pension costs included in Accumulated other comprehensive (loss) income are $(457) and $(133) at September 30, 2019 and 2018, respectively.
Our benefit plan for KMG employees in France had a projected benefit obligation of $1,764 as of September 30, 2019 and an accumulated benefit obligation of $1,346 as of September 30, 2019.  Key assumptions used in the actuarial measurement of the France pension liability include a weighted average discount rate of 0.50% at September 30, 2019 and an expected rate of compensation increase of 2.50%, and an expected rate of return on plan assets of 2.15% at September 30, 2019. Total future France pension costs included in Accumulated other comprehensive (loss) income is not material at September 30, 2019.
Benefit costs for the combined plans were $1,345, $1,236 and $1,176 in fiscal years 2019, 2018 and 2017, respectively, consisting primarily of service costs, and were recorded as fringe benefit expense under Cost of sales and Operating expenses in our Consolidated Statements of Income. Estimated future benefit payments are as follows:
Fiscal YearAmount
2020$662  
2021481  
2022498  
2023621  
2024663  
2025 to 20294,947  

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21. EARNINGS PER SHARE
Basic and diluted earnings per share (EPS) iswere 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”.follows:
Year Ended September 30,
202020192018
Numerator:
Net income available to common shares$142,828 $39,215 $110,043 
Less: income attributable to participating securities1
(123)
Net income available to common stockholders$142,828 $39,215 $109,920 
Denominator:
Weighted average common shares29,136 28,571 25,518 
Weighted average effect of dilutive securities444 523 725 
Diluted weighted average common shares29,580 29,094 26,243 
Earnings per share:
Basic$4.90 $1.37 $4.31 
Diluted$4.83 $1.35 $4.19 
1 Beginning in the first quarter of fiscal 2019, the amount of participating securities was no longer material and therefore, we have excluded such securities from our calculation of EPS in fiscal 2019. Diluted EPS 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 numeratorin fiscal 2020 and denominator of the basic and Diluted earnings per share computations.  Basic and Diluted earnings per share were calculated as follows:2019.
Year Ended September 30,
201920182017
Numerator:
Net income$39,215  $110,043  $86,952  
Less: income attributable to participating securities—  (123) (256) 
Net income available to common stockholders$39,215  $109,920  $86,696  
Denominator:
Weighted-average common shares28,571,052  25,517,825  25,015,458  
(Denominator for basic calculation)
Weighted-average effect of dilutive securities:
Share-based compensation522,975  725,339  497,029  
Diluted weighted-average common shares29,094,027  26,243,164  25,512,487  
(Denominator for diluted calculation)
Earnings per share:
Basic$1.37  $4.31  $3.47  
Diluted$1.35  $4.19  $3.40  
For the year ended September 30, 2019, 2018, and 2017, approximately 0.2 million, 0.1 million and 0.4 million shares, respectively, attributable to outstanding stock options wereShares excluded from the calculation of Diluted earnings per share.share as their inclusion would have been anti-dilutive were as follows:
Year Ended September 30,
202020192018
Outstanding stock options102 196 100 

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22. 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 hadHistorically, we operated predominantly in 1 industry segment – the development, manufacture and sale of Chemical Mechanical Planarization (CMP)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 manufactureindustry and sell CMP consumables, includingconsists of our CMP slurries business, CMP pads business, and polishing pads, and high-purity processelectronic chemicals used to etch and clean silicon wafers in the production of semiconductors, photovoltaics (solar cells) and flat panel displays.business.
Performance Materials

Performance Materials includes pipeline performance products and services,consists of our PIM business, wood treatment products,business, and products and equipment used in the precision optics industry.QED business.
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Beginning in fiscal 2019 and with the Acquisition, 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, andthe impact of fair value adjustments to inventory acquired from KMG, and certain costs related to the KMG-Bernuth warehouse fire, net of insurance recovery, asset impairment charges and net restructuring charges related to the wood treatment reporting unit.business 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 20192020 Short-Term Incentive Program (STIP).Program. In addition, our chief operating decision maker does not use assets by segment to evaluate performance or allocate resources. Therefore,resources, and therefore, we do not disclose assets by segment.
Revenue from external customers by segment and are as follows:
Year Ended September 30,
201920182017
Segment Revenue
Electronic Materials$833,051  $559,944  $485,034  
Performance Materials204,645  30,179  22,145  
Total$1,037,696  $590,123  $507,179  

