INDEX

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

~~June 30, 2020~~March 31, 2021

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

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number 000-30205

~~CABOT MICROELECTRONICS CORPORATION~~CMC Materials, Inc.

(Exact name of registrant as specified in its charter)


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


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

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


Not Applicable
(Former name or former address, if changed since last report)

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


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

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

Yes

☒

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

Yes

☒

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

Yes

☐

☒

As of ~~July 31, 2020,~~April 30, 2021, the Company had ~~29,055,268~~29,253,833 shares of Common Stock, par value $0.001 per share, outstanding.

INDEX

~~CABOT MICROELECTRONICS CORPORATION~~CMC MATERIALS, INC.

INDEX

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

~~CABOT MICROELECTRONICS CORPORATION~~CMC MATERIALS, INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited and in thousands, except per share amounts)


		Three Months Ended June 30,						Nine Months Ended June 30,							Three Months Ended March 31,				Six Months Ended March 31,
		2020		2019		2020		2019			2021		2020		2021		2020
Revenue	Revenue	$	274,727	$	271,882	$	842,063	$	759,051	Revenue	$	290,528	$	284,193	$	578,391	$	567,336

Cost of sales	Cost of sales	152,973		156,492		470,525		429,508		Cost of sales	166,782		163,091		331,741		317,552

Gross profit	Gross profit	121,754		115,390		371,538		329,543		Gross profit	123,746		121,102		246,650		249,784

Operating expenses:	Operating expenses:									Operating expenses:
Research, development and technical	Research, development and technical	12,165		12,191		38,206		39,009		Research, development and technical	12,925		13,230		25,353		26,041
Selling, general and administrative	Selling, general and administrative	51,847		50,959		162,495		162,415		Selling, general and administrative	58,538		56,209		114,458		110,648
Impairment charges										Impairment charges	208,221		0		215,568		0
Total operating expenses	Total operating expenses	64,012		63,150		200,701		201,424		Total operating expenses	279,684		69,439		355,379		136,689

Operating income		57,742		52,240		170,837		128,119
Operating (loss) income										Operating (loss) income	(155,938)		51,663		(108,729)		113,095

Interest expense	Interest expense	10,406		12,757		33,079		32,978		Interest expense	9,508		10,753		19,116		22,673

Interest income	Interest income	131		417		589		2,004		Interest income	13		143		36		458

Other income (expense), net		(201)		(472)		(1,608)		(2,897)
Income before income taxes		47,266		39,428		136,739		94,248
Other (expense) income, net										Other (expense) income, net	(484)		(1,010)		968		(1,407)
(Loss) income before income taxes										(Loss) income before income taxes	(165,917)		40,043		(126,841)		89,473

Provision for income taxes		12,741		20,550		30,766		34,790
(Benefit from) provision for income taxes										(Benefit from) provision for income taxes	(16,109)		7,144		(8,563)		18,025

Net income		$	34,525	$	18,878	$	105,973	$	59,458
Net (loss) income										Net (loss) income	$	(149,808)	$	32,899	$	(118,278)	$	71,448

Basic earnings per share (in dollars per share)		$	1.19	$	0.65	$	3.63	$	2.09
Basic (loss) earnings per share										Basic (loss) earnings per share	$	(5.13)	$	1.12	$	(4.06)	$	2.45

Diluted earnings per share (in dollars per share)		$	1.17	$	0.64	$	3.58	$	2.06
Diluted (loss) earnings per share										Diluted (loss) earnings per share	$	(5.13)	$	1.11	$	(4.06)	$	2.41

Weighted average basic shares outstanding	Weighted average basic shares outstanding	29,079		29,064		29,157		28,399		Weighted average basic shares outstanding	29,210		29,287		29,164		29,183

Weighted average diluted shares outstanding	Weighted average diluted shares outstanding	29,456		29,568		29,603		28,924		Weighted average diluted shares outstanding	29,210		29,725		29,164		29,666

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

INDEX

~~CABOT MICROELECTRONICS CORPORATION~~CMC MATERIALS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited and in thousands)

Three Months Ended June 30, Nine Months Ended June 30,
2020 2019 2020 2019
Net income $ 34,525 $ 18,878 $ 105,973 $ 59,458
Other comprehensive income, net of tax:
Foreign currency translation adjustments 9,086 2,699 5,212 4,132
Net unrealized loss on cash flow hedges (334) (9,044) (13,382) (15,518)
Other comprehensive income, net of tax 8,752 (6,345) (8,170) (11,386)
Comprehensive income $ 43,277 $ 12,533 $ 97,803 $ 48,072


	Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020
Net (loss) income	$	(149,808)	$	32,899	$	(118,278)	$	71,448
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(13,815)		(19,725)		7,810		(3,874)


Net unrealized gain (loss) on cash flow hedges	17,816		(17,307)		15,430		(13,048)
Other comprehensive income (loss), net of tax	4,001		(37,032)		23,240		(16,922)
Comprehensive (loss) income	$	(145,807)	$	(4,133)	$	(95,038)	$	54,526

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

INDEX

~~CABOT MICROELECTRONICS CORPORATION~~CMC MATERIALS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited and in thousands, except per share amount)


		June 30, 2020		September 30, 2019			March 31, 2021		September 30, 2020
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	354,708	$	188,495	Cash and cash equivalents	$	324,836	$	257,354
Accounts receivable, less allowance for doubtful accounts of $2,404 at June 30, 2020 and $2,377 at September 30, 2019		137,736		146,113
Accounts receivable, less allowance for credit losses of $567 at March 31, 2021 and $583 at September 30, 2020						Accounts receivable, less allowance for credit losses of $567 at March 31, 2021 and $583 at September 30, 2020	146,238		134,023
Inventories	Inventories	161,805		145,278		Inventories	161,771		159,134
Prepaid expenses and other current assets	Prepaid expenses and other current assets	24,623		28,670		Prepaid expenses and other current assets	30,082		26,558
Total current assets	Total current assets	678,872		508,556		Total current assets	662,927		577,069

Property, plant and equipment, net	Property, plant and equipment, net	356,022		276,818		Property, plant and equipment, net	358,708		362,067
Goodwill	Goodwill	713,880		710,071		Goodwill	510,624		718,647
Other intangible assets, net	Other intangible assets, net	690,417		754,044		Other intangible assets, net	630,704		670,964
Deferred income taxes	Deferred income taxes	6,686		6,566		Deferred income taxes	7,610		7,713
Other long-term assets	Other long-term assets	39,496		5,711		Other long-term assets	55,373		40,007
Total assets	Total assets	$	2,485,373	$	2,261,766	Total assets	$	2,225,946	$	2,376,467

LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	50,211	$	54,529	Accounts payable	$	53,194	$	49,254
Short-term debt		150,000		—

Current portion of long-term debt	Current portion of long-term debt	13,313		13,313		Current portion of long-term debt	10,650		10,650
Accrued expenses, income taxes payable and other current liabilities	Accrued expenses, income taxes payable and other current liabilities	126,399		103,618		Accrued expenses, income taxes payable and other current liabilities	123,508		121,442
Total current liabilities	Total current liabilities	339,923		171,460		Total current liabilities	187,352		181,346

Long-term debt, net of current portion, less prepaid debt issuance costs of $15,684 at June 30, 2020 and $17,900 at September 30, 2019		912,691		928,463
Long-term debt, net of current portion						Long-term debt, net of current portion	906,902		910,764
Deferred income taxes	Deferred income taxes	110,930		121,993		Deferred income taxes	84,372		112,212
Other long-term liabilities	Other long-term liabilities	96,795		59,473		Other long-term liabilities	88,491		97,832
Total liabilities	Total liabilities	1,460,339		1,281,389		Total liabilities	1,267,117		1,302,154

Commitments and contingencies (Note 13)
Commitments and contingencies (Note 12)						Commitments and contingencies (Note 12)	0		0

Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common Stock Authorized: 200,000 shares, $0.001 par value; Issued: 39,867 shares at June 30, 2020, and 39,592 shares at September 30, 2019		40		40
Common Stock Authorized: 200,000 shares, $0.001 par value; Issued: 40,187 shares at March 31, 2021, and 39,914 shares at September 30, 2020						Common Stock Authorized: 200,000 shares, $0.001 par value; Issued: 40,187 shares at March 31, 2021, and 39,914 shares at September 30, 2020	40		40
Capital in excess of par value of common stock	Capital in excess of par value of common stock	1,012,131		988,980		Capital in excess of par value of common stock	1,041,252		1,019,803
Retained earnings	Retained earnings	529,786		461,501		Retained earnings	408,983		553,718
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(31,896)		(23,238)		Accumulated other comprehensive income (loss)	9,136		(14,104)
Treasury stock at cost, 10,833 shares at June 30, 2020, and 10,491 shares at September 30, 2019		(485,027)		(446,906)
Treasury stock at cost, 10,938 shares at March 31, 2021, and 10,834 shares at September 30, 2020						Treasury stock at cost, 10,938 shares at March 31, 2021, and 10,834 shares at September 30, 2020	(500,582)		(485,144)
Total stockholders’ equity	Total stockholders’ equity	1,025,034		980,377		Total stockholders’ equity	958,829		1,074,313

Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	2,485,373	$	2,261,766	Total liabilities and stockholders’ equity	$	2,225,946	$	2,376,467

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

INDEX

~~CABOT MICROELECTRONICS CORPORATION~~CMC MATERIALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and amounts in thousands)


		Nine Months Ended June 30,								Six Months Ended March 31,
		2020		2019				2021		2020
Cash flows from operating activities:	Cash flows from operating activities:						Cash flows from operating activities:
Net income		$	105,973	$	59,458
Adjustments to reconcile net income to net cash provided by operating activities:
Net (loss) income							Net (loss) income	$	(118,278)	$	71,448
Adjustments to reconcile Net (loss) income to net cash provided by operating activities:							Adjustments to reconcile Net (loss) income to net cash provided by operating activities:
Impairment charges							Impairment charges	215,568		0
Depreciation and amortization	Depreciation and amortization	95,516		70,476			Depreciation and amortization	64,180		64,192
Deferred income tax (benefit)							Deferred income tax (benefit)	(32,771)		(7,117)
Share-based compensation expense							Share-based compensation expense	11,170		8,997
Amortization of terminated interest rate swap contract							Amortization of terminated interest rate swap contract	3,715		0
Amortization of debt issuance costs							Amortization of debt issuance costs	1,549		1,565
Non-cash foreign exchange (gain) loss							Non-cash foreign exchange (gain) loss	(1,392)		325
Loss (gain) on disposal of assets							Loss (gain) on disposal of assets	560		(69)
Accretion on Asset Retirement Obligations	Accretion on Asset Retirement Obligations	406		—			Accretion on Asset Retirement Obligations	293		255
Provision for doubtful accounts		366		(75)
Share-based compensation expense		12,191		15,048

Deferred income tax benefit		(9,469)		(16,760)
Non-cash foreign exchange loss		146		907
Gain on disposal of property, plant and equipment		(338)		(59)

Non-cash charge on inventory step up of acquired inventory sold		—		14,869
Amortization of debt issuance costs		2,345		2,086
Other	Other	(63)		2,201			Other	(1,933)		1,144
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:						Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	8,130		6,187			Accounts receivable	(12,352)		(6,386)
Inventories	Inventories	(16,442)		(19,477)			Inventories	(1,423)		(13,103)
Prepaid expenses and other assets	Prepaid expenses and other assets	9,786		10,831			Prepaid expenses and other assets	(16,137)		5,020
Accounts payable	Accounts payable	(5,591)		(1,558)			Accounts payable	5,261		(1,102)
Accrued expenses, income taxes payable and other liabilities	Accrued expenses, income taxes payable and other liabilities	1,127		(27,089)			Accrued expenses, income taxes payable and other liabilities	5,498		(12,830)
Net cash provided by operating activities	Net cash provided by operating activities	204,083		117,045			Net cash provided by operating activities	123,508		112,339

Cash flows from investing activities:	Cash flows from investing activities:						Cash flows from investing activities:
Additions to property, plant and equipment	Additions to property, plant and equipment	(107,015)		(32,691)			Additions to property, plant and equipment	(21,119)		(59,192)
Proceeds from sales of property, plant and equipment		1,587		1,210

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

Proceeds from the sale of assets							Proceeds from the sale of assets	363		1,587
Net cash used in investing activities	Net cash used in investing activities	(105,428)		(1,209,708)			Net cash used in investing activities	(20,756)		(57,605)

Cash flows from financing activities:	Cash flows from financing activities:						Cash flows from financing activities:
Dividends paid							Dividends paid	(26,115)		(24,752)
Proceeds from issuance of stock							Proceeds from issuance of stock	10,279		10,334
Repurchases of common stock under Share Repurchase Program							Repurchases of common stock under Share Repurchase Program	(10,002)		(16,414)
Repurchases of common stock withheld for taxes							Repurchases of common stock withheld for taxes	(5,436)		(3,099)

Repayment of long-term debt	Repayment of long-term debt	(17,988)		(102,663)			Repayment of long-term debt	(5,325)		(17,988)
Repurchases of common stock		(38,121)		(9,468)
Proceeds from issuance of long-term debt		—		1,062,337
Proceeds from revolving line of credit	Proceeds from revolving line of credit	150,000		—			Proceeds from revolving line of credit	0		150,000
Debt issuance costs		—		(18,745)
Proceeds from issuance of stock		10,960		11,349
Dividends paid		(37,527)		(34,132)
Other financing activities	Other financing activities	(123)		—			Other financing activities	(72)		(4)
Net cash provided by financing activities		67,201		908,678
Net cash (used in) provided by financing activities							Net cash (used in) provided by financing activities	(36,671)		98,077

Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	357		(258)			Effect of exchange rate changes on cash	1,401		(604)
Increase (decrease) in cash and cash equivalents		166,213		(184,243)
Increase in cash and cash equivalents							Increase in cash and cash equivalents	67,482		152,207
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	188,495		352,921			Cash and cash equivalents at beginning of period	257,354		188,495
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	354,708	$	168,678		Cash and cash equivalents at end of period	$	324,836	$	340,702

Supplemental Cash Flow Information:	Supplemental Cash Flow Information:						Supplemental Cash Flow Information:
Purchases of property, plant and equipment in accrued liabilities and accounts payable at the end of the period	Purchases of property, plant and equipment in accrued liabilities and accounts payable at the end of the period	$	9,609	$	3,085		Purchases of property, plant and equipment in accrued liabilities and accounts payable at the end of the period	$	4,180	$	13,841
Equity consideration related to the acquisition of KMG Chemicals, Inc		—		331,048
Cash paid during the period for lease liabilities	Cash paid during the period for lease liabilities	5,647		—			Cash paid during the period for lease liabilities	4,079		3,825
Right of use asset obtained in exchange for lease liabilities	Right of use asset obtained in exchange for lease liabilities	6,351		—			Right of use asset obtained in exchange for lease liabilities	2,761		3,334

