(State of Incorporation) | (I.R.S. Employer Identification No.) |
(Zip Code) | ||
(Address of principal executive offices) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
☒ | No |
☒ | No |
☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | Emerging growth company |
Yes | No | ☒ |
Page | ||
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Revenue | $ | $ | $ | $ | |||||||||||
Cost of sales | |||||||||||||||
Gross profit | |||||||||||||||
Operating expenses: | |||||||||||||||
Research, development and technical | |||||||||||||||
Selling, general and administrative | |||||||||||||||
Total operating expenses | |||||||||||||||
Operating income | |||||||||||||||
Interest expense | |||||||||||||||
Interest income | |||||||||||||||
Other income (expense), net | ( | ) | ( | ) | |||||||||||
Income before income taxes | |||||||||||||||
Provision for income taxes | |||||||||||||||
Net income | $ | $ | $ | $ | |||||||||||
Basic earnings per share (in dollars per share) | $ | $ | $ | $ | |||||||||||
Weighted average basic shares outstanding | |||||||||||||||
Diluted earnings per share (in dollars per share) | $ | $ | $ | $ | |||||||||||
Weighted average diluted shares outstanding |
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Net income | $ | $ | $ | $ | |||||||||||
Other comprehensive income (loss), net of tax: | |||||||||||||||
Foreign currency translation adjustments | ( | ) | |||||||||||||
Net unrealized loss on available-for-sale securities | ( | ) | ( | ) | |||||||||||
Net unrealized loss on cash flow hedges | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Other comprehensive income (loss), net of tax | ( | ) | ( | ) | ( | ) | |||||||||
Comprehensive income | $ | $ | $ | $ |
June 30, 2019 | September 30, 2018 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | $ | |||||
Accounts receivable, less allowance for doubtful accounts of $1,923 at June 30, 2019, and $1,900 at September 30, 2018 | |||||||
Inventories | |||||||
Prepaid expenses and other current assets | |||||||
Total current assets | |||||||
Property, plant and equipment, net | |||||||
Goodwill | |||||||
Other intangible assets, net | |||||||
Deferred income taxes | |||||||
Other long-term assets | |||||||
Total assets | $ | $ | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | $ | |||||
Current portion of long-term debt | |||||||
Accrued expenses, income taxes payable and other current liabilities | |||||||
Total current liabilities | |||||||
Long-term debt, net of current portion, less prepaid debt issuance costs of $18,655 at June 30, 2019 | |||||||
Deferred income taxes | |||||||
Other long-term liabilities | |||||||
Total liabilities | |||||||
Commitments and contingencies (Note 12) | |||||||
Stockholders’ equity: | |||||||
Common Stock: Authorized: 200,000,000 shares, $0.001 par value; Issued: 39,470,364 shares at June 30, 2019, and 35,862,465 shares at September 30, 2018 | |||||||
Capital in excess of par value of common stock | |||||||
Retained earnings | |||||||
Accumulated other comprehensive income (loss) | ( | ) | |||||
Treasury stock at cost, 10,447,011 shares at June 30, 2019, and 10,356,147 shares at September 30, 2018 | ( | ) | ( | ) | |||
Total stockholders’ equity | |||||||
Total liabilities and stockholders’ equity | $ | $ |
Nine Months Ended June 30, | |||||||
2019 | 2018 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | $ | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | |||||||
Provision for doubtful accounts | ( | ) | |||||
Share-based compensation expense | |||||||
Deemed repatriation transition tax | |||||||
Deferred income tax (expense) benefit | ( | ) | |||||
Non-cash foreign exchange (gain) loss | ( | ) | |||||
(Gain) loss on disposal of property, plant and equipment | ( | ) | |||||
Realized loss on the sale of available-for-sale securities | |||||||
Non-cash charge on inventory step up of acquired inventory sold | |||||||
Amortization of debt issuance costs | |||||||
(Gain) on sale of assets | ( | ) | |||||
Other | |||||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | ( | ) | |||||
Inventories | ( | ) | ( | ) | |||
Prepaid expenses and other assets | ( | ) | |||||
Accounts payable | ( | ) | |||||
Accrued expenses, income taxes payable and other liabilities | ( | ) | ( | ) | |||
Net cash provided by operating activities | |||||||
Cash flows from investing activities: | |||||||
Additions to property, plant and equipment | ( | ) | ( | ) | |||
Acquisition of a business, net of cash acquired | ( | ) | |||||
Cash settlement of life insurance policy | |||||||
Proceeds from the sale of assets | |||||||
Purchases of available-for-sale securities | ( | ) | |||||
Proceeds from the sale and maturities of available-for-sale securities | |||||||
Settlement of net investment hedge | ( | ) | |||||
Net cash used in investing activities | ( | ) | ( | ) | |||
Cash flows from financing activities: | |||||||
Repayment of long-term debt | ( | ) | ( | ) | |||
Repurchases of common stock | ( | ) | ( | ) | |||
Proceeds from issuance of long-term debt | |||||||
Debt issuance costs | ( | ) | |||||
Proceeds from issuance of stock | |||||||
Dividends paid | ( | ) | ( | ) | |||
Net cash provided by (used in) financing activities | ( | ) | |||||
Effect of exchange rate changes on cash | ( | ) | |||||
Decrease in cash and cash equivalents | ( | ) | ( | ) | |||
Cash and cash equivalents at beginning of period | |||||||
Cash and cash equivalents at end of period | $ | $ | |||||
Supplemental disclosure of non-cash investing and financing activities: | |||||||
Purchases of property, plant and equipment in accrued liabilities and accounts payable at the end of the period | $ | $ | |||||
Equity consideration related to the acquisition of KMG Chemicals, Inc |
Common Stock | Capital In Excess Of Par | Retained Earnings | Accumulated Other Comprehensive Income | Treasury Stock | Total | ||||||||||||||||||
Balance at September 30, 2018 | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||
Share-based compensation expense | |||||||||||||||||||||||
Repurchases of common stock - other, at cost | ( | ) | ( | ) | |||||||||||||||||||
Exercise of stock options | |||||||||||||||||||||||
Issuance of common stock in connection with acquisition of KMG Chemicals, Inc. | |||||||||||||||||||||||
