EX-99.3 5 ex99_3.htm EXHIBIT 99.3

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information and related notes present the historical financial statements of Cabot Microelectronics Corporation and its subsidiaries (the "Company", "us", "we", "our") and NexPlanar Corporation ("NexPlanar") after giving effect to our acquisition (the "Acquisition") of NexPlanar, which was completed on October 22, 2015.  We acquired 100% of the stock of NexPlanar for approximately $142.3 million in total cash outlay, funded from our available cash balances.
The unaudited pro forma condensed combined financial information is derived from and should be read in conjunction with the Company's historical audited financial statements for the fiscal year ended September 30, 2015, which are available in our Annual Report on Form 10-K for the fiscal year ended September 30, 2015, and the historical financial statements of NexPlanar included in this Form 8-K/A.
For purposes of the pro forma condensed combined statement of income, results for NexPlanar are presented for the twelve-month period ended September 30, 2015.  This information was derived from the historical audited statement of operations of NexPlanar for the year ended December 31, 2014, as included within this Form 8-K/A, the historical unaudited statement of operations of NexPlanar for the nine months ended September 30, 2015, as included within this Form 8-K/A, and historical unaudited financial information of NexPlanar for the three months ended December 31, 2014.  For purposes of the pro forma condensed combined balance sheet, we utilized the unaudited historical balance sheet of NexPlanar included in this Form 8-K/A.
The unaudited pro forma condensed combined statement of income for the year ended September 30, 2015 gives effect to the Acquisition as if it had occurred on October 1, 2014, the beginning of our fiscal year.  The unaudited pro forma condensed combined balance sheet gives effect to the Acquisition as if it had occurred on September 30, 2015.  The historical condensed combined financial information has been adjusted to give effect to pro forma events that are: 1) directly attributable to the Acquisition; 2) factually supportable; and 3) with respect to the statement of income, expected to have a continuing impact on the combined results.  In the opinion of management, all adjustments necessary to present fairly the unaudited pro forma condensed combined financial information have been made.  The assumptions underlying the pro forma adjustments are described fully in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed combined financial information.
The Acquisition is being accounted for as a business combination using the acquisition method of accounting under the provisions of Accounting Standards Codification ("ASC") Topic 805, "Business Combinations" ("ASC 805"), and using the fair value concepts defined in ASC Topic 820, "Fair Value Measurements" ("ASC 820").  ASC 820 defines the term "fair value" and sets forth the valuation requirements for any asset or liability measured at fair value, expands related disclosure requirements and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop fair value measures.  Fair value is defined in ASC 820 as "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date".  This is an exit price concept for the valuation of the asset or liability.  In addition, market participant are assumed to be buyers and sellers in the principal (or the most advantageous) market for the asset or liability.  Many of these fair value measurements can be highly subjective, and it is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts.  Under ASC 805, all assets acquired and liabilities assumed are recorded at their acquisition date fair value.  The allocation of the purchase price as reflected in the unaudited pro forma condensed combined financial information is based upon management's internally developed preliminary estimates of the fair market value of the assets acquired and liabilities assumed, as if the Acquisition had occurred on the above dates.  This allocation of the purchase price depends upon certain estimates and assumptions, all of which are preliminary and, in some instances, are incomplete and have been made solely for the purpose of developing the unaudited pro forma condensed combined financial information.  Any adjustments to the preliminary estimated fair value amounts could have a significant impact on the unaudited pro forma condensed combined financial information contained herein, and our future results of operations and financial position.
The unaudited pro forma condensed combined financial information is for informational purposes only and should not be considered indicative of actual results that would have been achieved if NexPlanar had been acquired and the other transactions had been completed on the date or for the periods presented, and does not purport to indicate the results of operations or financial position as of any future date or for any future period.
 
1

CABOT MICROELECTRONICS CORPORATION
 
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
 
FOR THE YEAR ENDED SEPTEMBER 30, 2015
 
(in thousands, except per share amounts)
 
                     
   
Historical
             
   
Cabot
       
Pro Forma
       
Pro Forma
 
   
Microelectronics
   
NexPlanar
   
Adjustments
   
Note 4
   
Combined
 
Revenue
 
$
414,097
   
$
23,228
           
$
437,325
 
                                 
Cost of goods sold
   
201,866
     
15,210
     
4,571
   
a)
 
   
221,647
 
                                       
      Gross profit
   
212,231
     
8,018
     
(4,571
)
         
215,678
 
                                       
Operating expenses:
                                     
   Research, development and technical
   
59,778
     
2,964
     
 
   
 
 
   
62,742
 
   Selling and marketing
   
24,983
     
4,839
     
1,870
   
a)
 