Capital expenditures by segment are as follows:
Year Ended September 30,
201920182017
Capital Expenditures
Electronic Materials$40,166  $18,668  $19,325  
Performance Materials16,367  409  414  
Corporate5,663  3,918  1,917  
Total$62,196  $22,995  $21,656  





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Adjusted EBITDA by segment are as follows:
Year Ended September 30,
201920182017
Segment adjusted EBITDA:
  Electronic Materials$294,902  $222,019  $169,044  
  Performance Materials91,372  7,191  2,516  
  Unallocated corporate expenses(52,856) (39,266) (34,050) 
  Interest expense(45,681) (2,905) (4,529) 
  Interest income2,346  4,409  2,351  
  Depreciation and amortization(98,592) (25,876) (25,960) 
  Acquisition and integration related expenses(34,709) (3,861) —  
  Charge for fair value write-up of acquired inventory sold(14,869) —  —  
  Costs related to KMG-Bernuth warehouse fire (See Note 20)(9,905) —  —  
  Costs related to restructuring of wood treatment(1,530) —  —  
  Charges related to asset impairment of wood treatment(67,372) —  —  
Income before income taxes$63,106  $161,711  $109,372  

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 the two segments operate independently and serve different markets and customers, as a result there are no sales between segments.  Revenue from external customers and segment adjusted EBITDA shown for Performance Materials for the year ended September 30, 2018 and 2017 include Cabot Microelectronics’ heritage QEDthe precision optics business. The adjustments toRevenue from external customers by segment are as follows:
Year Ended September 30,
202020192018
Segment Revenue:
Electronic Materials:
CMP Slurries$480,617 $460,053 $476,828 
Electronic Chemicals316,253 278,413 
CMP Pads85,954 94,585 83,117 
Total Electronic Materials882,824 833,051 559,945 
Performance Materials:
PIM141,503 140,553 
Wood Treatment62,655 31,898 
QED29,288 32,194 30,178 
Total Performance Materials233,446 204,645 30,178 
Total$1,116,270 $1,037,696 $590,123 
Capital expenditures by segment are as follows:
Year Ended September 30,
202020192018
Capital Expenditures:
Electronic Materials$26,536 $40,166 $18,668 
Performance Materials84,634 16,367 409 
Corporate11,344 5,663 3,918 
Total$122,514 $62,196 $22,995 
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Adjusted EBITDA for the year ended September 30, 2019 represent addbacks of the 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, costs related to KMG-Bernuth warehouse fire, and restructuring and asset impairment charges related to wood treatment business.  The adjustments toby segment EBITDA for the year ended September 30, 2018 represent addbacks of Acquisition and integration related expenses. There were no adjustments to segment EBITDA for the year ended September 30, 2017. is as follows:
Year Ended September 30,
202020192018
Net income$142,828 $39,215 $110,043 
Interest expense42,510 45,681 2,905 
Interest income(670)(2,346)(4,409)
Income taxes30,519 23,891 51,668 
Depreciation and amortization127,737 98,592 25,876 
EBITDA342,924 205,033 186,083 
Acquisition and integration-related expense10,852 34,709 3,861 
Charges related to asset impairment of wood treatment business2,314 67,372 
Costs related to KMG-Bernuth warehouse fire, net of insurance recovery1,083 9,905 
Costs related to the Pandemic, net of grants received849 
Charge for fair value write-up of acquired inventory sold14,869 
Net costs related to restructuring of the wood treatment business(221)1,530 
Consolidated adjusted EBITDA$357,801 $333,418 $189,944 
Segment adjusted EBITDA:
Electronic Materials$299,037 $294,902 $222,019 
Performance Materials106,797 91,372 7,191 
Unallocated corporate expenses(48,033)(52,856)(39,266)
Consolidated adjusted EBITDA$357,801 $333,418 $189,944 
The unallocated portions of corporate functions, including finance, legal, human resources, information technology, and corporate development, are not directly attributable to a reportable segment.