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

INDEX

~~CABOT MICROELECTRONICS CORPORATION~~CMC MATERIALS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

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

Common
Stock Capital
In Excess
of Par Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Treasury
Stock Total
Balance at September 30, 2019 $ 40 $ 988,980 $ 461,501 $ (23,238) $ (446,906) $ 980,377
Share-based compensation expense 4,763 4,763
Repurchases of common stock - other, at cost (2,897) (2,897)
Exercise of stock options 1,298 1,298
Issuance of Cabot Microelectronics restricted stock under Deposit Share Program 150 150
Net income 38,549 38,549
Dividends ($0.42 per share in dollars) (12,351) (12,351)
Effect of the adoption of the stranded tax effect accounting standard 488 (488) —
Foreign currency translation adjustment 15,851 15,851
Cash flow hedges 4,259 4,259
Balance at December 31, 2019 $ 40 $ 995,191 $ 488,187 $ (3,616) $ (449,803) $ 1,029,999
Share-based compensation expense 4,234 4,234
Repurchases of common stock under Share Repurchase Program, at cost (16,414) (16,414)
Repurchases of common stock - other, at cost (202) (202)
Exercise of stock options 6,350 6,350
Issuance of Cabot Microelectronics stock under Employee Stock Purchase Plan 2,536 2,536
Net income 32,899 32,899
Dividends ($0.44 per share in dollars) (12,960) (12,960)
Foreign currency translation adjustment (19,725) (19,725)
Cash flow hedges (17,307) (17,307)
Balance at March 31, 2020 $ 40 $ 1,008,311 $ 508,126 $ (40,648) $ (466,419) $ 1,009,410
Share-based compensation expense 3,194 3,194
Repurchases of common stock under Share Repurchase Program, at cost (18,595) (18,595)
Repurchases of common stock - other, at cost (13) (13)
Exercise of stock options 626 626
Net income 34,525 34,525
Dividends ($0.44 per share in dollars) (12,865) (12,865)
Foreign currency translation adjustment 9,086 9,086
Cash flow hedges (334) (334)
Balance at June 30, 2020 $ 40 $ 1,012,131 $ 529,786 $ (31,896) $ (485,027) $ 1,025,034


	Three Months Ended March 31,						Six Months Ended March 31,
	2021			2020			2021			2020
	Shares	$		Shares	$		Shares	$		Shares	$
Common Stock
Beginning balance	40,092	$	40	39,719	$	40	39,914	$	40	39,592	$	40
Issuance of common stock under stock plans	95	0		136	0		273	0		263	0
Ending balance	40,187	40		39,855	40		40,187	40		39,855	40
Capital in Excess of Par
Beginning balance		1,030,677			995,191			1,019,803			988,980
Share-based compensation expense		5,319			4,234			11,170			8,997
Exercise of stock options		5,256			6,350			6,693			7,648
Issuance of common stock under Employee Stock Purchase Plan		0			2,536			3,371			2,536
Issuance of restricted stock under Deposit Share Program		0			0			215			150
Ending balance		1,041,252			1,008,311			1,041,252			1,008,311
Retained Earnings
Beginning balance		572,441			488,187			553,718			461,501
Cumulative effect of accounting changes		0			0			0			488
Net (loss) income		(149,808)			32,899			(118,278)			71,448
Dividends		(13,650)			(12,960)			(26,457)			(25,311)
Ending balance		408,983			508,126			408,983			508,126
Accumulated Other Comprehensive Income (Loss)
Beginning balance		5,135			(3,616)			(14,104)			(23,238)
Cumulative effect of accounting changes		0			0			0			(488)
Foreign currency translation adjustment		(13,815)			(19,725)			7,810			(3,874)
Cash flow hedges		17,816			(17,307)			15,430			(13,048)
Ending balance		9,136			(40,648)			9,136			(40,648)
Treasury Stock
Beginning balance	10,931	(499,565)		10,514	(449,803)		10,834	(485,144)		10,491	(446,906)
Repurchases of common stock under Share Repurchase Program	5	(801)		157	(16,414)		67	(10,002)		157	(16,414)
Repurchases of common stock - other	2	(216)		2	(202)		37	(5,436)		25	(3,099)
Ending balance	10,938	(500,582)		10,673	(466,419)		10,938	(500,582)		10,673	(466,419)
Total Equity		$	958,829		$	1,009,410		$	958,829		$	1,009,410
Dividends per share of common stock		$	0.46		$	0.44		$	0.90		$	0.86

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

~~INDEX~~

~~CABOT MICROELECTRONICS CORPORATION~~

~~CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY~~

~~(Unaudited and amounts in thousands)~~

Common
Stock Capital
In Excess
of Par Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Treasury
Stock Total
Balance at September 30, 2018 $ 36 $ 622,498 $ 471,673 $ 4,539 $ (432,054) $ 666,692
Share-based compensation expense 8,170 8,170
Repurchases of common stock - other, at cost (4,001) (4,001)
Exercise of stock options 3,097 3,097
Issuance of common stock in connection with acquisition of KMG Chemicals, Inc. 3 331,045 331,048
Issuance of Cabot Microelectronics restricted stock under Deposit Share Program 75 75
Net income 13,443 13,443
Dividends ($0.40 per share in dollars) (11,598) (11,598)
Effect of the adoption of the revenue recognition accounting standards (933) (933)
Foreign currency translation adjustment 2,425 2,425
Minimum pension liability adjustment (251) (251)
Balance at December 31, 2018 $ 39 $ 964,885 $ 472,585 $ 6,713 $ (436,055) $ 1,008,167
Share-based compensation expense 3,538 3,538
Repurchases of common stock - other, at cost (694) (694)
Exercise of stock options 5,080 5,080
Issuance of Cabot Microelectronics stock under Employee Stock Purchase Plan 2,109 2,109
Net income 27,137 27,137
Dividends ($0.42 per share in dollars) (12,255) (12,255)
Foreign currency translation adjustment (992) (992)
Cash flow hedges (6,474) (6,474)
Minimum pension liability adjustment 251 251
Balance at March 31, 2019 $ 39 $ 975,612 $ 487,467 $ (502) $ (436,749) $ 1,025,867
Share-based compensation expense 3,340 3,340
Repurchases of common stock under share repurchase plans, at cost (5,001) (5,001)
Repurchases of common stock - other, at cost (58) (58)
Exercise of stock options 988 988
Net income 18,878 18,878
Dividends ($0.42 per share in dollars) (12,336) (12,336)
Foreign currency translation adjustment 2,699 2,699
Cash flow hedges (9,044) (9,044)
Balance at June 30, 2019 $ 39 $ 979,940 $ 494,009 $ (6,847) $ (441,808) $ 1,025,333

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

INDEX

~~CABOT MICROELECTRONICS CORPORATION~~CMC MATERIALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited and in thousands, except per share amounts)

1. BACKGROUND AND BASIS OF PRESENTATION

~~Cabot Microelectronics Corporation~~CMC Materials, Inc. (“~~Cabot Microelectronics”~~CMC”, “the Company”, “us”, “we”, or “our”) is a leading global supplier of consumable materials, primarily to semiconductor ~~manufacturers and pipeline companies.~~manufacturers. The Company's products play a critical role in the production of advanced semiconductor devices, helping to enable the manufacture of smaller, faster and more complex devices by its customers. The Consolidated Financial Statements included in this Report on Form 10-Q include the financial results of KMG Chemicals, Inc. (“KMG”) since the Company's acquisition of 100% of the outstanding stock of KMG (the "Acquisition") on November 15, 2018 (the “Acquisition Date”). We operate our business within 2 reportable segments: Electronic Materials and Performance Materials. The Electronic Materials segment consists of our ~~heritage Chemical Mechanical Planarization ("CMP"~~chemical mechanical planarization (“CMP”) slurries ~~and polishing~~business, CMP pads ~~businesses, as well as the KMG~~business, and electronic chemicals business. The Performance Materials segment ~~includes KMG’s heritage~~consists of our pipeline ~~performance~~ and industrial materials (“PIM”) business, wood treatment ~~businesses,~~business, and ~~our heritage~~ QED Technologies International, Inc. (“QED”) business. ~~For additional information, refer to Item 1 of Part I of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.~~

The unaudited Consolidated Financial Statements have been prepared by ~~Cabot Microelectronics~~CMC 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"~~GAAP” or ~~"GAAP"~~“GAAP”). for interim financial information. Accordingly, they do not include all the information and notes required by GAAP for complete financial statements. In the opinion of management, these unaudited Consolidated Financial Statements include all adjustments, consisting of normal recurring adjustments, necessary for the fair statement of ~~Cabot Microelectronics’~~CMC’s financial position, ~~as of June 30, 2020,~~ cash flows, ~~for the nine months ended June 30, 2020 and June 30, 2019,~~ and results of operations for the ~~three and nine months ended June 30, 2020 and June 30, 2019.~~periods presented. The ~~Consolidated Balance Sheets as of September 30, 2019 were derived from audited financial statements. The~~ results ~~of operations for the three and nine months ended June 30, 2020~~ may not be indicative of the results tothat may be expected for ~~future periods, including~~ the fiscal year ending September 30, ~~2020.~~2021. This Report on Form 10-Q ~~does not contain all of the note disclosures from our annual financial statements and~~ should be read in conjunction with the Consolidated Financial Statements and related notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2019.~~2020.

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

~~USE OF ESTIMATES~~In the Consolidated Statements of Cash Flows of this Report on Form 10-Q, the presentation for the Provision for credit losses and the presentation for Repurchases of common stock under Cash flows from financing activities has been updated for the six months ended March 31, 2020 to conform to the current presentation. The amounts for that fiscal year related to the Provision for credit losses is now presented under “Other” and common shares withheld for taxes and included in Repurchases of common stock previously, is now presented separately under “Repurchases of common stock withheld for taxes.”

Use Of Estimates

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

~~INDEX~~

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS

Significant Accounting Policies and Estimates

There have been no material changes ~~except for those disclosed below,~~ made to the Company’s significant accounting policies disclosed in Note 2 of "Notes to the Consolidated Financial Statements" included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2019.~~2020.

Recently Adopted Accounting Pronouncements

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

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

~~Accounting Pronouncements Issued But Not Yet Adopted~~

~~In June 2016, the FASB issued ASU~~ No. 2016-13, “Measurement of Credit Losses on Financial Instruments” (Topic 326)~~. This standard~~ and subsequent amendments, requires financial assets measured at amortized cost to be presented at the net amount expected to be collected using an allowance ~~account. ASU 2016-13 also~~account and provides that credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. The ~~guidance~~Company adopted these standards effective October 1, 2020 using the modified retrospective approach, which did not impact our results of operations or financial condition. Upon adoption, no adjustment was ~~amended~~made to retained earnings or the Allowance for credit losses at October 1, 2020.

INDEX

The Company is exposed to credit losses primarily through ~~various ASU's subsequent to ASU 2016-13, all of which will be effective~~trade receivables for the sales of the Company’s products. The Company’s expected credit loss allowance for trade receivables is developed using historical credit loss experience and current and future economic and market conditions. The Company ~~beginning October 1, 2020. We are assessing~~assesses credit risks for these trade receivables and groups them based on similar risk to determine the ~~impact~~expected credit loss allowance. Due to the short-term nature of ~~this guidance~~the Company’s trade receivables, the estimate of the expected credit loss allowance is mainly based on historical experience, accounts receivable balances, and ~~currently do not expect it to have a material impact.~~the financial condition of customers.

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

~~In December 2019,~~ASU No. 2018-15 “Intangibles—Goodwill and Other—Internal-Use Software” (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, requires a customer in a hosting arrangement that is a service contract to follow the ~~FASB issued~~ guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset or expense related to the service contract. The Company adopted this standard effective October 1, 2020, which did not have a material impact on our results of operations or financial condition.

Accounting Pronouncements Issued But Not Yet Adopted

ASU No. 2019-12 “Income ~~Taxes~~Taxes” (Topic 740): Simplifying the Accounting for Income ~~Taxes”. The ASU~~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 implementing this standard on our financial statements.

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

3. REVENUE FROM CONTRACTS WITH CUSTOMERS

~~Disaggregated Revenue~~

The Company disaggregates revenue by product area and segment as it best depicts the nature and amount of the Company’s revenue. See Note 1816 of this Report on Form 10-Q for more information.

~~INDEX~~

~~Contract Balances~~

The following table provides information about contract liability balances:


		June 30, 2020		September 30, 2019			Consolidated Balance Sheet Location	March 31, 2021		September 30, 2020
Contract liabilities (current)	Contract liabilities (current)	$	9,410	$	5,008	Contract liabilities (current)	Accrued expenses, income taxes payable and other current liabilities	$	6,660	$	8,501
Contract liabilities (noncurrent)	Contract liabilities (noncurrent)	1,019		1,130		Contract liabilities (noncurrent)	Other long-term liabilities	1,807		1,288

At June 30, 2020, the current portion of contract liabilities of $9,410 is included in Accrued expenses, income taxes payable and other current liabilities, and the non-current portion of $1,019 is included in Other long-term liabilities in the Consolidated Balance Sheets. The amount of revenue recognized during the three and ~~nine~~six months ended ~~June 30, 2020~~March 31, 2021 that was included in the opening current contract liability balances in our Performance Materials segment ~~were $400~~was $1,256 and ~~$3,427,~~$3,709, respectively, and $769 and $3,027 for the three and six months ended March 31, 2020, respectively. The amount of revenue recognized during the three and ~~nine~~six months ended ~~June 30,~~March 31, 2021 and 2020 that was included in our opening contract liability balances in our Electronic Materials segment was not material.

~~Transaction Price Allocated to Remaining Performance Obligations~~

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

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


	Less Than 1 Year		1-3 Years		Total
Revenue expected to be recognized on contract liability amounts as of March 31, 2021	$	532	$	1,807	$	2,339

INDEX

4. ~~BUSINESS COMBINATION~~

On the Acquisition Date, the Company completed the 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. Refer to Note 4 of "Notes to the Consolidated Financial Statements" included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019 for additional information on the Acquisition.FAIR VALUE OF FINANCIAL INSTRUMENTS

The ~~following unaudited supplemental pro forma information summarizes~~Company is required to record certain assets and liabilities at fair value. The valuation methods used for determining the ~~combined results~~fair value of ~~operations for Cabot Microelectronics and KMG~~these financial instruments by hierarchy are as ~~if the Acquisition had occurred on October 1, 2017.~~follows:


Level 1	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.
	Other long-term investments represent the fair value of investments under our supplemental employee retirement plan ("SERP"). The fair value of the investments is determined through quoted market prices within actively traded markets.
Level 2	Derivative financial instruments include foreign exchange contracts and an interest rate swap contract. 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 London Inter-bank Offered Rate ("LIBOR") based yield curves for the interest rate swap, and forward rates and/or the Overnight Index Swap curve for forward foreign exchange contracts, among others.
Level 3	Nine Months Ended June 30, 2019
~~Revenue~~		$	~~821,029~~
~~Net income~~		~~80,618~~
~~Earnings per share - basic~~		~~2.79~~
~~Earnings per share - diluted~~		~~2.74~~		No level 3 financial instruments

~~The following costs are included in the nine months ended June 30, 2019:~~

•~~Non-recurring transaction costs of $1,568.~~

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

~~INDEX~~

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

~~5. FAIR VALUE OF FINANCIAL INSTRUMENTS~~

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

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

June 30, 2020 Level 1 Level 2 Level 3 Total Fair Value
Assets:
Cash and cash equivalents $ 354,708 $ — $ — $ 354,708
Other long-term investments 1,147 — — 1,147
Total assets $ 355,855 $ — $ — $ 355,855
Liabilities:
Derivative financial instruments — 41,692 — 41,692
Total liabilities $ — $ 41,692 $ — $ 41,692

September 30, 2019 Level 1 Level 2 Level 3 Total Fair Value
Assets:
Cash and cash equivalents $ 188,495 $ — $ — $ 188,495
Other long-term investments 980 — — 980
Total assets $ 189,475 $ — $ — $ 189,475
Liabilities:
Derivative financial instruments — 24,244 — 24,244
Total liabilities $ — $ 24,244 $ — $ 24,244

~~INDEX~~

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

Our derivative financial instruments include foreign exchange contracts and an interest rate swap contract. 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 London Inter-bank Offered Rate ("LIBOR") based yield curves for the interest rate swap, and forward rates and/or the Overnight Index Swap curve for forward foreign exchange contracts, among others. We consider the risk of nonperformance, including counterparty credit risk, in the calculation of the fair value of derivative financial instruments. See Note 12 of this Report on Form 10-Q for more information on our use of derivative financial instruments.