   
31,692
 
   General and administrative
   
52,430
     
4,080
     
(526
)
 
b)
 
   
55,984
 
      Total operating expenses
   
137,191
     
11,883
     
1,344
           
150,418
 
                                       
Operating income
   
75,040
     
(3,865
)
   
(5,915
)
         
65,260
 
                                       
Interest expense
   
4,524
     
595
     
(595
)
 
c)
 
   
4,524
 
                                       
Other income (expense), net
   
681
     
0
                   
681
 
Income (loss) before income taxes
   
71,197
     
(4,460
)
   
(5,320
)
         
61,417
 
                                       
Provision (benefit) for income taxes
   
15,051
     
(4
)
   
(1,862
)
 
d)
 
   
13,185
 
                                       
      Net income
 
$
56,146
   
$
(4,456
)
 
$
(3,458
)
       
$
48,232
 
                                       
Basic earnings per share
 
$
2.32
                         
$
1.99
 
                                       
Weighted-average basic shares outstanding
   
24,040
                           
24,040
 
                                       
Diluted earnings per share
 
$
2.26
                         
$
1.94
 
                                       
Weighted-average diluted shares outstanding
   
24,632
                           
24,632
 
                                       
                                       
See accompanying notes to the unaudited pro forma condensed combined financial information
 
 
2

 
CABOT MICROELECTRONICS CORPORATION
 
PRO FORMA CONDENSED COMBINED BALANCE SHEET
 
SEPTEMBER 30, 2015
 
(in thousands)
 
                     
   
Historical
             
   
Cabot
       
Pro Forma
       
Pro Forma
 
   
Microelectronics
   
NexPlanar
   
Adjustments
   
Note 4
   
Combined
 
ASSETS
                   
Current assets:
                   
   Cash and cash equivalents
 
$
354,190
   
$
16,334
   
$
(142,321
)
 
e)
 
 
$
228,203
 
   Accounts receivable, less allowance for doubtful accounts
   
49,405
     
2,889
                   
52,294
 
   Inventories
   
70,678
     
2,083
     
403
   
f)
 
   
73,164
 
   Prepaid expenses and other current assets
   
12,840
     
1,712
                   
14,552
 
   Deferred income taxes
   
7,395
     
0
                   
7,395
 
      Total current assets
   
494,508
     
23,018
     
(141,918
)
         
375,608
 
                                       
Property, plant and equipment, net
   
93,743
     
4,714
     
242
   
g)
 
   
98,699
 
Goodwill
   
40,442
     
0
     
59,626
   
h)
 
   
100,068
 
Other intangible assets, net
   
4,565
     
0
     
61,000
   
i)
 
   
65,565
 
Deferred income taxes
   
12,212
     
0
     
17,200
   
j)
 
   
29,412
 
Other long-term assets
   
15,004
     
60
                   
15,064
 
      Total assets
 
$
660,474
   
$
27,792
   
$
(3,850
)
       
$
684,416
 
                                       
LIABILITIES AND STOCKHOLDERS' EQUITY
                                     
Current liabilities:
                                     
   Accounts payable
 
$
15,448
   
$
962
                 
$
16,410
 
   Current portion of long-term debt
   
8,750
     
0
                   
8,750
 
   Accrued expenses, income taxes payable and other current liabilities
   
36,446
     
1,960
     
 
           
38,406
 
      Total current liabilities
   
60,644
     
2,922
     
0
           
63,566
 
                                       
Long-term debt, net of current portion
   
155,313
     
0
                   
155,313
 
Deferred income taxes
   
76
     
0
     
21,400
   
j)
 
   
21,476
 
Other long-term liabilities
   
15,477
     
225
                   
15,702
 
      Total liabilities
   
231,510
     
3,147
     
21,400
           
256,057
 
                                       
Commitments and contingencies
                                     
                                       
Stockholders' equity:
                                     
   Common stock
   
33
     
0
                   
33
 
   Preferred stock
   
0
     
1,860
     
(1,860
)
 
k)
 
       
   Capital in excess of par value of common stock
   
495,673
     
76,367
     
(76,367
)
 
k)
 
   
495,673
 
   Retained earnings
   
284,088
     
(53,582
)
   
52,977
   
k)
 
   
283,483
 
   Accumulated other comprehensive loss
   
(6,090
)
   
0
                   
(6,090
)
   Treasury stock at cost
   
(344,740
)
   
0
                   
(344,740
)
      Total stockholders' equity
   
428,964
     
24,645
     
(25,250
)
         
428,359
 
                                       
      Total liabilities and stockholders' equity
 
$
660,474
   
$
27,792
   
$
(3,850
)
       