Issuance of Cabot Microelectronics restricted stock under Deposit Share Program | |||||||||||||||||||||||
Net income | |||||||||||||||||||||||
Dividends ($0.40 per share in dollars) | ( | ) | ( | ) | |||||||||||||||||||
Effect of the adoption of the revenue recognition accounting standards | ( | ) | ( | ) | |||||||||||||||||||
Foreign currency translation adjustment | |||||||||||||||||||||||
Minimum pension liability adjustment | ( | ) | ( | ) | |||||||||||||||||||
Balance at December 31, 2018 | ( | ) | |||||||||||||||||||||
Share-based compensation expense | |||||||||||||||||||||||
Repurchases of common stock - other, at cost | ( | ) | ( | ) | |||||||||||||||||||
Exercise of stock options | |||||||||||||||||||||||
Issuance of Cabot Microelectronics stock under Employee Stock Purchase Plan | |||||||||||||||||||||||
Net income | |||||||||||||||||||||||
Dividends ($0.42 per share in dollars) | ( | ) | ( | ) | |||||||||||||||||||
Foreign currency translation adjustment | ( | ) | ( | ) | |||||||||||||||||||
Interest rate swap | ( | ) | ( | ) | |||||||||||||||||||
Minimum pension liability adjustment | |||||||||||||||||||||||
Balance at March 31, 2019 | ( | ) | ( | ) | |||||||||||||||||||
Share-based compensation expense | |||||||||||||||||||||||
Repurchases of common stock under share repurchase plans, at cost | ( | ) | ( | ) | |||||||||||||||||||
Repurchases of common stock - other, at cost | ( | ) | ( | ) | |||||||||||||||||||
Exercise of stock options | |||||||||||||||||||||||
Net income | |||||||||||||||||||||||
Dividends | ( | ) | ( | ) | |||||||||||||||||||
Foreign currency translation adjustment | |||||||||||||||||||||||
Interest rate swap | ( | ) | ( | ) | |||||||||||||||||||
Balance at June 30, 2019 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ |
Common Stock | Capital In Excess Of Par | Retained Earnings | Accumulated Other Comprehensive Income | Treasury Stock | Total | ||||||||||||||||||
Balance at September 30, 2017 | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||
Share-based compensation expense | |||||||||||||||||||||||
Repurchases of common stock under share repurchase plans, at cost | ( | ) | ( | ) | |||||||||||||||||||
Repurchases of common stock - other, at cost | ( | ) | ( | ) | |||||||||||||||||||
Exercise of stock options | |||||||||||||||||||||||
Issuance of Cabot Microelectronics restricted stock under Deposit Share Program | |||||||||||||||||||||||
Net loss | ( | ) | ( | ) | |||||||||||||||||||
Dividends ($0.20 per share in dollars) | ( | ) | ( | ) | |||||||||||||||||||
Foreign currency translation adjustment | |||||||||||||||||||||||
Interest rate swaps | |||||||||||||||||||||||
Unrealized loss in short term available-for-sale securities | ( | ) | ( | ) | |||||||||||||||||||
Balance at December 31, 2017 | ( | ) | |||||||||||||||||||||
Share-based compensation expense | |||||||||||||||||||||||
Repurchases of common stock under share repurchase plans, at cost | ( | ) | ( | ) | |||||||||||||||||||
Repurchases of common stock - other, at cost | ( | ) | ( | ) | |||||||||||||||||||
Exercise of stock options | |||||||||||||||||||||||
Issuance of Cabot Microelectronics stock under Employee Stock Purchase Plan | |||||||||||||||||||||||
Net income | |||||||||||||||||||||||
Dividends ($0.40 per share in dollars) | ( | ) | ( | ) | |||||||||||||||||||
Foreign currency translation adjustment | |||||||||||||||||||||||
Interest rate swaps | ( | ) | ( | ) | |||||||||||||||||||
Sale of short term available-for-sale securities | |||||||||||||||||||||||
Balance at March 31, 2018 | ( | ) | |||||||||||||||||||||
Share-based compensation expense | |||||||||||||||||||||||
Repurchases of common stock under share repurchase plans, at cost | ( | ) | ( | ) | |||||||||||||||||||
Exercise of stock options | |||||||||||||||||||||||
Net income | |||||||||||||||||||||||
Dividends | ( | ) | ( | ) | |||||||||||||||||||
Foreign currency translation adjustment | ( | ) | ( | ) | |||||||||||||||||||
Interest rate swaps | ( | ) | ( | ) | |||||||||||||||||||
Change in unrealized gain/(loss) in short term available-for-sale securities | ( | ) | ( | ) | |||||||||||||||||||
Balance at June 30, 2018 | $ | $ | $ | $ | $ | ( | ) | $ |
Balance at September 30, 2018 | Adjustments Due to ASC 606 | Balance at October 1, 2018 | |||||||||
Deferred income tax assets | $ | $ | $ | ||||||||
Accrued expenses, income taxes payable and other current liabilities | ( | ) | |||||||||
Other long-term liabilities | |||||||||||
Retained earnings | $ | $ | ( | ) | $ |
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Revenue: | |||||||||||||||
Electronic Materials: | |||||||||||||||
CMP Slurries | $ | $ | $ | $ | |||||||||||
Electronic Chemicals | |||||||||||||||
CMP Pads | |||||||||||||||
Total Electronic Materials | |||||||||||||||
Performance Materials | |||||||||||||||
Total revenue | $ | $ | $ | $ |
June 30, 2019 | October 1, 2018 | ||||||
Contract liabilities (current) | $ | $ | |||||
Contract liabilities (noncurrent) |
Less Than 1 Year | 1-3 Years | 3-5 Years | Total | ||||||||||||
Revenue expected to be recognized on contract liability amounts as of June 30, 2019 | $ | $ | $ | $ |
Amount | |||
Total cash consideration paid for KMG outstanding common stock and equity awards | $ | ||
Cash provided to payoff KMG debt | |||
Total cash consideration paid | |||
Fair value of Cabot Microelectronics common stock issued for KMG outstanding common stock and equity awards | |||
Total consideration transferred | $ |
Amount | |||
Cash | $ | ||
Accounts receivable | |||
Inventories | |||
Prepaid expenses and other current assets | |||
Property, plant and equipment | |||
Intangible assets | |||
Other long-term assets | |||
Accounts payable | ( | ) | |
Accrued expenses and other current liabilities | ( | ) | |
Deferred income taxes liabilities | ( | ) | |
Other long-term liabilities | ( | ) | |
Total identifiable net assets acquired | |||
Goodwill | |||
Total consideration transferred | $ |
Fair Value | Estimated Useful Life (years) | ||||
Customer relationships | $ | 15-20 | |||
Technology and know-how | 9-11 | ||||
Trade name - Flowchem | Indefinite | ||||
Trade name - all other | 1-15 | ||||
EPA product registration rights | |||||
Total intangible assets | $ |
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Revenues | $ | $ | $ | $ | |||||||||||