23. FINANCIAL INFORMATION BY INDUSTRY SEGMENT, GEOGRAPHIC AREA AND PRODUCT LINE
We operate predominantly in 2 reportable segments - the Performance Materials and Electronic Materials.  Revenues are attributed to the United StatesU.S. and foreign regions based upon the customer location and not the geographic location from which our products were shipped.  Financial information by geographic area was as follows:
Year Ended September 30,Year Ended September 30,
201920182017202020192018
Revenue:Revenue:Revenue:
North AmericaNorth America$372,247  $79,019  $72,670  North America$399,993 $372,247 $79,019 
AsiaAsia515,833  471,215  394,874  Asia546,866 515,833 471,215 
Europe, Middle East, and AfricaEurope, Middle East, and Africa149,305  39,889  39,635  Europe, Middle East, and Africa169,099 149,305 39,889 
South AmericaSouth America311  —  —  South America312 311 
TotalTotal$1,037,696  $590,123  $507,179  Total$1,116,270 $1,037,696 $590,123 
Property, plant and equipment, net:
Property, plant and equipment, net1:
Property, plant and equipment, net1:
North AmericaNorth America$133,682  $60,818  $52,155  North America$250,895 $133,682 $60,818 
AsiaAsia68,823  50,573  54,201  Asia66,872 68,823 50,573 
EuropeEurope74,313  12   Europe44,300 74,313 12 
TotalTotal$276,818  $111,403  $106,361  Total$362,067 $276,818 $111,403 
1 No individual countries other than the U.S. have material Property, plant and equipment
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The following table shows revenue from sales to customers in foreign countries that accounted for more than ten percent of our total revenue in fiscal 2020, 2019 2018 and 2017:2018:
Year Ended September 30,Year Ended September 30,
201920182017202020192018
Revenue:Revenue:Revenue:
South KoreaSouth Korea$135,844  $136,403  $95,414  South Korea$127,972 $135,844 $136,403 
TaiwanTaiwan125,895  130,500  130,849  Taiwan133,059 125,895 130,500 
ChinaChina 97,254  74,781  China113,570 *97,254 
* Not a country with more than 10% revenue.
The following table shows revenue generated by product group in fiscal 2019, 2018 and 2017:
78
Year Ended September 30,
201920182017
Revenue:
Electronic Materials
Slurries$460,053  $476,828  $416,361  
Electronic Chemicals278,413  —  —  
CMP Pads94,585  83,117  68,673  
Total Electronic Materials833,051  559,945  485,034  
Performance Materials
Pipeline140,553  —  —  
Wood Treatment31,898  —  —  
Precision Optics and other32,194  30,178  22,145  
Total Performance Materials$204,645  $30,178  $22,145  
Total Revenue$1,037,696  $590,123  $507,179  



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SELECTED QUARTERLY OPERATING RESULTS
The following table presents our unaudited financial information for the eight quarterly periods ended September 30, 2019.  This unaudited financial information has been prepared in accordance with accounting principles generally accepted in the United States of America, applied on a basis consistent with the annual audited financial statements and in the opinion of management, include all necessary adjustments, which consist only of normal recurring adjustments necessary to present fairly the financial results for the periods.  The results for any quarter are not necessarily indicative of results for any future period.
CABOT MICROELECTRONICS CORPORATION
SELECTED QUARTERLY OPERATING RESULTS
The following table presents our unaudited financial information for the eight quarterly periods ended September 30, 2020.  This unaudited financial information has been prepared in accordance with accounting principles generally accepted in the United States of America, applied on a basis consistent with the annual audited financial statements and in the opinion of management, include all necessary adjustments, which consist only of normal recurring adjustments necessary to present fairly the financial results for the periods.  The results for any quarter are not necessarily indicative of results for any future period.