$
684,416
 
                                       
See accompanying notes to the unaudited pro forma condensed combined financial information
 
 
 
3

Cabot Microelectronics Corporation
Notes to Unaudited Pro Forma Condensed Combined Financial Information
(in 000s)
 
Note 1. Basis of Pro Forma Presentation
The unaudited pro forma condensed combined statement of income for the year ended September 30, 2015 was derived from the audited consolidated financial statements included in our Annual Report on Form 10-K ("FY15 Form 10-K") for the fiscal year ended September 30, 2015, and the unaudited historical financial information of NexPlanar for the same period, and has been prepared as if our Acquisition had occurred on October 1, 2014.  The unaudited pro forma condensed combined balance sheet as of September 30, 2015 combines the consolidated balance sheet included in our FY15 Form 10-K with the historical unaudited balance sheet for NexPlanar for the same period, and has been prepared as if our Acquisition had occurred on September 30, 2015.  The unaudited pro forma condensed combined financial information herein has been prepared to illustrate the effects of the Acquisition in accordance with U.S. GAAP and pursuant to Article 11 of Regulation S-X.

NexPlanar's audited historical financial statements for the year ended December 31, 2014 and unaudited condensed financial statements as of and for the nine months ended September 30, 2015 are included in this Current Report on Form 8-K/A.  These statements should be read in conjunction with such historical financial statements.  The historical financial information is adjusted in the unaudited pro forma condensed financial statements to give effect to pro forma adjustments that are: (1) directly attributable to the Acquisition; (2) factually supportable; and (3) with respect to the pro forma condensed statement of income, expected to have a continuing impact on the combined results.  As discussed in Note 3, the historical financial statements of NexPlanar have been adjusted to reflect certain reclassifications to conform to our financial statement presentation.

We have accounted for the Acquisition under the acquisition method of accounting in accordance with the authoritative guidance on business combinations under the provisions of ASC 805.  The allocation of the purchase price as reflected in the unaudited pro forma condensed combined financial information was based on a preliminary valuation of the assets acquired and liabilities assumed, and the accounting is subject to revision as more detailed analyses are completed and additional information about the fair value of assets acquired and liabilities assumed becomes available.  The final purchase price allocation may include changes to the amount of intangible assets, goodwill, deferred taxes, and purchased internal research and development, as well as other items.  Accordingly, the pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information.  Differences between these preliminary estimates and the final purchase accounting may occur, and these differences could be material.

The unaudited pro forma condensed combined financial information is presented solely for informational purposes and is not necessarily indicative of the combined results of operations or financial position that might have been achieved for the periods presented, nor is it necessarily indicative of the future results of the combined company.  The unaudited pro forma condensed combined financial information does not reflect any cost savings from future operating synergies or integration activities, if any, or any revenue, tax, or other synergies, if any, that could result from the Acquisition.

4

Cabot Microelectronics Corporation
Notes to Unaudited Pro Forma Condensed Combined Financial Information
(in 000s)

The following table presents the NexPlanar historical unaudited statements of operations for the nine months ended September 30, 2015, included as Exhibit 99.2 in this Form 8-K/A, and the three months ended December 31, 2014, which, when combined, represent the unaudited statement of income for the year ended September 30, 2015 presented in the unaudited pro forma statement of income.

NexPlanar Corporation
 
Nine Months
   
Three Months
   
Year
 
Unaudited Statements of Operations
 
Ended
   
Ended
   
Ended
 
(in thousands)
 
9/30/15
   
12/31/14
   
9/30/15
 
Revenue, net
 
$
12,106
   
$
3,900
   
$
16,006
 
Revenue - related party, net
   
5,487
     
1,735
     
7,222
 
   Net revenue
   
17,593
     
5,635
     
23,228
 
                         
Cost of goods sold
   
11,715
     
3,495
     
15,210
 
                         
   Gross margin
   
5,878
     
2,140
     
8,018
 
                         
Research and development
   
2,302
     
662
     
2,964
 
Selling and marketing
   
3,444
     
1,395
     
4,839
 
General and administrative
   
3,159
     
921
     
4,080
 
                         
   Operating loss
   
(3,027
)
   
(838
)
   
(3,865
)
                         
Interest and other expense, net
   
444
     
151
     
595
 
                         
   Loss before income taxes
   
(3,471
)
   
(989
)
   
(4,460
)
                         
Provision (benefit) for income taxes
   
0
     
(4
)
   
(4
)
                         
Net loss
 
$
(3,471
)
 
$
(985
)
 
$
(4,456
)
 