Net income (loss) | ( | ) | |||||||||||||
Earnings per share - basic | $ | $ | $ | $ | ( | ) | |||||||||
Earnings per share - diluted | $ | $ | $ | $ | ( | ) |
• | Non-recurring transaction costs of $ |
• | Non-recurring transaction-related employee costs, such as accelerated stock compensation expense, retention and severance expense of $ |
• | Non-recurring charge for fair value write-up of inventory sold of $ |
June 30, 2019 | Level 1 | Level 2 | Level 3 | Total Fair Value | ||||||||||||
Assets: | ||||||||||||||||
Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
Other long-term investments | ||||||||||||||||
Derivative financial instruments | $ | |||||||||||||||
Total assets | $ | $ | $ | $ | ||||||||||||
Liabilities: | ||||||||||||||||
Derivative financial instruments | ||||||||||||||||
Total liabilities | $ | $ | $ | $ |
September 30, 2018 | Level 1 | Level 2 | Level 3 | Total Fair Value | ||||||||||||
Assets: | ||||||||||||||||
Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
Other long-term investments | ||||||||||||||||
Total assets | $ | $ | $ | $ | ||||||||||||
Liabilities: | ||||||||||||||||
Derivative financial instruments | ||||||||||||||||
Total liabilities | $ | $ | $ | $ |
June 30, 2019 | September 30, 2018 | ||||||
Raw materials | $ | $ | |||||
Work in process | |||||||
Finished goods | |||||||
Total | $ | $ |
June 30, 2019 | September 30, 2018 | ||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||
Other intangible assets subject to amortization: | |||||||||||||||
Product technology, trade secrets and know-how | $ | $ | $ | $ | |||||||||||
Acquired patents and licenses | |||||||||||||||
Customer relationships, trade names, and distribution rights | |||||||||||||||
Total other intangible assets subject to amortization | |||||||||||||||
Other intangible assets not subject to amortization: | |||||||||||||||
Other indefinite-lived intangibles* | |||||||||||||||
Total other intangible assets not subject to amortization | |||||||||||||||
Total other intangible assets | $ | $ | $ | $ |
Fiscal Year | Estimated Amortization Expense | |||
Remainder of 2019 | $ | |||
2020 | ||||
2021 | ||||
2022 | ||||
2023 |
June 30, 2019 | September 30, 2018 | ||||||
Long-term contract assets | |||||||
Long-term SERP Investment | |||||||
Prepaid unamortized debt issuance cost - revolver | |||||||
Other long-term assets | |||||||
Total | $ | $ |
June 30, 2019 | September 30, 2018 | ||||||
Accrued compensation | $ | $ | |||||
Income taxes payable | |||||||
Dividends payable | |||||||
Taxes, other than income taxes | |||||||
KMG - Bernuth warehouse fire related (See Note 12) | |||||||
Accrued interest | |||||||
Contract liabilities | |||||||
Goods and services received, not yet invoiced | |||||||
Other accrued expenses | |||||||
Total | $ | $ |
Fiscal Year | Principal Repayments | |||
Remainder of 2019 | $ | |||
2020 | ||||
2021 | ||||
2022 | ||||
2023 | ||||
Greater than 5 years | ||||
Total | $ |
Derivative Assets | Derivative Liabilities | |||||||||||||||
Consolidated Balance Sheet Location | June 30, 2019 | September 30, 2018 | June 30, 2019 | September 30, 2018 | ||||||||||||
Derivatives designated as hedging instruments | ||||||||||||||||
Interest rate swap contract | Accrued expenses, income taxes payable and other current liabilities | $ | $ | $ | $ | |||||||||||
Other long-term liabilities | $ | $ | $ | |||||||||||||
Derivatives not designated as hedging instruments | ||||||||||||||||
Foreign exchange contracts | Prepaid expenses and other current assets | $ | $ | $ | $ | |||||||||||
Accrued expenses, income taxes payable and other current liabilities | $ | $ | $ | $ |
(Loss) Recognized in Statement of Income | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
Statement of Income Location | June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||||||
Derivatives not designated as hedging instruments | ||||||||||||||||
Foreign exchange contracts | Other income (expense), net | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) |
Foreign Currency Translation | Cash Flow Hedges | Pension and Other Postretirement Liabilities | Total | ||||||||||||
Balance at September 30, 2018 | $ | $ | ( | ) | $ | ( | ) | $ | |||||||
Foreign currency translation adjustment, net of tax of $564 | — | — | |||||||||||||
Unrealized gain (loss) on cash flow hedges: | |||||||||||||||
Change in fair value, net of tax of $(4,500) | — | ( | ) | — | ( | ) | |||||||||
Reclassification adjustment into earnings, net of tax of $(9) | — | ( | ) | — | ( | ) | |||||||||
Balance at June 30, 2019 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) |
Foreign Currency Translation | Cash Flow Hedges | Pension and Other Postretirement Liabilities | Available-for-Sale Securities | Total | |||||||||||||||
Balance at September 30, 2017 | $ | $ | $ | ( | ) | $ | $ | ||||||||||||
Foreign currency translation adjustment, net of tax of $(2,303) | — | — | |||||||||||||||||
Unrealized loss on available-for-sale securities, net of tax of $0 | — | — | — | ( | ) | ( | ) | ||||||||||||
Unrealized gain (loss) on cash flow hedges: | |||||||||||||||||||
Change in fair value, net of tax of $111 | — | — | |||||||||||||||||
Reclassification adjustment into earnings, net of tax of $(133) | — | ( | ) | — | ( | ) | |||||||||||||
Balance at June 30, 2018 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ |
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Cost of sales | $ | $ | $ | $ | |||||||||||
Research, development and technical | |||||||||||||||
Selling, general and administrative | |||||||||||||||
Total share-based compensation expense | |||||||||||||||
Tax benefit | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Total share-based compensation expense, net of tax | $ | $ | $ |
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Numerator: | |||||||||||||||
Net Income | $ | $ | $ | $ | |||||||||||
Less: income attributable to participating securities | ( | ) | ( | ) | |||||||||||
Earnings available to common shares | $ | $ | $ | $ | |||||||||||
Denominator: | |||||||||||||||
Weighted average common shares | |||||||||||||||
(Denominator for basic calculation) | |||||||||||||||
Weighted average effect of dilutive securities: | |||||||||||||||
Share-based compensation | |||||||||||||||
Diluted weighted average common shares | |||||||||||||||