	Level 1				Level 2				Level 3				Total Fair Value
	March 31, 2021		September 30, 2020		March 31, 2021		September 30, 2020		March 31, 2021		September 30, 2020		March 31, 2021		September 30, 2020
Assets:
Cash and cash equivalents	$	324,836	$	257,354	$	0	$	0	$	0	$	0	$	324,836	$	257,354
Other long-term investments	1,353		1,214		0		0		0		0		1,353		1,214
Derivative financial instruments	0		0		16,480		27		0		0		16,480		27


Liabilities:
Derivative financial instruments	0		0		3,323		38,157		0		0		3,323		38,157

6.5. INVENTORIES

Inventories consisted of the following:


		June 30, 2020		September 30, 2019			March 31, 2021		September 30, 2020
Raw materials	Raw materials	$	64,028	$	60,157	Raw materials	$	67,026	$	66,591
Work in process	Work in process	17,706		12,940		Work in process	17,479		15,148
Finished goods	Finished goods	80,071		72,181		Finished goods	77,266		77,395
Total	Total	$	161,805	$	145,278	Total	$	161,771	$	159,134

INDEX

6. GOODWILL ~~AND OTHER INTANGIBLE ASSETS~~

Goodwill activity for each of the Company’s reportable segments for the ~~nine~~six months ended ~~June 30, 2020:~~March 31, 2021:

Electronic Materials Performance Materials Total
Balance at September 30, 2019 $ 352,797 $ 357,274 $ 710,071
Foreign currency translation impact 3,448 (844) 2,604
Other — 1,205 1,205
Balance at June 30, 2020 $ 356,245 $ 357,635 $ 713,880


	Electronic Materials		Performance Materials		Total
Balance at September 30, 2020	$	360,425	$	358,222	$	718,647

Foreign currency translation impact	2,375		1,904		4,279
Impairment	0		(212,302)		(212,302)
Balance at March 31, 2021	$	362,800	$	147,824	$	510,624

~~INDEX~~

During the second quarter, the Company recorded impairment charges related to the PIM and Wood treatment reporting units within the Performance Materials segment. Our PIM reporting unit continues to be adversely impacted by the COVID-19 Pandemic (“Pandemic”). During the second quarter, as a result of lower than anticipated recovery combined with a near-to-mid term increase in raw material cost for the PIM business, we determined that it is more likely than not that the fair value of the PIM reporting unit is below its carrying value, requiring the PIM reporting unit to be tested for impairment at March 31, 2021. Based on the results of the interim impairment test, the Company concluded that the carrying value of the PIM reporting unit exceeded the estimated fair value and recognized a non-cash, pre-tax goodwill impairment charge of $201,550 for the three months ended March 31, 2021. The ~~components~~remaining carrying value of ~~other~~the PIM reporting unit as of March 31, 2021 of $593,114 includes $118,564 of goodwill and $46,000 of indefinite lived intangible ~~assets are:~~

June 30, 2020 September 30, 2019
Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization
Other intangible assets subject to amortization:
Product technology, trade secrets and know-how $ 121,979 $ 45,722 $ 123,948 $ 37,993
Acquired patents and licenses 9,023 8,636 9,023 8,397
Customer relationships, trade names, and distribution rights 687,976 121,373 684,764 64,471
Total other intangible assets subject to amortization 818,978 175,731 817,735 110,861
Other intangible assets not subject to amortization:
Other indefinite-lived intangibles* 47,170 47,170
Total other intangible assets not subject to amortization 47,170 47,170
Total other intangible assets $ 866,148 $ 175,731 $ 864,905 $ 110,861

*Other indefinite-lived intangible assets not subject to amortization consist primarilyassets. The goodwill impairment charge is included in the Performance Materials segment and presented within Impairment charges and the related tax benefit of ~~trade names.~~

~~Amortization expense was $20,788 and $64,166~~$23,539 for the three and ~~nine~~six months ended ~~June 30, 2020, respectively,~~March 31, 2021 is included in the (Benefit from) provision for income taxes in the Consolidated Statements of Income (Loss).

In performing the impairment test, the estimated fair value of the PIM reporting unit, was determined based on an average of a discounted cash flow model and ~~was $16,926~~a market approach based on earnings before interest, taxes, and ~~$43,244~~depreciation for a group of guideline comparable companies. Key assumptions in estimating the fair value of the reporting unit included projected future revenue and gross margin, a 10.75% discount rate and a terminal growth rate of 3%. The Company’s projections for revenue and gross margin are based on the Company’s multiyear forecast. Components of the discount rate 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 future cash flows. As the inputs for testing, including estimates of future revenue and gross margin, are not generally observable in active markets, the Company considers such measurements to be Level 3 measurements in the fair value hierarchy. 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. The Company estimated the fair value of its indefinite-lived intangible tradename utilizing its best estimate of future cash flows and royalty rate assumptions as of the period ending March 31, 2021.

Additionally, the Company recorded non-cash, pre-tax goodwill impairment charges of $6,671 and $10,752 for the three and ~~nine~~six months ended ~~June 30, 2019, respectively. Estimated future amortization expense~~March 31, 2021, related to the wood treatment asset group and reporting unit due to the planned closure of the facilities. See Note 7 of this Report on Form 10-Q for a discussion of the ~~five succeeding fiscal years is as follows:~~

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

We continue to actively monitor the industries in which we operate and our businesses' performance for indicators of potential impairment. We perform an impairment assessment of goodwill and other intangible assets at the reporting unit level annually, or more frequently if circumstances indicate that the carrying value may not be recoverable, such as with respect to our PIM reporting unit. If current global macroeconomic conditions related to the ~~COVID-19 pandemic ("Pandemic")~~Pandemic persist and continue to adversely impact our Company, we may have future additional impairments of goodwill or other intangible assets. Potential future impairments could be material to the Company’s Consolidated Balance Sheets and to the Consolidated Statements of Income (Loss), but we do not expect them to affect the Company’s reported Net cash provided by operating activities.

~~During the fiscal year ended September 30, 2019, the Company recognized asset impairment charges~~

7. IMPAIRMENT - WOOD TREATMENT

As a result of ~~$67,372 for the wood treatment asset group due to the~~our previously announced planned closure of the Company's wood treatment ~~business'~~business’ facilities by approximately the end of calendar year ~~2021.~~2021 and the finite remaining cash flow through the closure date, the Company concluded that it is more likely than not that the fair value of the wood treatment reporting unit is below its carrying value, requiring the wood treatment asset group and reporting unit to be tested for impairment.

INDEX

Impairment of Long-Lived Assets

As a result of the previously announced planned facility closures by approximately the end of calendar year 2021, the Company adjusted the remaining useful lives such that they do not extend beyond such date. The Company ~~continues to monitor~~tested the recoverability of its long-lived assets and determined the carrying amount of the assets exceeded the sum of the expected undiscounted future cash flows, and as a result, we compared the fair value of the wood treatment asset group, which ~~is also~~was determined based on a ~~reporting unit,~~discounted cash flow model, to its carrying value. We recognized a non-cash pre-tax impairment charge of $3,266 for further indicators of long-lived asset and goodwill impairment and determined that as of June 30, 2020, the wood treatment business had a triggering event, which required interim impairment tests to be performed. For the quarter ended ~~June 30,~~December 31, 2020 resulting in 0 remaining carrying value of definite-lived intangible assets or Property, plant and equipment as of that date. Key assumptions in testing the ~~estimated future cash flows~~assets for recoverability and development of the fair value of the asset group included projected future revenue and gross margin. As the inputs for testing recoverability, including estimates of future revenue and gross margin, are 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 ~~reporting unit exceeded~~future revenue and gross margin estimates are limited to the ~~carrying value by approximately 8% and 1%, respectively, and there was 0 impairment recognized for~~period through the ~~wood treatment asset group or reporting unit.~~ closure date.

Impairment of Goodwill

The fair value of the wood treatment reporting unit, which was determined ~~using an income approach~~ based ~~upon an estimate of~~on a discounted ~~future~~ cash ~~flows~~flow model, did not exceed the carrying value of the ~~business through~~reporting unit. Key assumptions in our goodwill impairment test included projected future revenue and gross margin. As a result, the ~~expected closure date.~~ Company recorded non-cash, pre-tax impairment charges of $6,671 and $10,752 for the three and six months ended March 31, 2021, respectively.

As the Company approaches the closure date of the facilities and there are ~~lower~~finite estimated future cash flows, ~~it is probable that~~ the carrying value of the wood treatment ~~asset group and~~ reporting unit will not be recoverable, resulting in future ~~impairments.~~impairments of goodwill. The remaining carrying value of the wood treatment ~~business~~reporting unit as of March 31, 2021 includes ~~$35 million and $8~~$24.3 million of goodwill, ~~and intangible assets, respectively. Absent a sale of~~which 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 ~~that we expect~~will vary depending on the timing of the remaining future cash flows of the business and carrying value of the reporting unit at each reporting period.

Presentation of Impairment Charges

The long-lived assets and goodwill impairment charges, both included in the Performance Materials segment, are presented within Impairment charges and the related tax benefit of $606 for the six months ended March 31, 2021 is included in the (Benefit from) provision for income taxes in the Consolidated Statements of Income (Loss). The impairment charges related to ~~recognize~~goodwill are not tax deductible, therefore there is no related tax benefit for the three months ended March 31, 2021. The impairment charges for wood treatment for the respective periods are as ~~we approach~~follows:


	Three Months Ended March 31, 2021		Six Months Ended March 31, 2021
Property, plant, and equipment, net	$	0	$	91
Goodwill	6,671		10,752
Other intangible assets – Product technology	0		583
Other intangible assets – Acquired patents and licenses	0		173
Other intangible assets – Customer relationships, distribution rights, and other	0		2,419
Total wood treatment impairment charges	$	6,671	$	14,018

Additionally, the ~~closure date could be material.~~Company recorded a non-cash, pre-tax goodwill impairment charge of $201,550 for the three and six months period ended March 31, 2021, related to the PIM reporting unit. See Note 6 of this Report on Form 10-Q for a discussion of the PIM impairment.

INDEX

8. OTHER LONG-TERM ASSETS

~~Other long-term assets consisted of the following:~~


		June 30, 2020		September 30, 2019			March 31, 2021		September 30, 2020
Long-term right of use asset		$	31,241	$	—
Long-term vendor contract assets		3,346		1,164
Long-term SERP investment		1,147		980
Right of use asset						Right of use asset	$	30,570	$	30,999
Interest rate swap (See Note 11)						Interest rate swap (See Note 11)	16,464		0
Vendor contract assets						Vendor contract assets	2,097		2,889
SERP investment						SERP investment	1,353		1,214
Prepaid unamortized debt issuance cost - revolver	Prepaid unamortized debt issuance cost - revolver	580		709		Prepaid unamortized debt issuance cost - revolver	451		537
Other long-term assets	Other long-term assets	3,182		2,858		Other long-term assets	4,438		4,368
Total	Total	$	39,496	$	5,711	Total	$	55,373	$	40,007

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

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


		June 30, 2020		September 30, 2019			March 31, 2021		September 30, 2020
Accrued compensation	Accrued compensation	$	43,414	$	33,809	Accrued compensation	$	37,258	$	46,465
Income taxes payable	Income taxes payable	16,954		15,725		Income taxes payable	16,724		16,216
Dividends payable	Dividends payable	13,521		12,953		Dividends payable	14,011		13,669
Interest rate swap liability		12,595		5,351
Asset retirement obligation						Asset retirement obligation	11,951		0
Current portion of operating lease liability						Current portion of operating lease liability	6,999		6,513
Contract liabilities (current)	Contract liabilities (current)	9,410		5,008		Contract liabilities (current)	6,660		8,501
Current portion of operating lease liability		6,313		—
Current portion of terminated swap liability (See Note 11)						Current portion of terminated swap liability (See Note 11)	5,855		0
Taxes, other than income taxes						Taxes, other than income taxes	5,720		5,044
Goods and services received, not yet invoiced	Goods and services received, not yet invoiced	4,885		3,075		Goods and services received, not yet invoiced	4,514		3,957
Taxes, other than income taxes		4,744		6,281
Interest rate swap liability (See Note 11)						Interest rate swap liability (See Note 11)	2,976		11,992
Accrued interest	Accrued interest	2,144		3,739		Accrued interest	113		29
KMG - Bernuth warehouse fire-related (See Note 13)		866		7,998

Other	Other	11,553		9,679		Other	10,727		9,056
Total	Total	$	126,399	$	103,618	Total	$	123,508	$	121,442

10. DEBT

~~Total debt consisted of the following:~~


	March 31, 2021		September 30, 2020
Senior Secured Term Loan Facility, one-month LIBOR plus 2.00%	$	931,038	$	936,363


Less: Unamortized debt issuance costs	(13,486)		(14,949)
Total debt	917,552		921,414
Less: Current maturities and short-term debt	(10,650)		(10,650)
Total long-term debt excluding current maturities	$	906,902	$	910,764

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

~~During the first quarter of fiscal year 2020, the Company amended its~~The Company’s credit agreement ("(“Amended Credit ~~Agreement"~~Agreement”) ~~to reduce the interest rate on term loan borrowings, which are defined as the~~includes a Senior Secured Term Loan Facility ~~under the Amended Credit Agreement~~ ("Term Loan Facility")~~. Term Loan Facility borrowings under the Amended Credit Agreement bear an interest rate equal to, at the Company's option, either (a)~~ and a ~~LIBOR, subject to a 0.00% floor, or (b) a base rate in each case, plus an applicable margin of 2.00% for LIBOR loans and 1.00% for base rate loans.~~

~~INDEX~~

~~During the second quarter of fiscal year 2020, the Company drew $150.0 million under the Amended Credit Agreement's~~ revolving credit facility ("(“Revolving Credit ~~Facility"~~Facility”) as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of uncertain global economic conditions resulting from the Pandemic. The Revolving Credit Facility borrowing remains outstanding as of June 30, 2020.. As of ~~June 30, 2020, our available credit~~March 31, 2021, there was 0 borrowings outstanding under the Revolving Credit Facility and our available credit was ~~$50,000,~~$200,000, which includes our letter of credit sub-facility. The interest rate on the Revolving Credit Facility is either (a) a LIBOR, subject to a 0.00% floor, or (b) a base rate in each case, plus an applicable margin of 1.50% for LIBOR loans and 0.50% for base rate loans. The applicable margin for borrowings under the Revolving Credit Facility varies depending on the Company’s first lien secured net leverage ratio. Borrowings under the Revolving Credit Facility are classified as short-term debt and the proceeds are included in Cash and cash equivalents in the Company's Consolidated Balance Sheet as of June 30, 2020.

At ~~June 30, 2020~~March 31, 2021 and September 30, ~~2019,~~2020, the fair value of the Term Loan Facility, using level 2 inputs, approximated its carrying value as the loan bears a floating market rate of interest. ~~Due to the short-term nature of the borrowing under the Revolving Credit Facility, its carrying value approximates fair value.~~

INDEX

As of ~~June 30, 2020,~~March 31, 2021, scheduled principal repayments of the Term Loan Facility ~~were:~~were as follows:


Fiscal Year	Fiscal Year	Principal Repayments		Fiscal Year	Principal Repayments
Remainder of 2020		$	5,325
2021		10,650
Remainder of 2021				Remainder of 2021	$	5,325
2022	2022	10,650		2022	10,650
2023	2023	10,650		2023	10,650
2024	2024	10,650		2024	10,650
2025				2025	10,650
Greater than 5 years	Greater than 5 years	893,763		Greater than 5 years	883,113
Total	Total	$	941,688	Total	$	931,038

11. ~~LEASES~~

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

Total lease cost for the Company for the three months ended June 30, 2020 was $2,221, which included $1,868 related to operating lease cost and $353 related to short-term and variable lease costs. Total lease cost for the Company for the nine months ended June 30, 2020 was $7,027, which included $5,754 related to operating lease cost and $1,273 related to short-term and variable lease costs. The weighted average discount rate for operating leases as of June 30, 2020 was 3.06%, and was determined based on the secured incremental borrowing rate of the Company and its subsidiaries as the implicit rate is not readily determinable.