SELECTED QUARTERLY OPERATING RESULTS
(Unaudited and in thousands, except per share amounts)
Sept. 30,
2019
June 30,
2019
March 31,
2019
Dec. 31,
2018
Sept. 30,
2018
June 30,
2018
March 31,
2018
Dec. 31,
2017
Revenue$278,645  $271,882  $265,391  $221,778  $156,729  $150,437  $142,978  $139,979  
Cost of sales165,535  156,492  150,571  122,445  72,383  69,737  67,933  65,965  
Gross profit113,110  115,390  114,820  99,333  84,346  80,700  75,045  74,014  
Operating expenses:
Research, development and technical12,698  12,191  12,778  14,040  13,372  13,059  13,368  12,151  
Selling, general and administrative50,663  50,959  50,328  61,128  26,986  25,711  24,589  24,751  
Asset Impairment Expenses67,372  —  —  —  —  —  —  —  
Total operating expenses130,733  63,150  63,106  75,168  40,358  38,770  37,957  36,902  
Operating income(17,623) 52,240  51,714  24,165  43,988  41,930  37,088  37,112  
Interest expense12,703  12,757  13,331  6,890  102  513  1,158  1,132  
Interest income342  417  568  1,019  1,161  1,141  1,156  951  
Other income (expense), net(1,158) (472) (1,014) (1,411) (24) 486  (94) (279) 
Income before income taxes(31,142) 39,428  37,937  16,883  45,023  43,044  36,992  36,652  
Provision for income taxes(10,899) 20,550  10,800  3,440  (3,195) 7,873  7,255  39,735  
Net income (loss)$(20,243) $18,878  $27,137  $13,443  $48,218  $35,171  $29,737  $(3,083) 
Basic earnings (loss) per share$(0.70) $0.65  $0.94  $0.50  $1.89  $1.37  $1.16  $(0.12) 
Weighted average basic shares outstanding29,084  29,064  28,998  27,157  25,520  25,612  25,593  25,326  
Diluted earnings (loss) per share$(0.70) $0.64  $0.92  $0.48  $1.84  $1.34  $1.14  $(0.12) 
Weighted average diluted shares outstanding29,084  29,568  29,479  27,762  26,213  26,319  26,161  25,326  
September 30, 2020June 30,
2020
March 31,
2020
Dec. 31,
2019
September 30, 2019June 30,
2019
March 31,
2019
Dec. 31,
2018
Revenue$274,207 $274,727 $284,193 $283,143 $278,645 $271,882 $265,391 $221,778 
Cost of sales157,144 152,973 163,091 154,461 165,535 156,492 150,571 122,445 
Gross profit117,063 121,754 121,102 128,682 113,110 115,390 114,820 99,333 
Operating income (loss)46,068 57,742 51,663 61,432 (17,623)52,240 51,714 24,165 
Net income (loss)$36,855 $34,525 $32,899 $38,549 $(20,243)$18,878 $27,137 $13,443 
Basic earnings (loss) per share1
$1.27 $1.19 $1.12 $1.32 $(0.70)$0.65 $0.94 $0.50 
Diluted earnings (loss) per share1
$1.25 $1.17 $1.11 $1.30 $(0.70)$0.64 $0.92 $0.48 
1The total of the individual quarters may not equal full year results as quarterly per share information is calculated using the quarterly weighted average shares.

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SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
The following table sets forth activities in our allowance for doubtful accounts:
Allowance For Doubtful AccountsAllowance For Doubtful AccountsBalance At
Beginning of
Year
Amounts
Charged To
Expenses
Deductions
and
Adjustments
Balance At
End
of Year
Allowance For Doubtful AccountsBalance At
Beginning of
Year
Amount of Charge
(Benefit) To
Expenses
Deductions
and
Adjustments
Balance At
End
of Year
Year ended:Year ended:Year ended:
September 30, 2020September 30, 2020$2,377 $(1,122)$(672)$583 
September 30, 2019September 30, 2019$1,900  $432  $45  $2,377  September 30, 20191,900 432 45 2,377 
September 30, 2018September 30, 20181,747  185  (32) 1,900  September 30, 20181,747 185 (32)1,900 
September 30, 20171,828  26  (107) 1,747  
We have provided a valuation allowance on certain deferred tax assets. The following table sets forth activities in our valuation allowance:
Valuation AllowanceValuation AllowanceBalance At
Beginning
of Year
Amounts
Charged To
Expenses
Deductions
and
Adjustments
Balance At
End
of Year
Valuation AllowanceBalance At
Beginning
of Year
Amounts
Charged To
Expenses
Deductions
and
Adjustments
Balance At
End
of Year
Year ended:Year ended:Year ended:
September 30, 2020September 30, 2020$2,565 $658 $(275)$2,948 
September 30, 2019September 30, 2019$133  $2,432  $—  $2,565  September 30, 2019133 2,432 2,565 
September 30, 2018September 30, 20182,271  —  (2,138) 133  September 30, 20182,271 (2,138)133 
September 30, 20173,022  —  (751) 2,271  

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MANAGEMENT RESPONSIBILITY

The accompanying consolidated financial statements were prepared by the Company in conformity with accounting principles generally accepted in the United States of America. The Company's management is responsible for the integrity of these statements and of the underlying data, estimates and judgments.