(Denominator for diluted calculation) | |||||||||||||||
Earnings per share: | |||||||||||||||
Basic | $ | $ | $ | $ | |||||||||||
Diluted | $ | $ | $ | $ |
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Segment Revenue | |||||||||||||||
Electronic Materials | $ | $ | $ | $ | |||||||||||
Performance Materials | |||||||||||||||
Total | $ | $ | $ | $ |
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Segment adjusted EBITDA: | |||||||||||||||
Electronic Materials | $ | $ | $ | $ | |||||||||||
Performance Materials | |||||||||||||||
Unallocated corporate expenses | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Interest income | |||||||||||||||
Depreciation and amortization | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Acquisition and integration related expenses | ( | ) | ( | ) | |||||||||||
Charge for fair value write-up of acquired inventory sold | ( | ) | ( | ) | |||||||||||
Costs related to KMG-Bernuth warehouse fire (See Note 12) | ( | ) | ( | ) | |||||||||||
Income before income taxes | $ | $ | $ | $ |
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Segment Revenue | |||||||||||||||
Electronic Materials | $ | 212,123 | $ | 143,810 | $ | 615,585 | $ | 413,227 | |||||||
Performance Materials | 59,759 | 6,627 | 143,466 | 20,167 | |||||||||||
Total | $ | 271,882 | $ | 150,437 | $ | 759,051 | $ | 433,394 |
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Segment Adjusted EBITDA | |||||||||||||||
Electronic Materials | $ | 70,859 | $ | 57,460 | $ | 220,594 | $ | 162,641 | |||||||
Performance Materials | 27,425 | 1,081 | 63,152 | 3,600 | |||||||||||
Unallocated Corporate Expenses | (12,527 | ) | (9,715 | ) | (35,621 | ) | (30,471 | ) | |||||||
Total | $ | 85,757 | $ | 48,826 | $ | 248,125 | $ | 135,770 |
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||
Adjusted EBITDA margin | |||||||||||
Electronic Materials | 33.4 | % | 40.0 | % | 35.8 | % | 39.4 | % | |||
Performance Materials | 45.9 | % | 16.3 | % | 44.0 | % | 17.8 | % |
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Segment adjusted EBITDA | |||||||||||||||
Electronic Materials | $ | 70,859 | $ | 57,460 | $ | 220,594 | $ | 162,641 | |||||||
Performance Materials | 27,425 | 1,081 | 63,152 | 3,600 | |||||||||||
Unallocated Corporate Expenses | (12,527 | ) | (9,715 | ) | (35,621 | ) | (30,471 | ) | |||||||
Total | $ | 85,757 | $ | 48,826 | $ | 248,125 | $ | 135,770 |
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Net income | $ | 18,878 | $ | 35,171 | $ | 59,458 | $ | 61,825 | |||||||
Interest expense | 12,757 | 513 | 32,978 | 2,803 | |||||||||||
Interest income | (417 | ) | (1,141 | ) | (2,004 | ) | (3,248 | ) | |||||||
Income taxes | 20,550 | 7,873 | 34,790 | 54,863 | |||||||||||
Depreciation and amortization | 26,587 | 6,410 | 70,476 | 19,548 | |||||||||||
EBITDA | 78,355 | 48,826 | 195,698 | 135,791 | |||||||||||
Acquisition and integration related expenses | 2,910 | — | 33,108 | — | |||||||||||
Charge for fair value write-up of acquired inventory sold | 42 | — | 14,869 | — | |||||||||||
Costs related to KMG-Bernuth warehouse fire | 4,450 | — | 4,450 | — | |||||||||||
Adjusted EBITDA | $ | 85,757 | $ | 48,826 | $ | 248,125 | $ | 135,791 |
CONTRACTUAL OBLIGATIONS | Less Than | 1-3 | 3-5 | After 5 | |||||||||||||||
(In millions) | Total | 1 Year | Years | Years | Years | ||||||||||||||
Purchase obligations | $ | 63.3 | $ | 60.2 | $ | 3.1 | $ | — | $ | — | |||||||||
Operating leases | 33.9 | 7.1 | 8.2 | 6.8 | 11.8 | ||||||||||||||
Severance agreements | 3.1 | 3.1 | — | — | — | ||||||||||||||
Debt | 962.3 | 13.3 | 21.3 | 21.3 | 906.4 | ||||||||||||||
Interest expense and fees | 235.3 | 49.0 | 71.8 | 66.7 | 47.8 | ||||||||||||||
Other long-term liabilities * | 26.8 | 0.5 | 0.8 | 0.7 | 24.8 | ||||||||||||||
Total contractual obligations | $ | 1,324.7 | $ | 133.2 | $ | 105.2 | $ | 95.5 | $ | 990.8 |
Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Revenue | $ | 271,882 | $ | 272,589 | $ | 821,029 | $ | 784,694 | |||||||
Cost of sales | 156,450 | 152,414 | 457,372 | 443,059 | |||||||||||
Gross profit | 115,432 | 120,175 | 363,657 | 341,635 | |||||||||||
Operating expenses: | |||||||||||||||
Research, development and technical | 12,191 | 13,059 | 39,009 | 38,578 | |||||||||||
Selling, general and administrative expenses | 54,655 | 53,024 | 166,189 | 155,695 | |||||||||||
Total operating expenses | 66,846 | 66,083 | 205,198 | 194,273 | |||||||||||
Operating income | 48,586 | 54,092 | 158,459 | 147,362 | |||||||||||
Interest expense | 12,759 | 13,350 | 38,372 | 41,391 | |||||||||||
Interest income | 417 | 1,150 | 2,055 | 3,260 | |||||||||||
Other income (expense), net | (472 | ) | 396 | (3,155 | ) | (890 | ) | ||||||||
Income before income taxes | 35,772 | 42,288 | 118,987 | 108,341 | |||||||||||
Provision for income taxes | 19,695 | 7,585 | 30,049 | 37,462 | |||||||||||
Net income | $ | 16,077 | $ | 34,703 | $ | 88,938 | $ | 70,879 | |||||||
Basic earnings per share | $ | 0.55 | $ | 1.20 | $ | 3.07 | $ | 2.47 | |||||||
Weighted average basic shares outstanding | 29,064 | 28,849 | 28,944 | 28,716 | |||||||||||
Diluted earnings per share | $ | 0.54 | $ | 1.17 | $ | 3.02 | $ | 2.41 | |||||||
Weighted average diluted shares outstanding | 29,568 | 29,556 | 29,469 | 29,459 |
Cabot Microelectronics | |||||||||||
Three Months Ended June 30, 2019 | Pro Forma Adjustments (1) | Pro Forma Combined | |||||||||
Revenue | $ | 271,882 | $ | — | $ | 271,882 | |||||
Cost of sales | 156,492 | (42 | ) | 156,450 | |||||||
Gross profit | 115,390 | 42 | 115,432 | ||||||||
Operating expenses: | |||||||||||
Research, development and technical | 12,191 | — | 12,191 | ||||||||
Selling, general and administrative expenses | 50,959 | 3,696 | 54,655 | ||||||||
Total operating expenses | 63,150 | 3,696 | 66,846 | ||||||||
Operating income | 52,240 | (3,654 | ) | 48,586 | |||||||
Interest expense | 12,757 | 2 | 12,759 | ||||||||
Interest income | 417 | — | 417 | ||||||||
Other income (expense), net | (472 | ) | — | (472 | ) | ||||||
Income before income taxes | 39,428 | (3,656 | ) | 35,772 | |||||||
Provision for income taxes | 20,550 | (855 | ) | 19,695 | |||||||
Net income | $ | 18,878 | $ | (2,801 | ) | $ | 16,077 | ||||
Basic earnings per share | $ | 0.65 | $ | 0.55 | |||||||