~~INDEX~~

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

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

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

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

~~12.~~ DERIVATIVE FINANCIAL INSTRUMENTS

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

Cash Flow Hedges - Interest Rate Swap Contract

During the ~~second~~first quarter of fiscal ~~2019, we~~2021, the Company entered into a new interest rate swap agreement to extend the duration of its existing swap arrangement and to take advantage of lower interest rates. The existing interest rate swap, which was in a loss position of $35.3 million, was terminated, and the hedging relationship was de-designated. The liability for the terminated interest rate swap is not measured at fair value. The current and long-term portion of the liability for the terminated swap are recorded in Accrued expenses, income taxes payable and other current liabilities and Other long-term liabilities, respectively, on the Consolidated Balance Sheet and will be paid over the remaining term of the new swap. The loss amount for the terminated swap is included in Accumulated other comprehensive loss and will be amortized on a straight-lined basis into interest expense through January 31, 2024, the remaining term of the original swap.

The new interest rate swap is a floating-to-fixed interest rate swap contract to hedge the variability in LIBOR-based interest payments on a portion of our outstanding variable rate debt. ~~As of June 30, 2020, the~~The notional ~~value of the interest rate swap was $652,000. This value~~amount is scheduled to decrease ~~bi-annually~~quarterly and will expire on January ~~31, 2024.~~

~~We have~~29, 2027. The new interest rate swap was designated ~~this swap contract~~ as a cash flow ~~hedge. Based~~hedge based on certain quantitative and qualitative assessments and we have determined that the hedge is highly effective and qualifies for hedge accounting. Accordingly, unrealized gains and losses on the hedge are recorded in other comprehensive income. Realized gains and losses are recorded on the same financial statement line as the hedged item, which is Interest expense.

~~INDEX~~

Foreign Currency Contracts Not Designated as Hedges

~~On a regular basis, we~~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~~accounting.

The notional amount of ~~currency exchange rate movements on~~ our ~~forward foreign exchange contracts~~derivative instruments are ~~recognized~~ as Other income (expense), net in the accompanying Consolidated Statements of Income in the period in which the exchange rates change. As of June 30, 2020 and September 30, 2019, the notional amounts of the forward contracts we held to purchase U.S. dollars in exchange for foreign currencies were $6,419 and $6,239, respectively, and the notional amounts of forward contracts we held to sell U.S. dollars in exchange for foreign currencies were $26,800 and $24,270, respectively.follows:


	March 31, 2021		September 30, 2020
Derivatives designated as hedging instruments
Interest rate swap contract - new agreement	$	558,405	$	—
Interest rate swap contract - terminated agreement	—		571,000

Derivatives not designated as hedging instruments
Foreign exchange contracts to purchase U.S. dollars	$	5,988	$	8,054
Foreign exchange contracts to sell U.S. dollars	30,450		25,105

INDEX

The fair value of our derivative instruments included in the Consolidated Balance Sheets was as follows:

Derivative Assets Derivative Liabilities
Consolidated Balance Sheet Location June 30, 2020 September 30, 2019 June 30, 2020 September 30, 2019
Derivatives designated as hedging instruments
Interest rate swap contract Accrued expenses, income taxes payable and other current liabilities $ — $ — $ 12,595 $ 5,351
Other long-term liabilities $ — $ — $ 28,832 $ 18,841
Derivatives not designated as hedging instruments
Foreign exchange contracts Accrued expenses, income taxes payable and other current liabilities $ — $ — $ 265 $ 52


		Derivative Assets				Derivative Liabilities
	Consolidated Balance Sheet Location	March 31, 2021		September 30, 2020		March 31, 2021		September 30, 2020
Derivatives designated as hedging instruments
Interest rate swap contract	Other long-term assets	$	16,464	$	0	$	0	$	0
	Accrued expenses, income taxes payable and other current liabilities	0		0		2,976		11,992
	Other long-term liabilities	0		0		0		26,000
Derivatives not designated as hedging instruments
Foreign exchange contracts	Prepaid expenses and other current assets	$	16	$	27	$	0	$	0
	Accrued expenses, income taxes payable and other current liabilities	0		0		347		165

The following table summarizes the effect of our derivative instruments on our Consolidated Statements of Income ~~for~~(loss):


		Gain (Loss) Recognized in Statement of Income
		Three Months Ended March 31,				Six Months Ended March 31,
	Consolidated Statement of Income Location	2021		2020		2021		2020
Derivatives designated as hedging instruments
Interest rate swap contract	Interest expense	$	(809)	$	(1,366)	$	(3,254)	$	(2,537)
Terminated interest rate swap contract	Interest expense	(2,786)		0		(3,715)		0
Derivatives not designated as hedging instruments
Foreign exchange contracts	Other income (expense), net	$	(759)	$	(268)	$	(637)	$	(262)

The following table summarizes the ~~three and nine months ended June 30, 2020 and 2019:~~effect of our derivative instruments on Accumulated other comprehensive income (loss):


			Gain (Loss) Recognized in Statement of Income															Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss)
			Three Months Ended June 30,						Nine Months Ended June 30,							Three Months Ended March 31,				Six Months Ended March 31,
		Consolidated Statement of Income Location	2020		2019		2020		2019			2021		2020		2021		2020
Derivatives designated as hedging instruments	Derivatives designated as hedging instruments										Derivatives designated as hedging instruments
Interest rate swap contract	Interest rate swap contract	Interest expense	$	(3,262)	$	39	$	(5,799)	$	40	Interest rate swap contract	$	19,361	$	(23,655)	$	12,912	$	(19,340)
Derivatives not designated as hedging instruments
Foreign exchange contracts		Other income (expense), net	$	(128)	$	(29)	$	(390)	$	(67)

We recorded an unrealized loss of $2,868 and $17,885, net of tax, in Accumulated other comprehensive income during the three and nine months ended June 30, 2020, respectively, for the interest rate swap. As of June 30, 2020, during the next twelve months, we expect approximately ~~$12,595~~$14,120 to be reclassified from Accumulated other comprehensive income (loss) 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 ~~June 30, 2020.~~March 31, 2021. This amount includes the amortization of the loss associated with the terminated swap arrangement.

1815

INDEX

~~13.~~12. COMMITMENTS AND CONTINGENCIES

~~LEGAL PROCEEDINGS AND OTHER CONTINGENCIES~~

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

~~On May 31,~~In 2019, a fire occurred at the warehouse of the wood treatment facility of ~~KMG’s~~our subsidiary KMG-Bernuth, Inc (“KMG-Bernuth”), in Tuscaloosa, Alabama, which processes pentachlorophenol ~~("penta"~~(“penta”) for sale to customers in the ~~United States~~U.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~~injuries. KMG-Bernuth commenced and ~~was extinguished in less than an hour. Company personnel investigated the incident, and KMG-Bernuth commenced~~completed 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, costsWe recorded expense for the fire waste cleanup and disposal ~~should be recognized to~~of affected inventory in Cost of sales. NaN expense was recorded during the ~~extent they are probable and reasonably estimable.~~six months ended March 31, 2021. We recorded ~~expense~~$593 of ~~$9,494 in fiscal year 2019 and $1,688~~expense during the ~~nine~~six months ended ~~June 30, 2020, of which $866 remains accrued as a loss contingency. These disposal costs were charged to Cost of sales.~~March 31, 2020. Although we believe we have completed cleanup efforts related to the fire incident, ~~and the assessment of materials in the warehouse that had been impacted by the incident,~~ there are potential ~~additional disposal and~~ other costs that cannot be reasonably estimated as of this time related to ~~these materials~~the fire incident due to the nature of federally-regulated penta-related requirements. We incurred significant fire waste cleanup and disposal costs and certain other costs related to the assessment of the impacted warehouse material due to these requirements, and we may incur additional significant disposal costs related to such materials. We intend to continue to update the estimated losses as new information becomes available.

In addition, we ~~are working~~continue to work with our insurance carriers on possible recovery of losses and costs related to the fire incident. WeDuring the three and six months ended March 31, 2021, we received ~~$468 of~~an insurance recovery ~~during the three months ended June 30, 2020 which was recorded in Cost~~ of ~~sales.~~$1,076. At this point we cannot reasonably estimate whether we will receive any additional insurance recoveries, or if so, the amount of ~~any~~ such recoveries. ~~As such, no additional insurance recoveries have been recognized as of June 30, 2020.~~

Separately, in connection with the acquisition of KMG Chemicals, Inc. (“Acquisition”), through KMG-Bernuth, we assumed a contingency related to the Star Lake Canal Superfund Site near Beaumont, Texas (“Star Lake”). 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, ~~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.~~Lake. The EPA has estimated that ~~the~~related remediation will cost approximately $22.0 million. KMG-Bernuth and ~~approximately~~ 7 other cooperating parties entered into an agreement with the EPA in September 2016 to complete a remedial design ~~phase~~ of the remediation ofactions for the site. Although KMG-Bernuth has not conceded liability with respect to Star Lake, a reserve in connection with the remediation was established, and as of March 31, 2021, the reserve remaining was $204. 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 June 30, 2020, the reserve remaining was $553.~~

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

~~INDEX~~

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

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

~~INDEMNIFICATION~~

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

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

~~POSTRETIREMENT OBLIGATIONS IN FOREIGN JURISDICTIONS~~

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

~~PURCHASE OBLIGATIONS~~2020.

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.~~ Obligations

We have ~~been operating~~$13,820 of contractual commitments under an abrasive particle supply agreement ~~with Cabot Corporation, our former parent company which is not a related party, the current term of which now runs~~ through December 2022. As of June 30, 2020, purchase obligations include $24,729 of contractual commitments related to this agreement. In addition, we have a purchase commitment of $7,863 to purchase non-water based carrier fluid.

2016

INDEX

~~14.~~13. 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 the three and nine months ended June 30, 2020 and 2019:~~:


		Three Months Ended June 30,						Nine Months Ended June 30,							Three Months Ended March 31,				Six Months Ended March 31,
		2020		2019		2020		2019			2021		2020		2021		2020
Beginning Balance	Beginning Balance	$	(40,648)	$	(502)	$	(23,238)	$	4,539	Beginning Balance	$	5,135	$	(3,616)	$	(14,104)	$	(23,238)

Foreign currency translation adjustment	Foreign currency translation adjustment	9,048		3,284		5,113		4,696		Foreign currency translation adjustment	(13,763)		(19,752)		7,780		(3,935)
Income taxes		38		(585)		99		(564)
Income tax (expense) benefit										Income tax (expense) benefit	(52)		27		30		61
Foreign currency translation adjustment, net of tax	Foreign currency translation adjustment, net of tax	9,086		2,699		5,212		4,132		Foreign currency translation adjustment, net of tax	(13,815)		(19,725)		7,810		(3,874)

Unrealized gain loss on cash flow hedges:	Unrealized gain loss on cash flow hedges:									Unrealized gain loss on cash flow hedges:
Change in fair value	Change in fair value	(3,694)		(11,635)		(23,034)		(19,987)		Change in fair value	19,361		(23,655)		12,912		(19,340)
Reclassification adjustment into earnings	Reclassification adjustment into earnings	3,262		(39)		5,799		(40)		Reclassification adjustment into earnings	3,595		1,366		6,969		2,537
Income taxes		98		2,630		3,853		4,509
Unrealized loss on cash flow hedges, net of tax		(334)		(9,044)		(13,382)		(15,518)
Income tax (expense) benefit										Income tax (expense) benefit	(5,140)		4,982		(4,451)		3,755
Unrealized gain (loss) on cash flow hedges, net of tax										Unrealized gain (loss) on cash flow hedges, net of tax	17,816		(17,307)		15,430		(13,048)

Effect of the adoption of the stranded tax effect accounting standard	Effect of the adoption of the stranded tax effect accounting standard	—		—		(497)		—		Effect of the adoption of the stranded tax effect accounting standard	0		0		0		(497)
Income taxes		—		—		9		—
Income tax benefit										Income tax benefit	0		0		0		9
Effect of the adoption of the stranded tax effect accounting standard, net of tax	Effect of the adoption of the stranded tax effect accounting standard, net of tax	—		—		(488)		—		Effect of the adoption of the stranded tax effect accounting standard, net of tax	0		0		0		(488)

Net Change	Net Change	8,752		(6,345)		(8,658)		(11,386)		Net Change	4,001		(37,032)		23,240		(17,410)

Ending Balance	Ending Balance	$	(31,896)	$	(6,847)	$	(31,896)	$	(6,847)	Ending Balance	$	9,136	$	(40,648)	$	9,136	$	(40,648)

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

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

~~15. SHARE-BASED COMPENSATION PLANS~~

We issue share-based awards under the following programs: our Cabot Microelectronics Corporation 2012 Omnibus Incentive Plan, as amended effective March 7, 2017 ("OIP"); 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, and our 2001 Executive Officer Deposit Share Program. In March 2017, our stockholders approved the material terms of performance-based awards under the OIP for purposes of complying with Section 162(m) of the Internal Revenue Code of 1986, as amended.

~~INDEX~~

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

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

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

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

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

Three Months Ended June 30, Nine Months Ended June 30,
2020 2019 2020 2019
Cost of sales $ 625 $ 540 $ 2,154 $ 2,169
Research, development and technical 411 390 1,618 1,733
Selling, general and administrative 2,158 2,410 8,419 11,146
Total share-based compensation expense 3,194 3,340 12,191 15,048
Tax benefit (609) (670) (2,380) (3,121)
Total share-based compensation expense, net of tax $ 2,585 $ 2,670 $ 9,811 $ 11,927

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

~~INDEX~~

~~16.~~14. INCOME TAXES

The U.S. enacted the Consolidated Appropriations Act (“CAA”) in December 2020 and the American Rescue Plan (“Rescue Plan”) in March 2021. Both the CAA and Rescue Plan extend certain provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) ~~was enacted by~~and provide new Pandemic relief provisions. As with the ~~United States in March 2020. The~~ CARES Act, ~~includes provisions to support individuals~~the CAA and ~~businesses in the form of loans, grants, and tax changes, among other types of relief. The CARES Act~~Rescue Plan did not have a material impact on our ~~Provision~~(Benefit for) provision for income taxes for the three and ~~nine~~six months ended ~~June 30,~~March 31, 2021.

As a result of Impairment charges recorded during the quarter, the Company recorded an income tax benefit of $16,109 for the three months ended March 31, 2021, compared to income tax expense of $7,144 for the three months ended March 31, 2020. ~~We have not taken any loans or grants pursuant~~The Company recorded an income tax benefit of $8,563 for the six months ended March 31, 2021, compared to income tax expense of $18,025 for the ~~CARES Act or other United States Pandemic-related legislation.~~

six months ended March 31, 2020. The Company’s effective income tax rate was ~~27.0%~~9.7% and ~~22.5%~~6.8% for the three and ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, respectively, compared to an effective ~~income~~ tax rate of ~~52.1%~~17.8% and ~~36.9%~~20.1% for the three and ~~nine~~six months ended ~~June 30, 2019,~~March 31, 2020, respectively. The ~~decrease~~changes in our effective tax rate for the ~~nine~~three and six months ended ~~June 30, 2020~~March 31, 2021 compared to the prior year is primarily ~~attributable~~due to the ~~absence~~unfavorable impact of ~~discrete charge recorded in Q3 of FY19~~the impairment related to the ~~final regulations issued under the 2017 Tax Act,~~PIM and wood treatment reporting units, partially offset by higher tax benefit related to ~~share based compensation, and the absence of non-deductible costs related to the Acquisition.~~foreign derived intangible income.

