2. BUSINESS COMBINATION

On October 22, 2015, the Company completed the acquisition of 100% of the outstanding stock of NexPlanar Corporation (NexPlanar), which was a privately held, U.S. based company that specialized in the development, manufacture and sale of advanced CMP pad solutions for the semiconductor industry. We acquired NexPlanar to expand our polishing pad portfolio by adding a complementary pad technology for which we believe we can leverage our global infrastructure to better serve customers on a global basis, including offering performance-advantaged slurry and pad consumable sets. We paid a total of $126,906, including total purchase consideration of 142,167, less cash acquired of $15,261. In addition, we paid $154 in compensation expense related to certain unvested NexPlanar stock options settled in cash at the acquisition date. See Note 12 of this Form 10-Q for additional discussion of share-based compensation. In the second quarter of fiscal 2016, we paid an additional $70 for a post closing adjustment. We have included 100% of the NexPlanar revenue and earnings since October 22, 2015 in our Consolidated Statement of Income. The net revenue in our Consolidated Statement of Income for the three and nine months ended June 30, 2016, attributable to NexPlanar, was $6,363 and $15,743, respectively. The net loss included in our Consolidated Statement of Income for the three and nine months ended June 30, 2016, attributable to NexPlanar, was $1,616 and $5,918, respectively.

The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the date of acquisition:

Total purchase consideration	$	142,237

Cash	$	15,261
Accounts receivable		3,072
Inventories		2,768
Prepaid expenses and other current assets		1,712
Property, plant and equipment		6,901
Intangible assets		61,000
Deferred tax assets		20,569
Other long-term assets		1,458
Accounts payable		(1,057	)
Accrued expenses and other current liabilities		(1,472	)
Deferred tax liabilities		(22,457	)
Total identifiable net assets		87,755
Goodwill		54,482
	$	142,237

The acquisition was accounted for using the acquisition method of accounting. Tangible and identifiable intangible assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. The current fair values assigned to assets acquired and liabilities assumed are considered preliminary and are based on information available as of the date of the filing of this Form 10-Q. We believe that the information provides a reasonable basis for estimating the preliminary fair values of assets acquired and liabilities assumed, but certain items, such as deferred income taxes, may be subject to change as additional information is received. We expect to finalize the purchase price allocation as soon as practicable, but not later than one-year from the acquisition date of October 22, 2015.

In September 2015, the FASB issued Accounting Standards Update No. 2015-16, "Simplifying the Accounting for Measurement Period Adjustments" (Topic 805) (ASU 2015-16). The provisions of ASU 2015-16 require an acquirer to recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which the adjustments are determined. We elected the early adoption provision of this standard in the quarter ended March 31, 2016. During the quarter ended March 31, 2016, certain adjustments were made to the fair value estimates of property, plant and equipment. In accordance with the provisions of ASU 2015-16, we recorded the effect on the fair value of the assets as if the change had been completed as of the acquisition date, and we recorded the change in depreciation expense, which was not material, in earnings during the quarter ended March 31, 2016. During the quarter ended June 30, 2016, we reduced the amount charged to compensation expense for certain unvested NexPlanar stock options settled in cash from $605 to $154. This measurement period adjustment of $451 increased goodwill related to the NexPlanar acquisition. We also adjusted our estimated deferred tax asset and liability balances, which decreased goodwill by $362 in the quarter ending June 30, 2016.

The fair values of identifiable assets and liabilities acquired were developed with the assistance of third party valuation experts. The fair value of acquired property, plant and equipment is valued at its "value-in-use" as there are no known plans to dispose of any assets. The fair value of acquired identifiable intangible assets was determined using the "income approach" on an individual asset basis. The key assumptions used in the calculation of the discounted cash flows include projected revenues, gross margin, operating expenses, and discount rate. The valuations and the underlying assumptions have been deemed reasonable by Company management. There are inherent uncertainties and management judgment required in these determinations.

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition:

	Preliminary		Useful
	Fair Value		Life
Trade name	$	8,000	7 years
Customer relationships		8,000	11 years
Developed technology - product family A		25,000	7 years
Developed technology - product family B		8,000	8 years
In-process technology		12,000
Total preliminary intangible assets	$	61,000

The trade name represents the estimated fair value of the brand and name recognition associated with the marketing of NexPlanar's product offerings. Customer relationships represent the estimated fair value of the underlying relationships and agreements with NexPlanar customers. Developed technology represents the estimated fair value of NexPlanar's knowledge regarding its product offerings. In-process technology represents the fair value assigned to technology projects under development as of the acquisition date. The in-process technology assets are capitalized and accounted for as indefinite-lived intangible assets and will be subject to impairment testing until completion or abandonment of the projects. Upon successful completion of each project, we will make a determination of the appropriate useful life and the related amortization will be recorded as an expense over the estimated useful life based on the future expected cash flow stream. The intangible assets subject to amortization have a weighted average useful life of 7.8 years.

The excess of preliminary purchase consideration over the preliminary fair value of net assets acquired was recorded as goodwill, and is not deductible for income tax purposes. The goodwill is primarily attributable to anticipated revenue growth from the combination of our and NexPlanar pad technologies, expected synergies from the combined operations, and the assembled workforce of NexPlanar.

NexPlanar's results of operations have been included in our unaudited consolidated statements of income and comprehensive income from the date of acquisition. We incurred $816 in professional fees related to the acquisition, $526 of which were recorded as general and administrative expense during the fourth quarter of fiscal 2015, and $290 of which were recorded as general and administrative expense during the first quarter of fiscal 2016. As previously discussed, we recorded $154 in compensation expense, related to the cash settlement of certain unvested NexPlanar stock options.

The following supplemental pro forma information summarizes the combined results of operations for Cabot Microelectronics and NexPlanar as if the acquisition had occurred on October 1, 2014.

	Three Months Ended June 30,				Nine Months Ended June 30,
	2016		2015		2016		2015
Revenues	$	108,152	$	102,796	$	309,172	$	331,123
Net income		18,412		7,563		39,915		36,870
Earnings per share - basic		0.76		0.31		1.65		1.52
Earnings per share - diluted	$	0.75	$	0.30	$	1.62	$	1.48

The historical financial information has been adjusted to give effect to pro forma adjustments, which consist of amortization expense associated with intangible assets, and the elimination of interest expense on NexPlanar debt repaid prior to the acquisition. The proforma for the nine months ended June 30, 2016 exclude the impact of $154 in compensation expense related to unvested NexPlanar stock options settled in cash, and $403 for the step-up of inventory as these items are assumed to have occurred during the quarter ended December 31, 2014 had the acquisition been completed on October 1, 2014. The pro forma adjustments are based on information currently available. Therefore, 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, 2014. 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.