Weighted average basic shares outstanding | 29,064 | 29,064 | |||||||||
Diluted earnings per share | $ | 0.64 | $ | 0.54 | |||||||
Weighted average diluted shares outstanding | 29,568 | 29,568 |
Cabot Microelectronics (1) | KMG Chemicals (2) | ||||||||||||||||||
Nine Months Ended June 30, 2019 | October 1, 2018 to November 14, 2018 | Presentation Reclassification (3) | Pro Forma Adjustments (4) | Pro Forma Combined | |||||||||||||||
Revenue | $ | 759,051 | $ | 61,978 | $ | — | $ | — | $ | 821,029 | |||||||||
Cost of sales | 429,508 | 36,534 | 4,741 | (13,411 | ) | 457,372 | |||||||||||||
Gross profit | 329,543 | 25,444 | (4,741 | ) | 13,411 | 363,657 | |||||||||||||
Operating expenses: | |||||||||||||||||||
Distribution expenses | — | 4,741 | (4,741 | ) | — | — | |||||||||||||
Research, development and technical | 39,009 | — | — | — | 39,009 | ||||||||||||||
Selling, general and administrative expenses | 162,415 | 40,504 | — | (36,730 | ) | 166,189 | |||||||||||||
Amortization of intangibles | — | 1,943 | — | (1,943 | ) | — | |||||||||||||
Total operating expenses | 201,424 | 47,188 | (4,741 | ) | (38,673 | ) | 205,198 | ||||||||||||
Operating income | 128,119 | (21,744 | ) | — | 52,084 | 158,459 | |||||||||||||
Interest expense | 32,978 | 8,537 | — | (3,143 | ) | 38,372 | |||||||||||||
Interest income | 2,004 | 51 | — | — | 2,055 | ||||||||||||||
Derivative fair value gain | — | 567 | — | (567 | ) | — | |||||||||||||
Other income (expense), net | (2,897 | ) | (258 | ) | — | — | (3,155 | ) | |||||||||||
Income before income taxes | 94,248 | (29,921 | ) | — | 54,660 | 118,987 | |||||||||||||
Provision for income taxes (benefit) | 34,790 | (6,847 | ) | — | 2,106 | 30,049 | |||||||||||||
Net income | $ | 59,458 | $ | (23,074 | ) | $ | — | $ | 52,554 | $ | 88,938 | ||||||||
Basic earnings per share | $ | 2.09 | $ | 3.07 | |||||||||||||||
Weighted average basic shares outstanding | 28,399 | 28,944 | |||||||||||||||||
Diluted earnings per share | $ | 2.06 | $ | 3.02 | |||||||||||||||
Weighted average diluted shares outstanding | 28,924 | 29,469 |
Cabot Microelectronics | KMG Chemicals (1) | ||||||||||||||||||
Three Months Ended June 30, 2018 | Three Months Ended June 30, 2018 | Presentation Reclassification (2) | Pro Forma Adjustments (3) | Pro Forma Combined | |||||||||||||||
Revenue | $ | 150,437 | $ | 122,152 | $ | — | $ | — | $ | 272,589 | |||||||||
Cost of sales | 69,737 | 69,964 | 9,308 | 3,405 | 152,414 | ||||||||||||||
Gross profit | 80,700 | 52,188 | (9,308 | ) | (3,405 | ) | 120,175 | ||||||||||||
Operating expenses: | |||||||||||||||||||
Distribution expenses | — | 9,308 | (9,308 | ) | — | — | |||||||||||||
Research, development and technical | 13,059 | — | — | — | 13,059 | ||||||||||||||
Selling, general and administrative expenses | 25,711 | 15,043 | — | 12,270 | 53,024 | ||||||||||||||
Amortization of intangibles | — | 3,863 | — | (3,863 | ) | — | |||||||||||||
Total operating expenses | 38,770 | 28,214 | (9,308 | ) | 8,407 | 66,083 | |||||||||||||
Operating income | 41,930 | 23,974 | — | (11,812 | ) | 54,092 | |||||||||||||
Interest expense | 513 | 4,196 | — | 8,641 | 13,350 | ||||||||||||||
Interest income | 1,141 | 9 | — | — | 1,150 | ||||||||||||||
Loss on the extinguishment of debt | — | 194 | — | (194 | ) | — | |||||||||||||
Derivative fair value gain | — | 1,450 | — | (1,450 | ) | — | |||||||||||||
Other income (expense), net | 486 | (90 | ) | — | — | 396 | |||||||||||||
Income before income taxes | 43,044 | 20,953 | — | (21,709 | ) | 42,288 | |||||||||||||
Provision for income taxes (benefit) | 7,873 | 4,795 | — | (5,083 | ) | 7,585 | |||||||||||||
Net income | $ | 35,171 | $ | 16,158 | $ | — | $ | (16,626 | ) | $ | 34,703 | ||||||||
Basic earnings per share | $ | 1.37 | $ | 1.04 | $ | 1.20 | |||||||||||||
Weighted average basic shares outstanding | 25,612 | 15,505 | 28,849 | ||||||||||||||||
Diluted earnings per share | $ | 1.34 | $ | 1.02 | $ | 1.17 | |||||||||||||
Weighted average diluted shares outstanding | 26,319 | 15,905 | 29,556 |
Cabot Microelectronics | KMG Chemicals (1) | ||||||||||||||||||
Nine Months Ended June 30, 2018 | Nine Months Ended June 30, 2018 | Presentation Reclassification (2) | Pro Forma Adjustments (3) | Pro Forma Combined | |||||||||||||||
Revenue | $ | 433,394 | $ | 351,300 | $ | — | $ | — | $ | 784,694 | |||||||||
Cost of sales | 203,635 | 202,182 | 26,983 | 10,259 | 443,059 | ||||||||||||||
Gross profit | 229,759 | 149,118 | (26,983 | ) | (10,259 | ) | 341,635 | ||||||||||||
Operating expenses: | |||||||||||||||||||
Distribution expenses | — | 26,983 | (26,983 | ) | — | — | |||||||||||||
Research, development and technical | 38,578 | — | — | — | 38,578 | ||||||||||||||
Selling, general and administrative expenses | 75,051 | 43,823 | — | 36,821 | 155,695 | ||||||||||||||
Amortization of intangibles | — | 10,835 | — | (10,835 | ) | — | |||||||||||||
Total operating expenses | 113,629 | 81,641 | (26,983 | ) | 25,986 | 194,273 | |||||||||||||
Operating income | 116,130 | 67,477 | — | (36,245 | ) | 147,362 | |||||||||||||
Interest expense | 2,803 | 14,733 | — | 23,855 | 41,391 | ||||||||||||||
Interest income | 3,248 | 12 | — | — | 3,260 | ||||||||||||||
Loss on the extinguishment of debt | — | 6,503 | — | (6,503 | ) | — | |||||||||||||
Derivative fair value gain | — | 5,332 | — | (5,332 | ) | — | |||||||||||||
Other income (expense), net | 113 | (1,003 | ) | — | — | (890 | ) | ||||||||||||
Income before income taxes | 116,688 | 50,582 | — | (58,929 | ) | 108,341 | |||||||||||||
Provision for income taxes (benefit) | 54,863 | (3,604 | ) | — | (13,797 | ) | 37,462 | ||||||||||||
Net income | $ | 61,825 | $ | 54,186 | $ | — | $ | (45,132 | ) | $ | 70,879 | ||||||||
Basic earnings per share | $ | 2.42 | $ | 3.75 | $ | 2.47 | |||||||||||||
Weighted average basic shares outstanding | 25,479 | 14,439 | 28,716 | ||||||||||||||||
Diluted earnings per share | $ | 2.35 | $ | 3.66 | $ | 2.41 | |||||||||||||
Weighted average diluted shares outstanding | 26,222 | 14,814 | 29,459 |
Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Nine Months Ended June 30, 2019 | Nine Months Ended June 30, 2018 | ||||||||||||
Impact to cost of sales: | |||||||||||||||
Depreciation and amortization, net(a) | $ | — | $ | 3,405 | $ | 1,459 | $ | 10,259 | |||||||
Inventory step-up(b) | (42 | ) | — | (14,870 | ) | — | |||||||||