~~17.~~

INDEX

15. EARNINGS (LOSS) PER SHARE

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

~~Basic and diluted earnings per share were calculated as follows:~~


		Three Months Ended June 30,						Nine Months Ended June 30,							Three Months Ended March 31,				Six Months Ended March 31,
		2020		2019		2020		2019			2021		2020		2021		2020
Numerator:	Numerator:									Numerator:
Net income available to common shares		$	34,525	$	18,878	$	105,973	$	59,458
Net (loss) income available to common shares										Net (loss) income available to common shares	$	(149,808)	$	32,899	$	(118,278)	$	71,448

Denominator:	Denominator:									Denominator:
Weighted average common shares	Weighted average common shares	29,079		29,064		29,157		28,399		Weighted average common shares	29,210		29,287		29,164		29,183
(Denominator for basic calculation)

Weighted average effect of dilutive securities	Weighted average effect of dilutive securities	377		504		446		525		Weighted average effect of dilutive securities	0		438		0		483
Diluted weighted average common shares	Diluted weighted average common shares	29,456		29,568		29,603		28,924		Diluted weighted average common shares	29,210		29,725		29,164		29,666
(Denominator for diluted calculation)

Earnings per share:

(Loss) earnings per share:										(Loss) earnings per share:

Basic	Basic	$	1.19	$	0.65	$	3.63	$	2.09	Basic	$	(5.13)	$	1.12	$	(4.06)	$	2.45

Diluted	Diluted	$	1.17	$	0.64	$	3.58	$	2.06	Diluted	$	(5.13)	$	1.11	$	(4.06)	$	2.41

~~Approximately 124 and 96 shares for~~For the three and ~~nine~~six months ended ~~June 30, 2020, respectively, and 144 and 204~~March 31, 2021, no dilutive shares ~~for~~were calculated, as the ~~three and nine months ended June 30, 2019, respectively, attributable to outstanding stock options were~~dilutive shares in a net loss situation would be anti-dilutive.

Shares excluded from the calculation of ~~Diluted~~diluted earnings per share as their inclusion would have been ~~anti-dilutive.~~anti-dilutive were as follows:


	Three Months Ended March 31,		Six Months Ended March 31,
	2021	2020	2021	2020
Outstanding stock options	0	111	0	79

~~INDEX~~

~~18.~~16. 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 have the following 2 reportable segments:

Electronic Materials

Electronic Materials includes products and solutions for the semiconductor ~~industry. We manufacture~~industry and ~~sell CMP consumables, including~~consists of our CMP slurries business, CMP pads business, and ~~polishing pads, and high-purity process~~electronic 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.

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 Acquisition~~acquisition and integration-related expenses, ~~the impact of fair value adjustments to inventory acquired from KMG,~~ certain costs related to the KMG-Bernuth warehouse fire, net of insurance recovery, impairment charges, 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 ~~2020~~2021 Short-Term Incentive Program ("STIP"). 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 are as follows:~~

Three Months Ended June 30, Nine Months Ended June 30,
2020 2019 2020 2019
Segment Revenue:
Electronic Materials:
CMP Slurries $ 117,680 $ 108,617 $ 359,828 $ 345,244
Electronic Chemicals 78,614 80,103 234,693 198,474
CMP Pads 24,073 23,403 65,476 71,868
Total Electronic Materials 220,367 212,123 659,997 615,586
Performance Materials 54,360 59,759 182,066 143,465
Total $ 274,727 $ 271,882 $ 842,063 $ 759,051

~~Capital expenditures by segment are as follows:~~

Three Months Ended June 30, Nine Months Ended June 30,
2020 2019 2020 2019
Capital Expenditures:
Electronic Materials $ 6,141 $ 11,293 $ 19,720 $ 27,842
Performance Materials 33,550 1,286 79,247 2,909
Corporate 3,900 852 8,967 3,096
Total $ 43,591 $ 13,431 $ 107,934 $ 33,847

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

Three Months Ended June 30, Nine Months Ended June 30,
2020 2019 2020 2019
Segment adjusted EBITDA:
Electronic Materials $ 76,855 $ 70,859 $ 227,662 $ 220,594
Performance Materials 26,959 27,425 84,370 63,152
Unallocated corporate expenses (11,773) (12,527) (38,226) (35,621)
Interest expense (10,406) (12,757) (33,079) (32,978)
Interest income 131 417 589 2,004
Depreciation and amortization (31,324) (26,587) (95,516) (70,476)
Acquisition and integration-related expenses (2,735) (2,910) (7,785) (33,108)
Charge for fair value write-up of acquired inventory sold — (42) — (14,869)
Costs related to KMG-Bernuth warehouse fire, net of insurance recovery (622) (4,450) (1,220) (4,450)
Net costs related to restructuring of the wood treatment business 293 — 293 —
Costs related to the Pandemic, net of grants received (112) — (349) —
Income before income taxes $ 47,266 $ 39,428 $ 136,739 $ 94,248

The two segments operate independently and serve different markets and customers, as a result there are no sales between segments. Revenue from external customers by segment are as follows:


	Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020
Segment Revenue:
Electronic Materials:
CMP Slurries	$	140,194	$	119,822	$	274,915	$	242,148
Electronic Chemicals	80,098		78,497		160,104		156,079
CMP Pads	22,255		20,590		44,326		41,403
Total Electronic Materials	242,547		218,909		479,345		439,630

Performance Materials:
PIM	25,987		44,480		51,894		89,621
Wood Treatment	15,546		14,974		32,869		25,648
QED	6,448		5,830		14,283		12,437
Total Performance Materials	47,981		65,284		99,046		127,706

Total	$	290,528	$	284,193	$	578,391	$	567,336

Capital expenditures by segment are as follows:


	Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020
Capital Expenditures:
Electronic Materials	$	6,258	$	5,094	$	11,692	$	13,579
Performance Materials	957		29,328		2,267		45,697
Corporate	2,500		3,555		5,975		5,067
Total	$	9,715	$	37,977	$	19,934	$	64,343

Adjusted EBITDA by segment is as follows:


	Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020
Net (loss) income	$	(149,808)	$	32,899	$	(118,278)	$	71,448
Interest expense	9,508		10,753		19,116		22,673
Interest income	(13)		(143)		(36)		(458)
Income taxes	(16,109)		7,144		(8,563)		18,025
Depreciation and amortization	32,289		32,550		64,180		64,192
EBITDA	(124,133)		83,203		(43,581)		175,880
Impairment charges	208,221		0		215,568		0
Acquisition and integration-related expenses	2,167		2,285		4,536		5,050
Costs related to the Pandemic, net of grants received	(421)		237		841		237
Net costs related to restructuring of the wood treatment business	46		0		72		0
Costs related to KMG-Bernuth warehouse fire, net of insurance recovery	(1,076)		206		(1,076)		598
Consolidated adjusted EBITDA	$	84,804	$	85,931	$	176,360	$	181,765

Segment adjusted EBITDA:
Electronic Materials	$	81,315	$	69,603	$	162,071	$	150,807
Performance Materials	18,750		29,932		41,725		57,411
Unallocated corporate expenses	(15,261)		(13,604)		(27,436)		(26,453)
Consolidated Adjusted EBITDA	$	84,804	$	85,931	$	176,360	$	181,765

The unallocated portions of corporate functions, including finance, legal, human resources, information technology, and corporate development, are not directly attributable to a reportable segment.

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17. SUBSEQUENT EVENT

On April 1, 2021, CMC completed its acquisition of 100% of International Test Solutions, LLC (“ITS”), for approximately $125.0 million in cash, subject to post-closing adjustments. The results of ITS will be included in the Consolidated Financial Statements from the date of acquisition and will be reported in the Company’s Electronic Materials segment.

INDEX

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

The following ~~"Management's~~“Management's Discussion and Analysis of Financial Condition and Results of Operations,"” as well as disclosures included elsewhere in this Report on Form 10-Q, include ~~"forward-looking statements"~~“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 ("(“the ~~Act"~~Act”). This Act provides a safe harbor for forward-looking statements to encourage companies to provide prospective information about themselves so long as they identify these statements as forward-looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results. All statements other than statements of historical fact we make in this Report on Form 10-Q are forward-looking and address a variety of subjects including, for example, future sales and operating results; growth or contraction, and trends in the industries and markets in which the Company participates, 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,~~ 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~~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 Pandemic, and the enactment of trade sanctions, tariffs, or other similar matters; the generation, protection and acquisition of intellectual property, and litigation related to such intellectual property or third party intellectual property; environmental, health and safety laws and regulations, and related compliance; the operation of facilities by ~~Cabot Microelectronics;~~ the ~~Company's~~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 ~~Tax Act;~~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~~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’~~CMC’s beliefs, plans and expectations, are forward-looking statements. Such statements are based on current expectations of ~~Cabot Microelectronics’~~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. For information about factors that could cause actual results to differ materially from those described in the forward-looking statements, please refer to ~~Cabot Microelectronics’~~CMC’s filings with the SEC, including the risk factors contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020 and this Report on Form 10-Q. Except as required by law, ~~Cabot Microelectronics~~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” describes some, but not all, of the factors that could cause these differences. The section entitled "Risk Factors" describes some, but not all, of the factors that could cause these differences.

This following discussion and analysis, should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2019,~~2020, including the Consolidated Financial Statements and related notes thereto.

~~THIRD~~RECENT EVENTS

On April 1, 2021, CMC completed its acquisition of 100% of ITS, for approximately $125.0 million of cash, subject to post-closing adjustments, which was funded from cash on hand. The acquisition of ITS, which designs and produces high-performance consumables used to optimize critical semiconductor testing processes, expands the product offerings that are part of our Electronic Materials business segment.

SECOND QUARTER OF FISCAL ~~2020~~2021 OVERVIEW

Cabot Microelectronics Corporation (“Cabot Microelectronics”, “the Company”, “us”, “we”, or “our”) is a leading global supplier of consumable materials to semiconductor manufacturers and pipeline companies. The Company's products play a critical role in the production of advanced semiconductor devices, helping to enable the manufacture of smaller, faster and more complex devices by its customers. The Consolidated Financial Statements included in this Report on Form 10-Q include the financial results of KMG since the Acquisition Date. We operate our business within two reportable segments: Electronic Materials and Performance Materials. The Electronic Materials segment consists of our heritage CMP slurries and polishing pads businesses, as well as the KMG electronic chemicals business. The Performance Materials segment includes KMG’s heritage pipeline performance and wood treatment businesses, and our heritage QED business. For additional information, refer to Item 1 of Part I of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

~~The global spread of~~While the Pandemic ~~has created~~continues to cause significant global macroeconomic uncertainty and ~~economic~~ disruption worldwide and in the countries and locations in which we and our customers and suppliers ~~operate. Our~~operate, our business in our fiscal second quarter of 2021 showed continued resiliency and overall strength in our Electronic Materials segment. We have experienced solid demand from our semiconductor customers, which represents approximately 80% of our revenue, as certain sectors such as cloud, PCs and servers continued to show strength, continuing to be driven by work-from-home and e-learning environments, as well as the ongoing recovery in areas such as industrial and automotive sectors. Throughout the Pandemic, our primary focus has been and continues to be on the health and well-being of our employees and the ongoing operation of our facilities worldwide according to our business continuity plans, which we refine on an ongoing basis.

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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~~to have a negative effect on worldwide oil demand and ~~gas industry,~~transport, resulting in lower demand for our ~~pipeline performance products~~PIM products. As a result of lower than anticipated recovery and a near-to-mid term increase in raw material cost for the PIM business, we recorded an impairment charge of $201.6 million in our ~~third~~second fiscal quarter. ~~Demand from our semiconductor customers, which represents approximately 80% of our revenue, remained stable~~However, we remain optimistic in our ~~third fiscal quarter~~ability to drive growth in our PIM business, as the industry recovers and we execute on strategic initiatives, which include further developing our R&D product pipeline, and capturing new opportunities and market adjacencies.

In addition to the continued impact of the Pandemic, in February, the wood treatment and PIM reporting units were impacted by adverse weather across the southeast U.S., which caused some delays to operations and shipments. However, the adverse weather did not have a ~~transition to work-from-home environment benefited certain markets such as cloud, PCs and servers, offsetting weakness in industrial and automotive.~~material impact on our quarterly results.

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

~~Third~~Second Quarter Key Financial Results

Our consolidated results of operations were as follows:


Dollars in thousands	Dollars in thousands	Three Months Ended June 30,								Dollars in thousands		Three Months Ended March 31,
		2020			2019				2021			2020
Revenue	Revenue	$	274,727		$	271,882		Revenue	$	290,528		$	284,193
Net income		$	34,525		$	18,878
Net (loss) income								Net (loss) income	$	(149,808)		$	32,899
Adjusted EBITDA	Adjusted EBITDA	$	92,041		$	85,757		Adjusted EBITDA	$	84,804		$	85,931
Adjusted EBITDA Margin	Adjusted EBITDA Margin	33.5		%	31.5		%	Adjusted EBITDA Margin	29.2		%	30.2		%

Our ~~third~~second quarter of ~~2020~~2021 consolidated ~~results were not materially impacted by the Pandemic. Growth in~~revenue benefited from stronger demand for our CMP slurries products, partially offset by lower demand for our PIM products due to the Pandemic. Consolidated net (loss) income declined in the current year due to the impairment charges recorded for wood treatment and ~~pads in addition~~PIM, offset by impact of higher revenues. Adjusted EBITDA decreased due to higher professional fees.

INDEX

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the changes in balances on the Consolidated Statement of Income (Loss):


	Three Months Ended March 31,						Six Months Ended March 31,
(Dollars In thousands)	2021		2020	$ Change		% Change	2021		2020		$ Change		% Change

Revenue	$	290,528		$	284,193		$	6,335	2.2	%	$	578,391		$	567,336	$	11,055	1.9	%
Cost of sales	166,782			163,091			3,691		2.3	%	331,741			317,552		14,189		4.5	%
Gross profit	123,746			121,102			2,644		2.2	%	246,650			249,784		(3,134)		(1.3	%)

Research, development and technical	12,925			13,230			(305)		(2.3	%)	25,353			26,041		(688)		(2.6	%)
Selling, general and administrative	58,538			56,209			2,329		4.1	%	114,458			110,648		3,810		3.4	%
Impairment charges	208,221			—			208,221				215,568			—		215,568
Total operating expenses	279,684			69,439			210,245		302.8	%	355,379			136,689		218,690		160.0	%

Operating (loss) income	(155,938)			51,663			(207,601)		(401.8	%)	(108,729)			113,095		(221,824)		(196.1	%)
Interest expense	9,508			10,753			(1,245)		(11.6	%)	19,116			22,673		(3,557)		(15.7	%)
Interest income	13			143			(130)		(90.9	%)	36			458		(422)		(92.1	%)
Other (expense) income, net	(484)			(1,010)			526		52.1	%	968			(1,407)		2,375		168.8	%
(Loss) income before income taxes	(165,917)			40,043			(205,960)		(514.3	%)	(126,841)			89,473		(216,314)		(241.8	%)
(Benefit from) provision for income taxes	(16,109)			7,144			(23,253)		(325.5	%)	(8,563)			18,025		(26,588)		(147.5	%)

Net (loss) income	$	(149,808)		$	32,899		$	(182,707)	(555.4	%)	$	(118,278)		$	71,448	$	(189,726)	(265.5	%)

Most of CMC’s foreign operations maintain their accounting records in their local currencies. As a result, period to period comparability of results of operations is affected by fluctuations in exchange rates. The impact on comparability is not material in any given period.

REVENUE

Revenue was $290.5 million for the three months ended March 31, 2021, which represented an increase of 2.2%, or $6.3 million, from the three months ended March 31, 2020, primarily due to stronger demand for the Company's CMP slurries products, partially offset by lower demand for PIM products due to the impact of the Pandemic.