 
5

Cabot Microelectronics Corporation
Notes to Unaudited Pro Forma Condensed Combined Financial Information
(in 000s)

 
Note 2. Description of Transaction and Preliminary Purchase Price Allocation
On October 22, 2015, the Company completed the Acquisition of 100% of the stock of NexPlanar, which was a privately held, U.S. based company that specializes in the development, manufacture and sale of advanced CMP pad solutions for the semiconductor industry.  The total cash outlay of $142,321 was paid from our available cash balance and was comprised of $141,716 in total purchase consideration and, as discussed further in Note 4e, $605 charged to compensation expense subsequent to the acquisition date related to the cash settlement of certain NexPlanar stock options.  A portion of the purchase price was deposited with an escrow agent to fund payment obligations with respect to post-closing purchase price adjustments and indemnification obligations.  This Acquisition expands our polishing pad portfolio by adding a complementary pad technology for which we believe we can leverage our global infrastructure to better serve our customers on a global basis, including offering performance-advantaged slurry and pad consumable sets.
 
The following table summarizes the preliminary purchase price allocation as if the Acquisition had occurred on September 30, 2015, which is the assumed acquisition date for the purpose of the pro forma balance sheet:

   Total purchase consideration
 
$
141,716
 

Cash
 
$
16,334
 
Accounts receivable
   
2,889
 
Inventories
   
2,486
 
Prepaid expenses and other current assets
   
1,712
 
Property, plant and equipment
   
4,956
 
Other long-term assets
   
60
 
Intangible assets
   
61,000
 
Deferred tax assets
   
17,200
 
Accounts payable
   
(962
)
Accrued expenses and other current liabilities
   
(1,960
)
Other long-term liabilities
   
(225
)
Deferred tax liabilities
   
(21,400
)
   Total identifiable net assets
   
82,090
 
Goodwill
   
59,626
 
   
$
141,716
 
         

Intangible assets primarily consist of developed technology assets, in-process technology, trade names and customer relationships.  The excess of the acquisition consideration over the fair value of the net assets acquired is allocated to goodwill.  The goodwill of $59,626 is primarily attributable to anticipated revenue growth from the combination of pad technologies and expected synergies from the merger of operations, and is not expected to be deductible for tax purposes.  Any changes to the preliminary estimates of fair value of the assets acquired and liabilities assumed upon the completion of our fair value assessment will be allocated to goodwill.


6

Cabot Microelectronics Corporation
Notes to Unaudited Pro Forma Condensed Combined Financial Information
(in 000s)

Note 3. Reclassification of Historical NexPlanar Financial Information
Certain reclassification adjustments have been made to NexPlanar's historical financial statements to conform to our statement of income and balance sheet presentation:

Financial Statement Line Item
 
Historical NexPlanar Amount
   
Reclassification Adjustment
   
Revised Historical NexPlanar Amount
 
Statement of Operations year ended September 30, 2015
           
   Revenue, net
 
$
16,006
   
$
(16,006
)
 
$
-
 
   Revenue - related parties, net
   
7,222
     
(7,222
)
   
-
 
   Revenue
   
-
     
23,228
     
23,228
 
                         
   Interest and other expense, net
   
595
     
(595
)
   
-
 
   Interest expense
   
-
     
595
     
595
 
                         
                         
Balance Sheet as of September 30, 2015
                       
   Accounts receivable
   
2,452
     
(2,452
)
   
-
 
   Accounts receivable - related parties
   
437
     
(437
)
   
-
 
   Accounts receivable, less allowance for doubtful accounts
   
-
     
2,889
     
2,889
 
                         
   Accrued payroll and related benefits
   
1,063
     
(1,063
)    
-
 
   Other accrued expenses
   
844
     
(844
)
   
-
 
   Short-term portion of other long-term liabilities
   
53
     
(53
)
   
-
 
   Accrued expenses, income taxes payable and other current liabilities
   
-
     
1,960
     
1,960
 
                         
   Preferred stock series F
   
1
     
(1
)
   
-
 
   Preferred stock series E
   
1
     
(1
)
   
-
 
   Preferred stock series E warrants
   
182
     
(182
)
   
-
 
   Preferred stock series D-X and D-1X
   
1
     
(1
)
   
-
 
   Preferred stock series D warrants
   
124
     
(124
)
   
-
 
   Preferred stock series C-X
   
2
     
(2
)
   
-
 
   Preferred stock series C warrants
   
1,549
     
(1,549
)
   
-
 
   Preferred stock
   
-
     
1,860
     
1,860
 
                         
   Additional paid-in capital
   
76,367
     
(76,367
)
   