The Company's management establishes and maintains a system of internal accounting controls designed to provide reasonable assurance that its assets are safeguarded from loss or unauthorized use, transactions are properly authorized and recorded, and that financial records can be relied upon for the preparation of the consolidated financial statements. This system includes written policies and procedures, a code of business conduct and an organizational structure that provides for appropriate division of responsibility and the training of personnel. This system is monitored and evaluated on an ongoing basis by management in conjunction with its internal audit function.

The Company's management assesses the effectiveness of its internal control over financial reporting on an annual basis. In making this assessment, management uses the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013). Management acknowledges, however, that all internal control systems, no matter how well designed, have inherent limitations and can provide only reasonable assurance with respect to financial statement preparation and presentation. In addition, the Company's independent registered public accounting firm evaluates the Company's internal control over financial reporting and performs such tests and other procedures as it deems necessary to reach and express an opinion on the fairness of the financial statements.

In addition, the Audit Committee of the Board of Directors provides general oversight responsibility for the financial statements. Composed entirely of Directors who are independent and not employees of the Company, the Committee meets periodically with the Company's management, internal auditors and the independent registered public accounting firm to review the quality of financial reporting and internal controls, as well as results of auditing efforts. The internal auditors and independent registered public accounting firm have full and direct access to the Audit Committee, with and without management present.
/s/ David H. Li
David H. Li
Chief Executive Officer
/s/ Scott D. Beamer
Scott D. Beamer
Chief Financial Officer
/s/ Thomas S. RomanJeanette A. Press
Thomas S. RomanJeanette A. Press
Principal Accounting Officer
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

ITEM 9A. 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 evaluatedconducted 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(the “Exchange Act")), as of September 30, 2019.2020.  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.

While we believe the present design of our disclosure controls and procedures is effective enough to make known to our senior management in a timely fashion all material information concerning our business, we intend to continue to improve the design and effectiveness of our disclosure controls and procedures to the extent necessary in the future to provide our senior management with timely access to such material information, and to correct any deficiencies that we may discover in the future, as appropriate.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is defined in Rule 13a-15(f) or Rule 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company's CEO and CFO, or person’s performing similar functions, and effected by the Company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Internal control over financial reporting includes policies and procedures that: pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of the Company's assets; provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles; provide reasonable assurance that receipts and expenditures of Company assets are made in accordance with management authorization; and provide reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based upon SEC staff guidance, management has excluded KMG from the scope of our assessment of internal control over financial reporting, as of September 30, 2019 because it was acquired by the Company in a purchase business combination during fiscal 2019. As of September 30, 2019 and for the period from Acquisition through September 30, 2019, total assets and total revenue of KMG represented 14.0% and 43.5%, respectively, of the Company’s consolidated total assets and total revenues, as of and for the year ended September 30, 2019.

Our management evaluated the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, our management concluded that the Company's internal control over financial reporting was effective as of September 30, 2019.2020.  The effectiveness of the Company's internal control over financial reporting as of September 30, 20192020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears under Item 8 of this Annual Report on Form 10-K.


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CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, ourthe Company's internal control over financial reporting.
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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.

ITEM 9B. OTHER INFORMATION
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by Item 10 of Form 10-K with respect to identification of directors, the existence of a separately-designated standing audit committee, identification of members of such committee, and identification of an audit committee financial expert, is incorporated by reference from the information contained in the sections captioned "Election of Directors" and "Board Structure and Compensation" in our definitive Proxy Statement for the Annual Meeting of Stockholders to be held March 4,3, 2020 (the "Proxy Statement"). In addition, for information with respect to the executive officers of our Company, see "Information about our Executive Officers" in Part I of this Annual Report on Form 10-K and the section captioned "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement. Information required by Item 405 of Regulation S-K is incorporated by reference from the information contained in the section captioned "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement.