Impact to cost of sales | $ | (42 | ) | $ | 3,405 | $ | (13,411 | ) | $ | 10,259 | |||||
Impact to operating expense: | |||||||||||||||
Depreciation and amortization step up(a) | 6,488 | 12,204 | 24,416 | 36,624 | |||||||||||
Compensation expense(c) | — | 66 | 33 | 197 | |||||||||||
Deal costs(d) | (2,792 | ) | — | (61,179 | ) | — | |||||||||
Historical KMG amortization in other operating expenses removal(a) | — | (3,863 | ) | (1,943 | ) | (10,835 | ) | ||||||||
Impact to operating expense | $ | 3,696 | $ | 8,407 | $ | (38,673 | ) | $ | 25,986 | ||||||
Impact to other expense: | |||||||||||||||
Loss on the extinguishment of debt(e) | — | (194 | ) | — | (6,503 | ) | |||||||||
Derivative fair value gain(e) | — | 1,450 | 567 | 5,332 | |||||||||||
Impact to other expense | $ | — | $ | 1,256 | $ | 567 | $ | (1,171 | ) | ||||||
Impact to interest, net: | |||||||||||||||
Interest expense(f) | 2 | 8,641 | (3,143 | ) | 23,855 | ||||||||||
Impact to interest | $ | 2 | $ | 8,641 | $ | (3,143 | ) | $ | 23,855 |
(a) | Depreciation and amortization expense are adjusted by removing depreciation and amortization associated with legacy KMG assets and assigning a pro forma expense based on the fair value of the assets on the date of the Acquisition. For periods after the date of the Acquisition, there is no pro forma adjustment for Depreciation and actual booked depreciation is reflected on a straight line basis. Depreciation costs are allocated to costs of sales and selling, general and administrative expenses based on historical KMG allocations. Amortization costs are allocated to costs of sales or selling, general and administrative expense based on the use of the asset, where applicable. |
(b) | Cost of sales is impacted by increased inventory balance caused by the non-cash impact of the step up to fair value of the inventory. The incremental costs of sales driven by the inventory step-up during the period have been removed. |
(c) | Directly attributable and non-recurring compensation expense related to non-recurring retention expenses and stock award vesting directly attributable to the Acquisition are removed for pro forma purposes. For KMG stock awards that were replaced by Cabot stock awards in connection with the Acquisition, the vesting for on-going service expenses are added as a pro forma adjustment. |
(d) | The elimination of non-recurring deal costs incurred in connection with the Acquisition. |
(e) | As a result of the Acquisition, there were non-recurring costs incurred by KMG as a result of retiring old debt. The costs associated with retiring the old debt facility and other financial instruments are removed for pro forma purposes. These instruments were retired as a result of the Acquisition and are not included in the pro forma results, which are presented as if the Acquisition had occurred on October 1, 2017. |
(f) | Changes in interest expense as a result of financing associated with the Acquisition. The adjustments remove legacy KMG interest costs, including unused revolver fees and adds the costs associated with the new financing facilities as if the Acquisition occurred on October 1, 2017. |
• | Removal of amortization of acquisition related intangibles, since management believes that these costs are not indicative of the company’s core operating performance. |
• | Removal of integration expenses, as they are non-recurring in nature. |
• | Adjustment for U.S. Tax Reform, which represents a significant non-recurring item affecting comparability among periods. |
• | Removal of certain costs related to a warehouse fire at KMG-Bernuth. |
Non-GAAP Adjustments | |||||||||||||||||||||||
Pro Forma | Amortization of Acquisition Related Intangibles | Integration Expenses | U.S Tax Reform | Costs Related to KMG-Bernuth Warehouse Fire | Adjusted Pro forma | ||||||||||||||||||
Revenue | $ | 271,882 | $ | — | $ | — | $ | — | $ | — | $ | 271,882 | |||||||||||
Cost of Sales | 156,450 | (3,470 | ) | — | — | (4,200 | ) | 148,780 | |||||||||||||||
Gross Profit | 115,432 | 3,470 | — | 4,200 | 123,102 | ||||||||||||||||||
Gross Profit, % of Revenue | 42.5 | % | 1.3 | % | — | % | — | % | 1.5 | % | 45.3 | % | |||||||||||
Operating Expenses | |||||||||||||||||||||||
Research, development and technical | 12,191 | — | — | — | 12,191 | ||||||||||||||||||
Selling, general and administrative | 54,655 | (19,942 | ) | (117 | ) | (250 | ) | 34,346 | |||||||||||||||
Total Operating Expenses | 66,846 | (19,942 | ) | (117 | ) | (250 | ) | 46,537 | |||||||||||||||
Operating Income | 48,586 | 23,412 | 117 | 4,450 | 76,565 | ||||||||||||||||||
Interest Expense | 12,759 | — | — | — | 12,759 | ||||||||||||||||||
Interest Income | 417 | — | — | — | 417 | ||||||||||||||||||
Other Income (Expense), net | (472 | ) | — | — | — | (472 | ) | ||||||||||||||||
Income before income taxes | 35,772 | 23,412 | 117 | 4,450 | 63,751 | ||||||||||||||||||
Provision for income taxes | 19,695 | 5,273 | 26 | (9,128 | ) | 1,002 | 16,868 | ||||||||||||||||
Net Income | $ | 16,077 | $ | 18,139 | $ | 91 | $ | 9,128 | $ | 3,448 | $ | 46,883 | |||||||||||
Diluted Earnings per share | $ | 0.54 | $ | 0.62 | $ | — | $ | 0.31 | $ | 0.12 | $ | 1.59 | |||||||||||
Weighted Average Diluted Shares Outstanding | 29,568 | 29,568 | 29,568 | 29,568 | 29,568 | 29,568 | |||||||||||||||||
Depreciation & amortization | $ | 33,076 | $ | (23,412 | ) | $ | — | $ | — | $ | — | $ | 9,664 | ||||||||||
EBITDA | $ | 81,190 | $ | — | $ | 117 | $ | 4,450 | $ | 85,757 | |||||||||||||
EBITDA Margin | 29.9 | % | — | % | 1.6 | % | 31.5 | % |
Non-GAAP Adjustments | |||||||||||||||||||||||
Pro Forma | Amortization of Acquisition Related Intangibles | Integration Expenses | U.S. Tax Reform | Costs Related to KMG-Bernuth Warehouse Fire | Adjusted Pro forma | ||||||||||||||||||
Revenue | $ | 821,029 | $ | — | $ | — | $ | — | $ | 821,029 | |||||||||||||
Cost of Sales | 457,372 | (10,410 | ) | — | (4,200 | ) | 442,762 | ||||||||||||||||
Gross Profit | 363,657 | 10,410 | — | — | 4,200 | 378,267 | |||||||||||||||||
Gross Profit, % of Revenue | 44.3 | % | 1.3 | % | — | % | — | % | 0.5 | % | 46.1 | % | |||||||||||
Operating Expenses | |||||||||||||||||||||||
Research, development and technical | 39,009 | — | — | — | 39,009 | ||||||||||||||||||