Revenue was $578.4 million for the six months ended March 31, 2021, which represented an increase of 1.9%, or $11.1 million, from the six months ended March 31, 2020, primarily due to stronger demand for the Company's CMP slurries and electronic chemicals products and higher prices for the Company’s wood treatment products, partially offset by lower demand for PIM products due to the impact of the Pandemic.

COST OF SALES

Cost of sales was $166.8 million for the three months ended March 31, 2021, which represented an increase of 2.3%, or $3.7 million, from the three months ended March 31, 2020, primarily due to the increase in revenue and higher fixed costs.

Cost of sales was $331.7 million for the six months ended March 31, 2021, which represented an increase of 4.5%, or $14.2 million, from the six months ended March 31, 2020, primarily due to the increase in revenue and higher fixed costs as a result of the timing of the $5.3 million manufacturing variance recorded in the prior year.

INDEX

GROSS MARGIN

Our gross margin was 42.6% for the three months ended March 31, 2021, which was flat compared to 42.6% for the three months ended March 31, 2020.

Our gross margin was 42.6% for the six months ended March 31, 2021, compared to 44.0% for the six months ended March 31, 2020. The decrease was primarily due to higher fixed costs as a result of the timing of manufacturing variance recorded in the prior year, partially offset by product mix and price increases.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses were $58.5 million for the three months ended March 31, 2021, which represented an increase of 4.1%, or $2.3 million, from the three months ended March 31, 2020. This was primarily due to a $4.1 million increase in professional fees, partially offset by a $2.1 million decrease in amortization expense driven by ~~pricing~~impairment of intangible assets of the wood treatment business.

Selling, general and administrative expenses were $114.5 million for the six months ended March 31, 2021, which represented an increase of 3.4%, or $3.8 million, from the six months ended March 31, 2020. This was primarily due to a $4.7 million increase in professional fees and a $2.4 million increase in share-based compensation expense, partially offset by a $3.1 million decrease in amortization expense driven by impairment of intangible assets of the wood treatment business.

IMPAIRMENT CHARGES

Impairment charges were $208.2 million and $215.6 million for the three and six months ended March 31, 2021, respectively, due to impairment of goodwill in the PIM reporting unit, as well as the impairment of long-lived assets, intangible assets and goodwill of the wood treatment business ~~more than offset~~as a result of the ~~decline in demand for our pipeline performance products as~~planned closure of the ~~business faced significantly softer oil and gas industry conditions. See “Use~~wood treatment facilities by approximately the end of ~~Certain GAAP and Non-GAAP Financial Information” later in Item 2 of this Report on Form 10-Q for definitions and reconciliations of adjusted EBITDA and adjusted EBITDA margin.~~

~~CRITICAL ACCOUNTING POLICIES AND ESTIMATES AND EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS~~

We discuss our critical accounting estimates and effects of recent accounting pronouncements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of Part II of our Annual Report on Form 10-K for the fiscalcalendar year ~~ended September 30, 2019. Except for the discussion in Note 2 of "Notes to the Consolidated Financial Statements" of this Report on Form 10-Q,~~2021. There were no ~~material changes have been made to the Company’s significant accounting policies~~impairment charges during the ~~first nine~~three and six months ~~of fiscal~~ended March 31, 2020. See ~~Note 2~~Notes 6 and 7 of "Notes to the Consolidated Financial Statements" of this Report on Form 10-Q for ~~a discussion of new accounting pronouncements.~~additional discussion.

INTEREST EXPENSE

~~INDEX~~

~~RESULTS OF OPERATIONS~~

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

~~REVENUE~~

~~Revenue~~Interest expense was ~~$274.7~~$9.5 million for the three months ended ~~June 30, 2020,~~March 31, 2021, which ~~is an increase~~represented a decrease of ~~1.0%, or $2.8~~$1.2 million from the three months ended ~~June 30, 2019, primarily due to increased revenue from the Company's CMP slurries, CMP pads, and wood treatment products, offset by lower revenue in pipeline performance products.~~

~~COST OF SALES~~

~~Cost of sales~~March 31, 2020. Interest expense was ~~$153.0~~$19.1 million for the ~~three~~six months ended ~~June 30, 2020,~~March 31, 2021, which represented a decrease of ~~2.2%, or $3.5~~$3.6 million from the ~~three~~six months ended ~~June 30, 2019, primarily due to lower sales volume in the Company's pipeline materials and electronic chemicals products, partially offset by higher fixed costs.~~

~~GROSS MARGIN~~

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

~~SELLING, GENERAL AND ADMINISTRATIVE~~

~~Selling, general and administrative expenses~~decreases were $51.8 million for the three months ended June 30, 2020, which is an increase of 1.7%, or $0.9 million, from the three months ended June 30, 2019. The increase was primarily due to $4.0 million of higher amortization expense associated with re-valuing KMG assets to fair value during fiscal year 2019 offset by $1.7 million of lower staffing-related costs.

~~INTEREST EXPENSE~~

~~Interest expense was $10.4 million for the three months ended June 30, 2020, which is a decrease of $2.4 million from the three months ended June 30, 2019. The decrease was~~ primarily due to a decline in the LIBOR rate for the unhedged portion of the Company's Term Loan Facility and a lower outstanding term loan balance due to ~~repayments, and~~repayments.

OTHER (EXPENSE) INCOME, NET

Other expense was $0.5 million for the three months ended March 31, 2021, compared to Other expense of $1.0 million for the three months ended March 31, 2020. The decrease in Other expense was primarily due to a lower ~~interest rate~~loss on ~~our borrowings resulting from~~foreign currency transactions.

Other income was $1.0 million for the ~~refinancing~~six months ended March 31, 2021, compared to Other expense of ~~our Amended Credit Agreement in~~$1.4 million for the ~~first quarter of fiscal~~six months ended March 31, 2020. The change was primarily due to foreign currency gains.

(BENEFIT FROM) PROVISION FOR INCOME TAXES

As a result of Impairment charges recorded during the quarter, the Company recorded an income tax benefit of $16.1 million for the three months ended March 31, 2021, compared to income tax expense of $7.1 million for the three months ended March 31, 2020. The Company’s effective income tax rate for the ~~third~~second quarter of fiscal ~~2020~~2021 was ~~27.0%~~9.7%, compared to ~~52.1%~~17.8% in the same quarter last year. The ~~decrease~~change in our effective tax rate is primarily driven by the ~~absence~~unfavorable impact of ~~a discrete charge recorded in~~ the ~~three months ended June 30, 2019~~impairment related to the ~~financial regulations issued under~~PIM and wood treatment reporting units, partially offset by higher tax benefit related to foreign derived intangible income.

As a result of Impairment charges, the ~~Tax Act.~~

~~NET INCOME~~

~~Net~~Company recorded an income ~~was $34.5~~tax benefit of $8.6 million for the ~~three~~six months ended ~~June 30, 2020, which is an increase~~March 31, 2021, compared to income tax expense of ~~82.9%, or $15.6 million, from the three months ended June 30, 2019. Net income benefited from higher gross margin, lower Interest expense, and a lower Provision for income taxes.~~

~~INDEX~~

~~NINE MONTHS ENDED JUNE 30, 2020, VERSUS NINE MONTHS ENDED JUNE 30, 2019~~

~~REVENUE~~

~~Revenue was $842.1~~$18.0 million for the ~~nine~~six months ended June 30, 2020, which represented an increase of 10.9%, or $83.0 million, from the nine months ended June 30, 2019. The increase was primarily due to the addition of the KMG businesses for the full period in fiscal 2020, selected price increases, and increased revenue from CMP slurries, offset by lower revenue from CMP pads.

~~COST OF SALES~~

Total cost of sales was $470.5 million for the nine months ended June 30, 2020, which is an increase of 9.5%, or $41.0 million, from the nine months ended June 30, 2019. The increase in Cost of sales was primarily due to the addition of the KMG businesses for the full period in fiscalMarch 31, 2020.

~~GROSS MARGIN~~

~~Our gross margin was 44.1% for the nine months ended June 30, 2020, compared to 43.4% for the nine months ended June 30, 2019. The increase was primarily due to select price increases.~~

~~SELLING, GENERAL AND ADMINISTRATIVE~~

Selling, general and administrative expenses were $162.5 million for the nine months ended June 30, 2020, which was flat from the nine months ended June 30, 2019. This was primarily due to $25.3 million of lower Acquisition and integration-related costs, partially offset by $20.2 million of higher amortization expense associated with re-valuing KMG assets to fair value during fiscal year 2019 and $3.6 million of higher staffing-related costs, including incentive compensation costs primarily resulting from higher expense from the STIP.

~~INTEREST EXPENSE~~

Interest expense was $33.1 million for the nine months ended June 30, 2020, which is an increase of $0.1 million from the nine months ended June 30, 2019. The increase was primarily due to the longer period of time covered within the nine months ended June 30, 2020 compared to the nine months ended June 30, 2019 under the debt borrowing to finance the Acquisition in November 2018. The increase was partially offset by a lower interest rate on our borrowings resulting from refinancing our Amended Credit Agreement during the first quarter of fiscal 2020, as well as the decrease in LIBOR rate for the unhedged portion of the Term Loan Facility.

~~PROVISION FOR INCOME TAXES~~

The Company’s effective income tax rate was ~~22.5%~~6.8% for the ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, compared to ~~36.9%~~20.1% for the ~~nine~~six months ended ~~June 30, 2019.~~March 31, 2020. The ~~decrease~~change in our effective income tax rate is primarily ~~attributable to~~driven by the ~~absence~~unfavorable impact of ~~discrete charge recorded in nine months ended June 30, 2019~~the impairment related to the ~~final regulations issued under the Tax Act,~~PIM and wood treatment reporting units, partially offset by higher tax benefit related to ~~share based~~share-based compensation ~~for the nine months ended June 30, 2020,~~ and ~~the absence of non-deductible costs related to the Acquisition for the nine months ended June 30, 2020.~~foreign derived intangible income.

INDEX

NET (LOSS) INCOME

Net ~~income~~loss was ~~$106.0~~$149.8 million for the ~~nine~~three months ended ~~June 30, 2020, which is an increase~~March 31, 2021, compared to Net income of ~~78.2%, or $46.5~~$32.9 million ~~from~~for the ~~nine~~three months ended ~~June 30, 2019.~~March 31, 2020. Net loss was $118.3 million for the six months ended March 31, 2021, compared to Net income ~~benefited from~~of $71.4 million the ~~addition of the KMG businesses for the full period in fiscal 2020 and lower Acquisition and integration-related expenses,~~six months ended March 31, 2020. The changes were due to impairment charges, partially offset by ~~increased amortization and depreciation associated with re-valuing KMG assets to fair value.~~lower Interest expense.

2925

INDEX

SEGMENT ANALYSIS

The segment data should be read in conjunction with our unaudited Consolidated Financial Statements and related notes included in Part 1, Item 1 of this Report on Form 10-Q.

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


Dollars in thousands	Dollars in thousands	Three Months Ended June 30,						Nine Months Ended June 30,									Dollars in thousands	Three Months Ended March 31,										Six Months Ended March 31,
		2020		2019		2020		2019			2021			2020				$ Change		% Change		2021			2020			$ Change		% Change
Segment Revenue:	Segment Revenue:									Segment Revenue:
Electronic Materials	Electronic Materials	$	220,367	$	212,123	$	659,997	$	615,586	Electronic Materials	$	242,547		$	218,909			$	23,638	10.8	%	$	479,345		$	439,630		$	39,715	9.0	%
Performance Materials	Performance Materials	54,360		59,759		182,066		143,465		Performance Materials	47,981			65,284				(17,303)		(26.5	%)	99,046			127,706			(28,660)		(22.4	%)
Total Revenue	Total Revenue	$	274,727	$	271,882	$	842,063	$	759,051	Total Revenue	$	290,528		$	284,193			$	6,335	2.2	%	$	578,391		$	567,336		$	11,055	1.9	%

Adjusted EBITDA:										Adjusted EBITDA:
Electronic Materials										Electronic Materials	$	81,315		$	69,603			$	11,712	16.8	%	$	162,071		$	150,807		$	11,264	7.5	%
Performance Materials										Performance Materials	18,750			29,932				(11,182)		(37.4	%)	41,725			57,411			(15,686)		(27.3	%)
Unallocated corporate expenses										Unallocated corporate expenses	(15,261)			(13,604)				(1,657)		(12.2	%)	(27,436)			(26,453)			(983)		(3.7	%)
Consolidated Adjusted EBITDA										Consolidated Adjusted EBITDA	$	84,804		$	85,931			$	(1,127)	(1.3	%)	$	176,360		$	181,765		$	(5,405)	(3.0	%)

Adjusted EBITDA margin:										Adjusted EBITDA margin:
Electronic Materials										Electronic Materials	33.5		%	31.8		%		170 bpts				33.8		%	34.3		%	-50 bpts
Performance Materials										Performance Materials	39.1		%	45.8		%		-670 bpts				42.1		%	45.0		%	-290 bpts

Dollars in thousands Three Months Ended June 30, Nine Months Ended June 30,
2020 2019 2020 2019
Adjusted EBITDA:
Electronic Materials $ 76,855 $ 70,859 $ 227,662 $ 220,594
Performance Materials 26,959 27,425 84,370 63,152
Unallocated Corporate Expenses (11,773) (12,527) (38,226) (35,621)
Consolidated Adjusted EBITDA $ 92,041 $ 85,757 $ 273,806 $ 248,125

Three Months Ended June 30, Nine Months Ended June 30,
2020 2019 2020 2019
Adjusted EBITDA margin:
Electronic Materials 34.9 % 33.4 % 34.5 % 35.8 %
Performance Materials 49.6 % 45.9 % 46.3 % 44.0 %

~~INDEX~~

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

ELECTRONIC MATERIALS

For the three months ended March 31, 2021 compared to the three months ended March 31, 2020, the $23.6 million increase in Electronic Materials revenue was primarily driven by increased demand for our CMP slurries, electronic chemicals, and CMP pads products. The ~~$8.2~~$11.7 million increase in Electronic Materials adjusted EBITDA was primarily driven by the EBITDA associated with the increase in revenue, partially offset by higher fixed costs. The 170 bpts increase in Electronic Materials adjusted EBITDA margin was primarily driven by product mix, partially offset by higher fixed costs.

For the six months ended March 31, 2021 compared to the six months ended March 31, 2020, the $39.7 million increase in Electronic Materials revenue was driven by increased ~~sales volume of~~demand for our CMP slurries, ~~partially offset by lower~~ electronic chemicals, ~~sales volume.~~and CMP pads products. The ~~$6.0~~$11.3 million increase in Electronic Materials adjusted EBITDA ~~and 150 basis points~~was driven by the EBITDA associated with the increase in revenue, partially offset by higher fixed manufacturing costs as a result of the $5.3 million manufacturing variance recorded in the prior year. The 50 bpts decrease in Electronic Materials adjusted EBITDA margin ~~were~~was primarily ~~driven by product mix, partially offset by~~due to higher fixed manufacturing costs.

PERFORMANCE MATERIALS

~~The $5.4 million decrease in~~For the three months ended March 31, 2021 compared to the three months ended March 31, 2020, Performance Materials revenue decreased $17.3 million and ~~$0.5 million decrease in~~adjusted EBITDA decreased $11.2 million. For the six months ended March 31, 2021 compared to the six months ended March 31, 2020, Performance Materials revenue decreased $28.7 million and adjusted EBITDA decreased $15.7 million. These decreases were driven by lower ~~sales~~demand for ~~pipeline performance~~PIM products ~~driven by~~due to the ~~decline in the oil and gas industry,~~Pandemic, partially offset by higher ~~selling prices~~sales for wood treatment products. ~~The 370 basis points increase in Performance Materials~~For the three months ended March 31, 2021 compared to the three months ended March 31, 2020 adjusted EBITDA margin ~~was~~decreased 670 bpts and for the six months ended March 31, 2021 compared to the six months ended March 31, 2020 adjusted EBITDA margin decreased 290 bpts. These decreases were primarily driven by lower volume leverage for the PIM business, partially offset by higher selling prices for wood treatment products.