We have adopted a code of business conduct for all of our employees and directors, including our principal executive officer, other executive officers, principal financial officer and senior financial personnel. A copy of our code of business conduct is available free of charge on our Company website at www.cabotcmp.com.www.cmcmaterials.com. We intend to post on our website any material changes to, or waivers from, our code of business conduct, if any, within two days of any such event.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 of Form 10-K is incorporated by reference from the information contained in the section captioned "Executive Compensation" in the Proxy Statement.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
EQUITY COMPENSATION PLAN INFORMATION
Shown below is information as of September 30, 2019, with respect to the shares of common stock that may be issued under Cabot Microelectronics' existing equity compensation plans.
Plan category(a) Number of securities to be
issued upon exercise of
outstanding options, warrants
and rights
(b) Weighted-average exercise
price of outstanding options,
warrants and rights
(c) Number of securities
remaining available for future
issuance under equity
compensation plans (excluding
securities reflected in column (a))
Equity compensation plans approved by security holders (1)1,153,321  (2) $63.44  (2) 2,391,804  (3) 
Equity compensation plans not approved by security holders
Total1,153,321  (2) $63.44  (2) 2,391,804  (3) 
(1)Equity Compensation plans consist of our Second Amended and Restated Cabot Microelectronics Corporation 2000 Equity Incentive Plan (EIP), as amended and restated September 23, 2008, our Cabot Microelectronics Corporation 2012 Omnibus Incentive Plan, as amended effective March 7, 2017 (OIP), and our Cabot Microelectronics Corporation 2007 Employee Stock Purchase Plan, as Amended and Restated September 23, 2013 (ESPP).  As of March 6, 2012, all securities available for future issuance under the EIP were transferred to the OIP and since then the EIP no longer has been available for any future awards.  All share amounts in the above table reflect the effect of our 2012 leveraged recapitalization with a special cash dividend.  See Note 16 of "Notes to the Consolidated Financial Statements" of this Annual Report on Form 10-K for more information regarding our equity compensation plans.
(2)Column (a) includes 215,215 shares that employees and non-employee directors have the right to acquire upon the vesting of the equivalent restricted stock units that they have been awarded under our equity incentive plans, and 59,082 initial granted shares that certain employees have the right to acquire upon the vesting of the performance-based restricted stock units that they have been awarded under our equity incentive plans, which may be subject to downward or upward adjustment depending on the performance measures during the particular performance period pursuant to the PSU award agreement.  Column (b) excludes all of these from the weighted-average exercise price.
(3)Column (c) includes 336,684 shares available for future issuance under the ESPP.

The other information required by Item 12 of Form 10-K is incorporated by reference from the information contained in the sectionsections captioned "Stock Ownership" and “Equity Compensation Plan Information for the year ended September 30, 2020” in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information required by Item 13 of Form 10-K is incorporated by reference from the information contained in the section captioned "Certain Relationships and Related Transactions" in the Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by Item 14 of Form 10-K is incorporated by reference from the information contained in the section captioned "Fees of Independent Auditors and Audit Committee Report" in the Proxy Statement.

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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following Financial Statements and Financial Statement Schedule are included in Item 8 herein:
1.Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income for the years ended September 30, 2020, 2019 2018 and 20172018
Consolidated Statements of Comprehensive Income for the years ended September 30, 2020, 2019 2018 and 20172018
Consolidated Balance Sheets at September 30, 20192020 and 20182019
Consolidated Statements of Cash Flows for the years ended September 30, 2020, 2019 2018 and 20172018
Consolidated Statements of Changes in Stockholders' Equity for the years ended September 30, 2020, 2019 2018 and 20172018
Notes to the Consolidated Financial Statements
2.Financial Statement Schedule: Schedule II – Valuation and Qualifying Accounts for the years ended September 30, 2020, 2019 2018 and 20172018
3.Exhibits - The following exhibits are filed as part of, or incorporated by reference into, this Report on Form 10-K:

ITEM 16. FORM 10-K SUMMARY
None.