Selling, general and administrative | 166,189 | (59,826 | ) | (2,208 | ) | (250 | ) | 103,905 | |||||||||||||||
Total Operating Expenses | 205,198 | (59,826 | ) | (2,208 | ) | — | (250 | ) | 142,914 | ||||||||||||||
Operating Income | 158,459 | 70,236 | 2,208 | — | 4,450 | 235,353 | |||||||||||||||||
Interest Expense | 38,372 | — | — | — | 38,372 | ||||||||||||||||||
Interest Income | 2,055 | — | — | — | 2,055 | ||||||||||||||||||
Other Income (Expense), net | (3,155 | ) | — | — | — | (3,155 | ) | ||||||||||||||||
Income before income taxes | 118,987 | 70,236 | 2,208 | — | 4,450 | 195,881 | |||||||||||||||||
Provision for income taxes | 30,049 | 15,818 | 497 | (8,869 | ) | 1,002 | 38,497 | ||||||||||||||||
Net Income | $ | 88,938 | $ | 54,418 | $ | 1,711 | $ | 8,869 | $ | 3,448 | $ | 157,384 | |||||||||||
Diluted Earnings per share | $ | 3.02 | $ | 1.84 | $ | 0.06 | $ | 0.30 | $ | 0.12 | $ | 5.34 | |||||||||||
Weighted Average Diluted Shares Outstanding | 29,469 | 29,469 | 29,469 | 29,469 | 29,469 | 29,469 | |||||||||||||||||
Depreciation & amortization | $ | 100,100 | $ | (70,236 | ) | $ | — | $ | — | $ | 29,864 | ||||||||||||
EBITDA | $ | 255,404 | $ | — | $ | 2,208 | $ | — | $ | 4,450 | $ | 262,062 | |||||||||||
EBITDA Margin | 31.1 | % | — | 0.3 | % | 0.5 | % | 31.9 | % |
Non-GAAP Adjustments | |||||||||||||||
Pro Forma | Amortization of Acquisition Related Intangibles | U.S. Tax Reform | Adjusted Pro forma | ||||||||||||
Revenue | $ | 272,589 | $ | — | $ | — | $ | 272,589 | |||||||
Cost of Sales | 152,414 | (3,470 | ) | — | 148,944 | ||||||||||
Gross Profit | 120,175 | 3,470 | — | 123,645 | |||||||||||
Gross Profit, % of Revenue | 44.1 | % | 1.3 | % | — | % | 45.4 | % | |||||||
Operating Expenses | |||||||||||||||
Research, development and technical | 13,059 | — | — | 13,059 | |||||||||||
Selling, general and administrative | 53,024 | (12,380 | ) | — | 40,644 | ||||||||||
Total Operating Expenses | 66,083 | (12,380 | ) | — | 53,703 | ||||||||||
Operating Income | 54,092 | 15,850 | — | 69,942 | |||||||||||
Interest Expense | 13,350 | — | — | 13,350 | |||||||||||
Interest Income | 1,150 | — | — | 1,150 | |||||||||||
Other Income (Expense), net | 396 | — | — | 396 | |||||||||||
Income before income taxes | 42,288 | 15,850 | — | 58,138 | |||||||||||
Provision for income taxes | 7,585 | 3,569 | 511 | 11,665 | |||||||||||
Net Income | $ | 34,703 | $ | 12,281 | $ | (511 | ) | $ | 46,473 | ||||||
Diluted Earnings per share | $ | 1.17 | $ | 0.42 | $ | (0.02 | ) | $ | 1.57 | ||||||
Weighted Average Diluted Shares Outstanding | 29,556 | 29,556 | 29,556 | 29,556 | |||||||||||
Depreciation & amortization | $ | 25,732 | $ | (15,850 | ) | $ | — | $ | 9,882 | ||||||
EBITDA | $ | 80,220 | $ | — | $ | — | $ | 80,220 | |||||||
EBITDA Margin | 29.4 | % | — | % | — | % | 29.4 | % |
Non-GAAP Adjustments | |||||||||||||||
Pro Forma | Amortization of Acquisition Related Intangibles | U.S. Tax Reform | Adjusted Pro forma | ||||||||||||
Revenue | $ | 784,694 | $ | — | $ | — | $ | 784,694 | |||||||
Cost of Sales | 443,059 | (10,335 | ) | — | 432,724 | ||||||||||
Gross Profit | 341,635 | 10,335 | — | 351,970 | |||||||||||
Gross Profit, % of Revenue | 43.5 | % | 1.3 | % | — | % | 44.9 | % | |||||||
Operating Expenses | |||||||||||||||
Research, development and technical | 38,578 | — | — | 38,578 | |||||||||||
Selling, general and administrative | 155,695 | (37,140 | ) | — | 118,555 | ||||||||||
Total Operating Expenses | 194,273 | (37,140 | ) | — | 157,133 | ||||||||||
Operating Income | 147,362 | 47,475 | — | 194,837 | |||||||||||
Interest Expense | 41,391 | — | — | 41,391 | |||||||||||
Interest Income | 3,260 | — | — | 3,260 | |||||||||||
Other Income (Expense), net | (890 | ) | — | — | (890 | ) | |||||||||
Income before income taxes | 108,341 | 47,475 | — | 155,816 | |||||||||||
Provision for income taxes | 37,462 | 10,692 | (20,255 | ) | 27,899 | ||||||||||
Net Income | $ | 70,879 | $ | 36,783 | $ | 20,255 | $ | 127,917 | |||||||
Diluted Earnings per share | $ | 2.41 | $ | 1.24 | $ | 0.69 | $ | 4.34 | |||||||
Weighted Average Diluted Shares Outstanding | 29,459 | 29,459 | 29,459 | 29,459 | |||||||||||
Depreciation & amortization | $ | 77,511 | $ | (47,475 | ) | $ | — | $ | 30,036 | ||||||
EBITDA | $ | 223,983 | $ | — | $ | — | $ | 223,983 | |||||||
EBITDA Margin | 28.5 | % | — | — | 28.5 | % |
• | the marketing, sale, use and registration of our chemical products, such as pentachlorophenol (“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. |
1. | 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. |
2. | The Registration, Evaluation and Authorization of Chemicals (“REACH”) legislation may affect our ability to manufacture and sell certain products in the European Union: REACH requires chemical manufacturers and importers in the European Union 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 phased in over several years. We will incur 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. 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. |
3. | The classification of pentachlorophenol as a Persistent Organic Pollutant (“POP”) under the Stockholm Convention may adversely affect our ability to manufacture or sell our penta products: The Conference of the Parties (“COP”) accepted the recommendation of the United Nations Persistent Organic Pollutant Review Committee that the use of penta should be banned except that its use for the treatment of utility poles and crossarms could continue for an extended period of five to ten years. KMG-Bernuth supplies penta to industrial customers who use it primarily to treat utility poles and crossarms. The U.S. is not bound by the determination of the COP because it did not ratify the Stockholm Convention treaty. Canada and Mexico are governed by the treaty. KMG-Bernuth's sole penta manufacturing facility is located in Matamoros, Mexico, and its processing facility is located in Tuscaloosa, Alabama. As a result of the classification of penta as a POP, the Mexican government has requested that the Matamoros penta manufacturing facility be relocated, and in July 2019, KMG-Bernuth has communicated plans to close this facility by the end of 2021. KMG-Bernuth is in the process of identifying a potential site in the U.S. for such relocation, as well as to close the Tuscaloosa facility and consolidate into this new facility. No assurance can be given that we will not incur significant expenditures in connection with such relocation and related closures, that we will find an adequate location within the required timeframe, or that the ultimate action of the COP will not adversely impact on our financial condition and results of operation. |