-
 
   Capital in excess of par value of common stock
   
-
     
76,367
     
76,367
 
                         
   Accumulated deficit
   
(53,582
)
   
53,582
     
-
 
   Retained earnings
 
$
-
   
$
(53,582
)
 
$
(53,582
)


7

Cabot Microelectronics Corporation
Notes to Unaudited Pro Forma Condensed Combined Financial Information
(in 000s)

Note 4. Pro Forma Adjustments
The pro forma adjustments included in the pro forma condensed combined financial information are as follows:

a) Record the preliminary estimate of amortization expense for the year ended September 30, 2015 related to the acquired identifiable intangible assets calculated as if the Acquisition had occurred on October 1, 2014.  See Note i for more information on the fair value of intangible assets acquired, and the related useful lives and method of amortization used.  The amortization expense does not include any amounts for in-process technology shown in Note i.

   
Year ended
 
Amortization of intangible assets
 
September 30, 2015
 
Cost of goods sold
 
$
4,571
 
Selling and marketing
   
1,870
 
Total amortization expense
 
$
6,441
 

 
b) Eliminate $526 in transaction costs recorded as general and administrative expense in connection with the Acquisition.
 
c) Eliminate $595 in of historical NexPlanar interest expense related to debt repaid prior to the acquisition date.

d) Record $1,862 for the tax effect of the pro forma adjustments using an estimated statutory tax rate of 35.0%.
 
e) Record $142,321 in cash paid at the acquisition date.  The total cash paid represents $141,716 in purchase consideration and $605 in compensation expense recorded subsequent to the acquisition date.  The compensation expense related to certain unvested NexPlanar stock options settled in cash at the acquisition date.  The unaudited pro forma condensed combined statement of income does not include the $605 of compensation expense as a pro forma adjustment as this expense represents a non-recurring item.

   
September 30,
 
Cash paid
 
2015
 
Cash paid for purchase consideration
 
$
141,716
 
Cash paid and charged to expense
   
605
 
Total cash paid at acquisition
 
$
142,321
 

f) Record $403 for the step-up of inventory to its estimated net realizable value as of September 30, 2015.

g) Record $242 for the step-up of property, plant and equipment to its estimated fair value as of September 30, 2015. The effect of the step-up is not expected to have a material effect on depreciation expense, so no proforma adjustment has been presented for depreciation expense

h) Record $59,626 for the preliminary goodwill for the purchase consideration in excess of the fair value of net assets acquired assuming the acquisition had occurred on September 30, 2015.

 
8

Cabot Microelectronics Corporation
Notes to Unaudited Pro Forma Condensed Combined Financial Information
(in 000s)
 
i) Record the preliminary fair value of identifiable intangible assets as of September 30, 2015.

   
Preliminary
Fair Value
   
Useful Life
(in years)
 
Method of
Amortization
Trade names
 
$
8,000
     
7
 
Straight-line
Customer relationships
   
8,000
     
11
 
Straight-line
Developed technology - product A
   
25,000
     
7
 
Straight-line
Developed technology - product B
   
8,000
     
8
 
Straight-line
In-process technology
   
12,000
     
9
 
see note a
   Total identifiable intangible assets
 
$
61,000
            

j) Record the estimated fair value of deferred tax assets and liabilities related to the Acquisition as of September 30, 2015 using an estimated U.S. statutory tax rate of 35.0%.  This estimate of deferred taxes was determined based on the difference between the book basis and tax basis for assets acquired and liabilities assumed, and is subject to change based upon our final determination of the fair value of assets acquired and liabilities assumed.  The deferred taxes recognized primarily relate to net operating loss carryforwards (NOLs) and differences between the book and tax basis of identifiable intangible assets and goodwill. Based on our initial study pursuant to Internal Revenue Code section 382, we expect that we will be able to utilize the NOLs in the future.

   
September 30,
 
Deferred tax assets and liabilities
 
2015
 
Non-current deferred tax assets
 
$
17,200
 
         
Non-current deferred tax liabilities
 
$
21,400
 
         
 
k) Eliminate the historical equity balances of NexPlanar as of September 30, 2015 and $605 in for settlement of NexPlanar stock options charged to expense immediately after the acquisition.

   
September 30,
 
Equity adjustments
 
2015
 
Preferred stock
   
   Reverse historical NexPlanar balance
 
$
(1,860
)
         
Capital in excess of par value of common stock
       
   Reverse historical NexPlanar balance
 
$
(76,367
)
         
Retained earnings
       
   Reverse historical NexPlanar balance
 
$
53,582
 
   Cash paid for settlement of stock options charged to expense
   
(605
)
   Total retained earnings adjustments
 
$
52,977
 

 
9