Filed as an exhibit to, and incorporated by reference from
Exhibit No.DescriptionFormFile No.Filing Date
2.18-K000-30205September 28, 2015
2.28-K000-30205August 17, 2018
3.28-K000-30205March 6, 2017October 1, 2020
3.3S-18-K333-95093000-30205March 27, 2000October 1, 2020
4.1S-1333-95093April 3, 2000
4.2
10.1
10.210-K000-30205November 25, 2008
10.210.3
10.410-Q000-30205May 9, 2011
10.4 10-Q000-30205February 8, 20112013
10.15 10.510-K000-30205November 20, 2013
10.22 10-Q000-30205February 8, 201025, 2008
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INDEX
10.23 10-K000-30205November 25, 2008
10.28 10-K000-30205November 25, 2008
10.30 10-Q000-30205February 8, 2013
10.33 10-K000-30205November 25, 2008
10.34 10-Q000-30205February 8, 2011
10.36 10.610-K000-30205December 10, 2003
10.53 10.710-K000-30205November 25, 2008
10.57 10.810-Q000-30205February 8, 2010
10.58 10-Q000-30205February 8, 2011
10.60 10-Q000-30205May 5, 2017
10.61 10.910-Q000-30205February 8, 2013
10.62 10.1010-Q000-30205February 8, 2013
10.63 10.1110-Q000-30205August 8, 2012
10.64 10.1210-Q000-30205August 8, 2012
10.65 10.1310-Q000-30205February 6, 2015
10.66 10.1410-Q000-30205February 8, 2016
10.67 10.1510-Q000-30205February 8, 2016
10.68 10.1610-Q000-30205February 7, 2018
10.69 10.1710-Q000-30205February 7, 2018
10.70 10.1810-Q000-30205February 7, 2018
10.71 10.198-K000-30205November 15, 2018
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INDEX
10.208-K000-30205December 24, 2019
21.1
23.1
24.1
31.1
31.2
32.1
101.INSXBRL 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.SCHXBRL Taxonomy Extension Schema
101.CALXBRL Taxonomy Extension Calculation Linkbase
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INDEX
101.DEFXBRL Taxonomy Extension Definition Linkbase
101.LABXBRL Taxonomy Extension Label Linkbase
101.PREXBRL Taxonomy Extension Presentation Linkbase
104Cover 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.
*Management contract, or compensatory plan or arrangement.
**Substantially similar change in control severance protection agreements have been entered into with David H. Li,Scott D. Beamer, H. Carol Bernstein, Eleanor K. Thorp, Jeffrey M. Dysard, Colleen E. Mumford, Thomas S. Roman,Jeanette A. Press, and Daniel D. Woodland, with differences only in the amount of payments and benefits to be received by such persons.
***Substantially similar deposit share agreements have been entered into with Scott D. Beamer, Jeffrey M. Dysard, David H. Li, and Eleanor K. Thorp with differences only in the amount of initial deposit made and deposit shares purchased by such persons.
These documents are being re-filed solely to reflect the Company’s name change.

86
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INDEX
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized:
CABOT MICROELECTRONICS CORPORATIONCMC MATERIALS, INC.
Date: November 27, 201917, 2020/s/ DAVID H. LI
David H. Li
President and Chief Executive Officer
[Principal Executive Officer]
Date: November 27, 201917, 2020/s/ SCOTT D BEAMER
Scott D. Beamer
Vice President and Chief Financial Officer
[Principal Financial Officer]
Date: November 27, 201917, 2020/s/ THOMAS S. ROMANJEANETTE A. PRESS
Thomas S. RomanJeanette A. Press
Corporate Controller
[Principal Accounting Officer]
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Date: November 27, 201917, 2020/s/ WILLIAM P. NOGLOWS*
William P. Noglows
Chairman of the Board
[Director]
Date: November 27, 201917, 2020/s/ DAVID H. LI
David H. Li
President and Chief Executive Officer
[Director]
Date: November 27, 201917, 2020/s/ RICHARD S. HILL*
Richard S. Hill
[Director]
Date: November 27, 201917, 2020/s/ BARBARA A. KLEIN*
Barbara A. Klein
[Director]
Date: November 27, 201917, 2020/s/ PAUL J. REILLY*
Paul J. Reilly
[Director]
Date: November 27, 201917, 2020/s/ SUSAN M. WHITNEY*
Susan M. Whitney
[Director]
Date: November 27, 201917, 2020/s/ GEOFFREY WILD*
Geoffrey Wild
[Director]
*by H. Carol Bernstein as Attorney-in-fact pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended.
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