~~NINE MONTHS ENDED JUNE 30, 2020, VERSUS NINE MONTHS ENDED JUNE 30, 2019~~

~~ELECTRONIC MATERIALS~~

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

~~PERFORMANCE MATERIALS~~

The $38.6 million increase in Performance Materials revenue and $21.2 million increase in Performance Materials adjusted EBITDA were driven by a full year of KMG’s performance materials businesses post-Acquisition and higher selling prices for our wood treatment products. The 230 basis points increase in Performance Materials adjusted EBITDA margin was primarily driven by higher selling prices for wood treatment products.

3126

INDEX

USE OF CERTAIN GAAP AND NON-GAAP FINANCIAL INFORMATION

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's~~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~~2021 STIP. A similar adjusted EBITDA calculation is also used by our lenders for a key debt compliance ratio.

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

The non-GAAP financial ~~information~~measures 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. 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.

RECONCILIATION OF NET (LOSS) INCOME TO ADJUSTED EBITDA


In thousands	Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020
Net (loss) income	$	(149,808)	$	32,899	$	(118,278)	$	71,448
Interest expense	9,508		10,753		19,116		22,673
Interest income	(13)		(143)		(36)		(458)
Income taxes	(16,109)		7,144		(8,563)		18,025
Depreciation and amortization	32,289		32,550		64,180		64,192
EBITDA	(124,133)		83,203		(43,581)		175,880
Impairment charges	208,221		—		215,568		—
Acquisition and integration-related expenses	2,167		2,285		4,536		5,050
Costs related to the Pandemic, net of grants received	(421)		237		841		237
Net costs related to restructuring of the wood treatment business	46		—		72		—
Costs related to KMG-Bernuth warehouse fire, net of insurance recovery	(1,076)		206		(1,076)		598
Adjusted EBITDA	$	84,804	$	85,931	$	176,360	$	181,765


In thousands	Three Months Ended March 31,				Six Months Ended March 31,
	2021		2020		2021		2020
Adjusted EBITDA:
Electronic Materials	$	81,315	$	69,603	$	162,071	$	150,807
Performance Materials	18,750		29,932		41,725		57,411
Unallocated corporate expenses	(15,261)		(13,604)		(27,436)		(26,453)
Consolidated Adjusted EBITDA	$	84,804	$	85,931	$	176,360	$	181,765

INDEX

~~RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA~~

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

Dollars in thousands Three Months Ended June 30, Nine Months Ended June 30,
2020 2019 2020 2019
Net income $ 34,525 $ 18,878 $ 105,973 $ 59,458
Interest expense 10,406 12,757 33,079 32,978
Interest income (131) (417) (589) (2,004)
Income taxes 12,741 20,550 30,766 34,790
Depreciation and amortization 31,324 26,587 95,516 70,476
EBITDA * 88,865 78,355 264,745 195,698
Acquisition and integration-related expenses 2,735 2,910 7,785 33,108
Charge for fair value write-up of acquired inventory sold — 42 — 14,869
Costs related to KMG-Bernuth warehouse fire, net of insurance recovery 622 4,450 1,220 4,450
Net costs related to restructuring of the wood treatment business** (293) — (293) —
Costs related to the Pandemic, net of grants received 112 — 349 —
Adjusted EBITDA *** $ 92,041 $ 85,757 $ 273,806 $ 248,125

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

As of ~~June 30, 2020,~~March 31, 2021, we had ~~$354.7~~$324.8 million of cash and cash equivalents compared with ~~$188.5~~$257.4 million as of September 30, ~~2019.~~2020. On ~~June 30, 2020, $134.6~~March 31, 2021, $116.4 million of cash and cash equivalents was held in foreign subsidiaries. Our total liquidity as of ~~June 30, 2020~~March 31, 2021 was ~~$404.7~~$524.8 million compared to ~~$388.5~~$457.4 million as of September 30, ~~2019~~2020 (including ~~$50.0 million and~~ $200.0 million ~~respectively,~~ 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 byfor additions of property, plant and equipment, the repurchases of our common stock and payments of quarterly cash dividends.

~~INDEX~~

On April 1, 2021, we completed the acquisition of ITS for approximately $125.0 million in cash, which was funded from cash on hand as of March 31, 2021.

Total debt, consisting of principal outstanding on our Term Loan Facility, ~~and Revolving Credit Facility,~~ amounted to ~~$1,076.0~~$917.6 million ($~~1,091.7~~931.0 million in aggregate principal amount less ~~$15.7~~$13.5 million of debt issuance costs) as of ~~June 30, 2020~~March 31, 2021 and ~~$941.8~~$921.4 million ($~~959.7~~936.4 million in aggregate principal amount less ~~$17.9~~$14.9 million of debt issuance costs) as of September 30, ~~2019.~~2020. During the three months ended March 31, 2021 there were no borrowings under our Revolving Credit Facility and no balance was outstanding as of March 31, 2021.

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 ~~June 30, 2020,~~March 31, 2021, our maximum first lien secured net leverage ratio was ~~1.96~~1.59 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 are in compliance with these covenants as of ~~June 30, 2020.~~March 31, 2021 and we expect to remain in compliance with our debt covenants during fiscal 2021 and beyond.

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. During the three months ended June 30, 2020, there were no additional borrowings under our Revolving Credit Facility and as of June 30, 2020, $150.0 million was outstanding.

~~In January 2016,~~2021, our Board of Directors authorized an increase in the amount available under our share repurchase program to $150.0 million. During the ~~third~~second quarter of fiscal ~~2020,~~2021, we repurchased ~~160~~5 thousand shares under ~~this program,~~the former authorization, and ~~$36.3~~$150.0 million authorization remained at the end of the quarter. The timing, manner, price and amounts of repurchases are determined at the Company's discretion, and the share repurchase program may be suspended, terminated or modified at any time for any reason. The repurchase program does not obligate the Company to acquire any specific number of shares. To date, we have funded share purchases under our share repurchase program from our available cash 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 ~~periodically~~ increased the dividend to its current ~~quarterly~~ level of ~~$0.44~~$0.46 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~~there remains ongoing Pandemic-created uncertainty in worldwide economic conditions and in those of the industries in which we participate, and whether with respect to the impact of the Pandemic or in pursuit of corporate development or other initiatives, we may need to raise additional funds in the future through equity or debt financing, or other arrangements. Depending on future conditions in the capital and credit markets, we could encounter difficulty securing additional financing in the type or amount necessary to pursue these objectives.

Operating Activities

We generated ~~$204.1~~$123.5 million in cash flows from operating activities in the first ~~nine~~six months of fiscal ~~2020,~~2021, compared to ~~$117.0~~$112.3 million in the first ~~nine~~six months of fiscal ~~2019.~~2020. The increase in operating cash flows ~~of $87.1 million~~ was due to an$9.2 million of changes in operating assets and liabilities and a $2.0 million increase of Net income adjusted for non-cash reconciling items.

Investing Activities

In the first ~~nine~~six months of fiscal ~~2020,~~2021, net cash used in investing activities was ~~$105.4~~$20.8 million, compared to ~~$1,209.7~~$57.6 million in the first ~~nine~~six months of fiscal ~~2019. The decrease~~2020. This was primarily driven by ~~the use of $1,182.2 million for the Acquisition during the first quarter of fiscal 2019. This was partially offset by an increase~~a decrease in capital expenditures of ~~$74.3~~$38.1 million in the first ~~nine~~six months of fiscal 2021 compared to the first six months of fiscal 2020 ~~compared to the first nine months of fiscal 2019~~ driven by the plant expansion in ~~the United States related to~~fiscal 2020 in our Performance Materials segment.

3428

INDEX

Financing Activities

In the first ~~nine~~six months of fiscal ~~2020,~~2021, cash flows used in financing activities were $36.7 million, compared to cash flows provided by financing activities ~~were $67.2 million, compared to $908.7~~of $98.1 million in the first ~~nine~~six months of fiscal ~~2019. The decrease~~2020. This was mainly driven by ~~net debt proceeds of $1,043.6~~the draw on the Company’s revolving credit facility for $150.0 million induring the first ~~nine months of fiscal 2019 used to fund the Acquisition compared to $150.0 million draw down on our Revolving Credit Facility in the first nine~~six months of fiscal 2020 as ~~discussed above. Further,~~a precautionary measure to preserve financial flexibility at the onset of the Pandemic. This was partially offset by repayments under the Term Loan Facility of $5.3 million in the first six months of fiscal 2021 compared to $18.0 million in the first six months of fiscal 2020, as well as cash paid for repurchases of common stock ~~increased from $9.5~~under the Share Repurchase Program of $10.0 million in the first ~~nine~~six months of fiscal ~~2019~~2021 compared to ~~$38.1~~$16.4 million in the first ~~nine~~six months of fiscal 2020. ~~This was partially offset by repayments of $18.0 million and $102.7 million under the Term Loan Facility during the first nine months of fiscal 2020 and 2019, respectively.~~

OFF-BALANCE SHEET ARRANGEMENTS

At ~~June 30, 2020~~March 31, 2021 and September 30, ~~2019,~~2020, 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.~~partnerships.

CONTRACTUAL OBLIGATIONS

There have been no material changes to the Company's contractual obligations during fiscal ~~2020,~~2021, except as discussed below.

As of March 31, 2021, the Company had a purchase agreement to acquire ITS for approximately $125.0 million in cash, subject to post-closing adjustments. This acquisition closed on April 1, 2021.

We have been operating under a multi-year supply agreement ~~with Cabot Corporation, which has not been a related party since 2002,~~ for the purchase of ~~fumed silica,~~certain raw materials, which runs through December 2022. As of ~~June 30, 2020,~~March 31, 2021, purchase obligations include an aggregate amount of ~~$24.7~~$13.8 million of contractual commitments related to this agreement.

Refer to Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2019,~~2020, for additional information regarding our contractual obligations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES AND EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~EFFECT OF FOREIGN CURRENCY EXCHANGE RATES AND EXCHANGE RATE RISK MANAGEMENT~~

~~We conduct business operations outside of~~There were no material changes from the ~~United States through our foreign operations. Some~~“Quantitative and Qualitative Disclosures about Market Risk” disclosed in Part II Item 7A 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 21% of our revenueAnnual Report on Form 10-K for the ~~quarter~~fiscal year ended ~~June~~September 30, 2020 is transacted in currencies other than the U.S. dollar. However, outside of the United States, we also incur expenses that are transacted in currencies other than the U.S. dollar, which mitigates the exposure on the Consolidated Statements of Income. We periodically enter into forward contracts in an effort to manage foreign currency exchange exposure on our Consolidated Balance Sheets. However, we are unlikely to be able to hedge these exposures completely. We do not enter into forward contracts or other derivative instruments for speculative or trading purposes.2020.

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

~~MARKET RISK AND SENSITIVITY ANALYSIS RELATED TO FOREIGN EXCHANGE RATE RISK~~

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

~~INDEX~~

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive Officer ~~(CEO)~~(“CEO”) and Chief Financial Officer ~~(CFO)~~(“CFO”), has conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended ("(“the Exchange ~~Act")~~Act”), as of ~~June 30, 2020.~~March 31, 2021. Based on that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to ensure that such information is accumulated and communicated to management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

The Company is in the process of integrating KMG into the Company's internal control over financial reporting. As a result of these integration activities, certain controls will be evaluated and may be changed. Excluding the Acquisition, thereThere were no changes in ~~the Company's~~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, the Company's internal control over financial reporting.

INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS

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

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We periodically become a party to legal proceedings, arbitrations, 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 in Note 12 of “Notes to the Consolidated Financial Statements” included in Item 1 of Part I of this Report on Form 10-Q. 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.

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 Star Lake Canal 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. The information set forth in Item 1.A. Risk Factors, and Note 1312 of ~~"Notes~~“Notes to the Consolidated Financial ~~Statements"~~Statements” included in Item 1 of Part I of this Report on Form 10-Q, is incorporated herein by reference.

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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 ~~(“PANDEMIC”)~~ AND RELATED ADVERSE IMPACT TO WORLDWIDE ECONOMIC AND INDUSTRY CONDITIONS

The global ~~spread~~impact 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 the second half of our ~~third~~ fiscal ~~quarter of~~year 2020, ~~while~~ businesses in our Electronic Materials segment remained generally stable, and showed some strengthening in the first half of fiscal 2021, despite the ~~Pandemic,~~Pandemic. With respect to our Performance Materials segment, the Pandemic has had a significant adverse impact on our Performance ~~Materials segment's pipeline performance~~Materials’ PIM business during the second half of our fiscal year 2020 continuing into the first half of our fiscal year 2021, as the demand for drag reducing agents (“DRAs”) declined significantly due to the ongoing dislocation in the energy sector occasioned by the ~~Pandemic~~Pandemic. Although this business has appeared to stabilize somewhat in our first half of fiscal 2021 and we are optimistic in our ability to drive future growth in our PIM business as ~~well as certain geopolitical factors,~~the industry recovers, recovery has been lower than anticipated, and as described ~~below.~~in Note 6 of this Report on Form 10-Q, certain factors related to it continue to adversely affect the PIM reporting unit. The extent to which the ongoing 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: AAn additional decrease in short-term and long-term demand and pricing for our products and services, and aan 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, research and development ("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 or pricing for 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. ToAlthough the ~~extent possible if~~rollout of vaccination programs in the U.S., Europe, parts of Asia and ~~when~~other places in which we operate is encouraging with respect to the containment and abatement of the Pandemic, ~~is contained or abates,~~ the resumption of what was previously considered normal business operations after such ~~interruptions~~interruption remains uncertain, and may be further 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.~~condition; an example of such effect is the impairment charge related to our PIM business described in Note 6 of this Report on Form 10-Q. A further sustained or prolonged outbreak or return of the Pandemic in the places in which we do business, such as that seen in the U.S., Europe, and parts of Asia during the first half of our fiscal 2021, 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 OTHER CONDITIONS

Our business is affected by economic and industry conditions, such as those ~~currently~~still being adversely affected by the Pandemic, and the majority of our revenue derives from our Electronic Materials segment, which is primarily dependent upon semiconductor industry demand. With respect to our Electronic Materials segment, historically, semiconductor industry demand has fluctuated due to economic and industry cycles and seasonal shifts in demand, which can affect our business, causing demand for our electronic materials products to fluctuate. For example, prior to the Pandemic, the relatively soft demand conditions in the semiconductor industry that had commenced in our second fiscal quarter of 2019 and continued into our first fiscal quarter of 2020 had begun to ameliorate in the beginning of the second fiscal quarter of 2020. ~~However, although~~While our Electronic Materials segment experienced relatively stable conditions during the ~~third~~second half of fiscal ~~quarter~~2020 and has showed some strengthening in the first half of ~~2020,~~fiscal 2021, uncertainty remains as to fiscal 2021 demand conditions for the semiconductor industry given the ongoing nature of the Pandemic, ~~has created uncertainty~~including supply constraints at our customers serving certain areas, such as ~~to demand conditions for the semiconductor industry going forward through the remainder of the fiscal year~~automotive and ~~beyond.~~industrial sectors. Furthermore, competitive dynamics within the semiconductor industry may impact our business. Our limited visibility to future customer orders makes it difficult for us to predict industry trends, especially during unusual adverse circumstances, such as the Pandemic. If the global economy or the semiconductor industry fails to continue to improve or weakens ~~further,~~again, 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 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 integrated circuit ("IC") devices, or digital versus analog IC devices; the various technology nodes at which those products are manufactured; customers' efficiencies in the use of CMP consumables and/or high-purity process chemicals (“electronic chemicals”); customers' device architectures and specific manufacturing processes; the short order to delivery time for our products; quarter-to-quarter changes in customer order patterns; market share and competitive gains and losses; and pricing changes by us and our competitors.

As to our Performance Materials segment, ~~which continues to be an area of potential continued growth for us,~~ our ~~pipeline performance~~PIM business may continue to be impacted by changes in the utilities and/or oil and gas industries, such as we ~~saw in~~have seen since the second half of our ~~third~~ fiscal ~~quarter~~2020 and through our first half of ~~2020~~fiscal 2021 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 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 as we saw during the ~~third~~last four fiscal ~~quarter of 2020,~~quarters, we experienced a significant drop in demand for our related ~~pipeline performance~~PIM products and ~~services.~~services, although demand appears to have stabilized somewhat in our first half of fiscal 2021. Expectations about future prices and price volatility are important in determining future spending levels for customers of our ~~pipeline performance~~PIM products and services. The ongoing volatility in worldwide oil and natural gas prices and markets are an extreme example of historical volatility in this sector, and such volatility is likely to continue in the future. As is currently the case, prices for oil and natural gas are subject to wide fluctuations in response to relatively minor or major changes in the supply of and demand for oil and natural gas, market uncertainty and a variety of additional factors that are beyond our control. These factors include, but are not limited to, decreases or increases in supplies from U.S. shale production or other oil production, geopolitical conditions, including uprisings, civil unrest, and international trade tensions, sovereign debt crises, the domestic and ~~non-United States~~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 ~~OPEC~~Organization of the Petroleum Exporting Countries (“OPEC”) and other state-controlled oil companies to agree upon and maintain oil price and production controls, and general economic conditions, such as those currently seen related to the Pandemic.

Further, adverse global economic, industry and other conditions such as those related to the Pandemic could have other negative effects on our Company. For instance, we could experience negative impacts on cash flows due to the inability of our customers to pay their obligations to us, or our production processes could be harmed if our suppliers cannot fulfill their obligations to us. As a result of these or other conditions, and as experienced in our second fiscal quarter with the impairment charge we took in our PIM business unit, further described in Note 6 of this Report on Form 10-Q, we also might have to further 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,~~the Acquisition, 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 revenue to offset increased expenses associated with acquisitions; potential loss of key employees of the acquired companies; or inability to effectively cooperate and collaborate with our alliance partners.

Further, we may never realize the perceived or anticipated benefits of a business combination or merger with, or asset or other acquisition of, or investments in, other entities. Transactions such as ~~our acquisitions of KMG and NexPlanar~~the 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 second quarter of fiscal 2021 related to the PIM business unit and the charge we took in each the fourth quarter of fiscal ~~year~~ 2019, the fourth quarter of fiscal 2020, and the first two quarters of fiscal 2021 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 wood treatment facilities and there are fewer estimated future cash flows, we~~We expect that the carrying value of the wood treatment ~~asset group~~reporting unit will not be recoverable, resulting in future impairments of ~~intangible assets and~~ goodwill. The amount of such impairments could be material and could adversely affect our results of operations and financial condition. See ~~Note~~Notes 6 and 7 of "Notes to the Consolidated Financial Statements" of this Report on Form 10-Q for additional discussion.

Furthermore, the integration of the ~~recently~~ acquired ~~KMG business~~businesses into our operations is a complex and time-consuming process that may not be successful. Our Company has a limited history of integrating a significant ~~acquisition into its business~~acquisitions, and the process of integration may produce unforeseen operating difficulties and expenditures. ~~The~~As demonstrated in the Acquisition, the primary areas of focus for successfully combining ~~the business of KMG~~those businesses with our operations may include and ~~has~~have 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 ~~the~~an 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~~over the past several years, including as a result of 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~~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~~supplies 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~~PIM business 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, global 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, such as those related to or arising from the Pandemic.

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We believe it would be difficult to promptly secure alternative sources of key raw materials in the event one of our suppliers becomes unable to supply us with sufficient quantities of raw materials that meet the quality and technical specifications required by us and our customers. In addition, new contract terms, forced production or manufacturing changes, contractual amendments to existing agreements with, or non-performance by, our suppliers, including any significant financial distress our suppliers may suffer, could adversely affect us. Also, if we change the supplier or type of key raw materials we use to make our products, in particular our electronic materials products, or are required to purchase them from a different manufacturer or manufacturing facility or otherwise modify our products, in certain circumstances our customers might have to requalify our products for their manufacturing processes and products. The requalification process could take a significant amount of time and expense to complete and could occupy technical resources of our customers that might otherwise be used to evaluate our new products, thus delaying potential revenue growth, or motivate our customers to consider purchasing products from our competitors, possibly interrupting or reducing our sales of products to these customers, especially sales of our electronic materials products to our semiconductor industry customers, but also with respect to our ~~pipeline performance~~PIM 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~~providers or any new entrants could seriously harm our business and results of operations, and this competition could continue to increase. Competition has and will likely continue to impact the prices we are able to charge for our products, as well as our overall business. In addition, our competitors could have, obtain or assert intellectual property rights that could affect or restrict our ability to market our existing products and/or to innovate and develop new products, thus increasing our costs of doing business, could attempt to introduce products similar to ours following the expiration of our patents, or could attempt to introduce products that do not fall within the scope of our intellectual property rights.

WE ARE SUBJECT TO RISKS ASSOCIATED WITH OUR ~~FOREIGN~~INTERNATIONAL 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 States~~U.S. for the 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 States~~U.S. with respect to ~~non-United States~~non-U.S. operations of ~~United States~~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 foreign~~these operations or recover the investments made in ~~our foreign operations,~~them, whether due to regulatory or policy changes in the ~~United States~~U.S. or in the countries outside of the ~~United States~~U.S. in which we do business, or other factors.

In particular, China continues to be an important market for the semiconductor industry, and an area of continued potential growth for us. As business ~~volume~~ between China and the rest of the world ~~continues~~has continued to grow, there is risk that geopolitical, regulatory, trade, political and global public health crises such as the Pandemic could adversely affect business for companies like ours based on the complex relationships among China, the ~~United States,~~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 and through the first half of fiscal 2021, there are risks that the ~~United States~~U.S. government may impose additional export restrictions on technology and products that companies that operate in the semiconductor industry supply to or use in China, which could adversely impact our business and our results of operations.

In addition, we have operations and customers located in the United Kingdom, which recently has exited the European ~~Union. Although~~Union (“EU”). As the transitional provisions under which the United Kingdom and the ~~European Union~~EU have agreed to operate ~~under transitional provisions under which most European Union law would remain in force in the United Kingdom until~~expired at the end of December 2020, ~~it is at present unclear as to what trade agreement~~and the parties ~~will operate under following such time, and what~~are still in the process of implementing new trade agreements, the related impacts ~~such might have~~ on our ~~business.~~business remain unclear.

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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 ~~EHS~~Environmental, Health and Safety (“ EHS”) laws and regulations, including those concerning, among other things:

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

• the treatment, storage and disposal of wastes;

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

• the discharge of effluents into waterways;

• the emission of substances into the air; and

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

The United States EPA and other federal and state agencies in the ~~United States,~~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 ~~remediation~~environmental compliance costs. We ~~are currently involved in investigation and remediation~~continue to manage environmental compliance activities at certain sites, such as at KMG-Bernuth's Tuscaloosa, Alabama facility as described in Note 1020 of ~~"Notes~~“Notes to the Consolidated Financial ~~Statements"~~Statements” included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2019.~~2020. 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, as described in Note 12 of Part 1 of this Report on Form 10-Q, 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 ~~FIFRA,~~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 Operating expenses, and we expect those expenses will continue in the future while we operate the wood treatment business. Because scientific analyses are constantly improving, we cannot determine with certainty whether or not new or additional tests may be required by regulatory authorities. While good laboratory practice standards specify the minimum practices and procedures that must be followed in order to ensure the quality and integrity of data related to these tests submitted to the EPA, there can be no assurance that the EPA will not request certain tests or studies be repeated. In addition, more stringent legislation or requirements may be imposed in the future. Amendments 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 Union~~EU to prove the safety of their products. We were required to pre-register certain products and file comprehensive reports, including testing data, on each chemical substance, and perform chemical safety assessments. Additionally, substances of high concern are subject to an authorization process. Authorization may result in restrictions on certain uses of products or even prohibitions on the manufacture or importation of products. The full registration requirements of REACH ~~are~~have been phased in over several ~~years. We will incur~~years, 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 ~~United States~~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 March 2021, the EPA issued a preliminary interim registration review decision(“PID”) proposing the cancellation of penta registration and implementation of a five-year phase-out period for production and sell-through of penta stocks. We do not believe the PID or the Canadian government proposed order have a significant adverse effect on our business since in July 2019, KMG-Bernuth had communicated plans to close both the Matamoros and Tuscaloosa facilities by ~~such date~~the end of calendar year 2021 and ~~to consolidate into and build a new facility. However,~~ in November 2019, we communicated that we ~~will~~did not ~~build a new facility, and that we~~ intend to ~~explore various options for~~continue the wood treatment ~~business.~~business past approximately the end of calendar year 2021. We took a restructuring charge ~~and asset impairment charges~~ in our fourth fiscal quarter of 2019, and asset impairment charges in each of our fourth fiscal quarters of 2020 and 2019, as well as our first two fiscal quarters of fiscal 2021, related to the ~~decision~~decisions to close the Matamoros and Tuscaloosa facilities and to not build a new plant, ~~and~~ as described further in Note ~~4, we~~7 of Part 1 of this Report on Form 10-Q. We expect to take additional impairment charges related to the wood treatment ~~business.~~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: KMG-Bernuth's penta product registrations are under continuous review by the EPA under FIFRA. KMG-Bernuth has submitted and will continue to submit a wide range of scientific data to support its United States registrations. To satisfy the registration review, KMG-Bernuth is required to demonstrate, among other things, that its products will not cause unreasonable adverse effects on human health or the environment when used according to approved label directions. In September 2008, the EPA announced that it had determined that penta was eligible for re-registration, but the EPA proposed new restrictions on the use of penta that have required KMG-Bernuth's customers to incur substantial additional costs and to revise certain operating procedures. In December 2014, the EPA issued a registration review work plan that required penta registrants to provide additional research and testing data respecting certain potential risks to human health or the environment as a further condition to continued registration. KMG-Bernuth conducted required testing in accordance with the EPA's proposed work plan. In January 2020, the EPA published a Registration Review Draft Risk Assessment for Pentachlorophenol, dated June 27, 2019, which included several key preliminary EPA conclusions related to the safety and environmental risks of penta as a wood treating product. We have provided the EPA with responsive comments. We cannot predict when or if the EPA will issue a final decision concluding that the conditions of re-registration for its penta products and all additional testing requirements have been satisfied. We cannot assure you that KMG-Bernuth's products will not be subject to use or labeling restrictions that may have an adverse effect on our financial position and results of operations. The failure of KMG-Bernuth's products to be re-registered, to satisfy the registration review by the EPA, or the imposition of new use, labeling or other restrictions in connection with re-registration could have an adverse effect on our financial condition and results of operations.

~~INDEX~~

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.

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

~~Although~~The U.S. has recently rejoined the ~~U.S.~~Paris Climate Accord but to date, has not ratified the Kyoto ~~Protocol, a number of federal laws related~~Protocol. 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 ~~promulgate~~develop 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.

INDEX

Member States of the ~~European Union~~EU each have an overall cap on emissions, which are approved by the European Commission, and implement the EU Emissions Trading Directive as a commitment to the Kyoto Protocol. ~~Under this Directive, organizations~~GHG 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.~~materials, or to counteract the growth of certain industries such as those in which customers served by our PIM products operate. 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.

~~INDEX~~

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

INDEX

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 participants in the industries in which we do business for qualified personnel, particularly those with significant experience in the semiconductor 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 as the Tax Act~~ was enacted in the ~~United States.~~U.S. under the Tax Act. Known and certain estimated effects based upon current interpretation of the Tax Act have been incorporated into our financial results. It may be necessary to adjust our income tax estimates, as we experienced in our second fiscal quarter of fiscal 2019 with respect to our previously reported Transition Tax described in Note 19 of “Notes to the Consolidated Financial Statements” included in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019. Adjustments to income tax amounts could be material to our results of operations and cash flows. In addition, there is a risk that the U.S. state or foreign jurisdictions may amend their tax laws, ~~in response to~~including the Tax Act or otherwise, which could have a material impact on our future results of operations and cash flows.

~~INDEX~~

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.

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

INDEX

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

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

In addition, borrowings under our Amended Credit Agreement generally bear interest based on (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, 2.00% for LIBOR loans and 1.00% for base rate loans and, in the case of borrowings under the Revolving Credit Facility, initially, 1.50% for LIBOR loans and 0.50% for base rate loans. On July 27, 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. In the ~~United States,~~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.

~~INDEX~~

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

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

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

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

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

ISSUER PURCHASES OF EQUITY SECURITIES

In ~~January 2016,~~March 2021, our Board of Directors authorized an increase in the amount available under our share repurchase program to $150.0 million. As of ~~June 30, 2020,~~March 31, 2021, there was ~~$36.3~~$150.0 million of authorized repurchases remaining under the program. The manner in which the Company repurchases its shares is discussed in Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the heading “Liquidity and Capital Resources,” of this Report on Form 10-Q. To date, we have funded share purchases under our share repurchase program from our available cash balance, and anticipate we will continue to do so.

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


Period	Total Number of Shares Purchased (in thousands)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (in thousands)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands)
Jan. 1 through Jan. 31, 2021	5	$	151.00	5	$	26,257
Feb. 1 through Feb. 28, 2021	—	$	—	—	$	26,257
Mar. 1 through Mar. 31, 2021	—	$	—	—	$	150,000
Total	5	$	151.00	5	$	150,000

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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ITEM 6. EXHIBITS

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


Exhibit Number			Description
10.1			Directors’ Deferred Compensation Plan, as Amended and Restated February 25, 2021.*
10.2			Form of Non-Employee Director Annual Non-Qualified Stock Option Grant Agreement.*
10.3			Form of Non-Employee Director Annual Restricted Stock Unit Award Agreement.*






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

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

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

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

*			Management contract, or compensatory plan or arrangement.

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SIGNATURES

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


		~~CABOT MICROELECTRONICS CORPORATION~~CMC MATERIALS, INC.
		[Registrant]

Date: ~~August~~May 6, ~~2020~~2021	By:	/s/ SCOTT D. BEAMER
		Scott D. Beamer Vice President and Chief Financial Officer [Principal Financial Officer]

Date: ~~August~~May 6, ~~2020~~2021	By:	/s/ JEANETTE A. PRESS
		Jeanette A. Press Corporate Controller [Principal Accounting Officer]

5144


Part I. Financial Information			Page

Item 1.	Unaudited Financial Statements

	Consolidated Statements of Income (Loss)	3

	Consolidated Statements of Comprehensive Income (Loss)	4

	Consolidated Balance Sheets	5

	Consolidated Statements of Cash Flows	6

	Consolidated Statements of Changes in Stockholders’ Equity	7

	Notes to the Consolidated Financial Statements	98

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2621

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3630

Item 4.	Controls and Procedures	3730

Part II. Other Information

Item 1.	Legal Proceedings	3831

Item 1A.	Risk Factors	3832

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4942

Item 3.	Defaults Upon Senior Securities	4942

Item 4.	Mine Safety Disclosures	4942

Item 6.	Exhibits	5043
	Signatures	5144


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

Share-based compensation expense			4,763								4,763

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

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

Cash flow hedges							4,259				4,259

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

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

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

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

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

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


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

Cash flow hedges							(334)				(334)

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


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

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

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

Total other intangible assets	$	866,148	$	175,731	$	864,905	$	110,861


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


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