4. | 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 submit a wide range of scientific data to support its U.S. registrations. To satisfy the registration review, KMG-Bernuth is required to demonstrate, among other things, that its products will not cause unreasonable adverse effects on human health or the environment when used according to approved label directions. In September 2008, the EPA announced that it had determined that penta was eligible for re-registration, but the EPA proposed new restrictions on the use of penta that have required KMG-Bernuth's customers to incur substantial additional costs and to revise certain operating procedures. In December 2014, the EPA issued a registration review work plan that required penta registrants to provide additional research and testing data respecting certain potential risks to human health or the environment as a further condition to continued registration. KMG-Bernuth conducted required testing. but cannot tell you when or if the EPA will issue a final decision concluding that the conditions of re-registration for its penta products and all additional testing requirements have been satisfied. We cannot assure you that KMG-Bernuth's products will not be subject to use or labeling restrictions that may have an adverse effect on our financial position and results of operations. The failure of KMG-Bernuth's current or future-acquired products to be re-registered, to satisfy the registration review by the EPA, or the imposition of new use, labeling or other restrictions in connection with re-registration could have an adverse effect on our financial condition and results of operations. |
5. | 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. |
Period | Total Number of Shares Purchased | Average Price paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) | ||||||||||
Apr. 1 through Apr. 30, 2019 | 72 | $ | 125.44 | — | $ | 81,271 | ||||||||
May 1 through May 31, 2019 | 19,900 | $ | 103.55 | 19,900 | $ | 79,210 | ||||||||
June 1 through June 30, 2019 | 28,035 | $ | 106.64 | 27,570 | $ | 76,269 | ||||||||
Total | 48,007 | $ | 105.39 | 47,470 | $ | 76,269 |
Exhibit Number | Description |
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 | |
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 | |
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 |
CABOT MICROELECTRONICS CORPORATION | ||
[Registrant] | ||
Date: August 9, 2019 | By: | /s/ SCOTT D. BEAMER |
Scott D. Beamer Vice President and Chief Financial Officer [Principal Financial Officer] | ||
Date: August 9, 2019 | By: | /s/ THOMAS S. ROMAN |
Thomas S. Roman Corporate Controller [Principal Accounting Officer] |
1. | I have reviewed this quarterly report on Form 10-Q of Cabot Microelectronics Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors: |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting |
Date: August 9, 2019 | /s/ DAVID H. LI | |
David H. Li Chief Executive Officer |
August 9, 2019 | /s/ DAVID H. LI | |
David H. Li | ||
Chief Executive Officer | ||
August 9, 2019 | /s/ SCOTT D. BEAMER | |
Scott D. Beamer | ||
Chief Financial Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Cabot Microelectronics Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors: |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: August 9, 2019 | /s/ SCOTT D. BEAMER | |
Scott D. Beamer Chief Financial Officer |
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
|
Income Statement [Abstract] | ||||
Revenue | $ 271,882 | $ 150,437 | $ 759,051 | $ 433,394 |
Cost of sales | 156,492 | 69,737 | 429,508 | 203,635 |
Gross profit | 115,390 | 80,700 | 329,543 | 229,759 |
Operating expenses: | ||||
Research, development and technical | 12,191 | 13,059 | 39,009 | 38,578 |
Selling, general and administrative | 50,959 | 25,711 | 162,415 | 75,051 |
Total operating expenses | 63,150 | 38,770 | 201,424 | 113,629 |
Operating income | 52,240 | 41,930 | 128,119 | 116,130 |
Interest expense | 12,757 | 513 | 32,978 | 2,803 |
Interest income | 417 | 1,141 | 2,004 | 3,248 |
Other income (expense), net | (472) | 486 | (2,897) | 113 |
Income before income taxes | 39,428 | 43,044 | 94,248 | 116,688 |
Provision for income taxes | 20,550 | 7,873 | 34,790 | 54,863 |
Net income | $ 18,878 | $ 35,171 | $ 59,458 | $ 61,825 |
Basic earnings per share (in dollars per share) | $ 0.65 | $ 1.37 | $ 2.09 | $ 2.42 |
Weighted average basic shares outstanding (in shares) | 29,063,907 | 25,611,505 | 28,398,960 | 25,479,078 |
Diluted earnings per share (in dollars per share) | $ 0.64 | $ 1.34 | $ 2.06 | $ 2.35 |
Weighted average diluted shares outstanding (in shares) | 29,568,273 | 26,318,638 | 28,923,525 | 26,221,864 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
|
Statement of Comprehensive Income [Abstract] | ||||
Net income | $ 18,878 | $ 35,171 | $ 59,458 | $ 61,825 |
Other comprehensive income (loss), net of tax: | ||||
Foreign currency translation adjustments | 2,699 | (8,829) | 4,132 | 2,276 |
Net unrealized loss on available-for-sale securities | 0 | (48) | 0 | (48) |
Net unrealized loss on cash flow hedges | (9,044) | (15,518) | ||
Net unrealized loss on cash flow hedges | (210) | (63) | ||
Other comprehensive income (loss), net of tax | (6,345) | (9,087) | (11,386) | 2,165 |
Comprehensive income | $ 12,533 | $ 26,084 | $ 48,072 | $ 63,990 |
CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($) $ in Thousands |
Jun. 30, 2019 |
Sep. 30, 2018 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Accounts receivable, allowance for doubtful accounts | $ 1,923 | $ 1,900 |
Prepaid debt issuance cost | $ 18,655 | |
Common stock, authorized (in shares) | 200,000,000 | 200,000,000 |
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, issued (in shares) | 36,470,364 | 35,862,465 |
Treasury stock (in shares) | 10,447,011 | 10,356,147 |
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) (Parenthetical) - $ / shares |
3 Months Ended | |||
---|---|---|---|---|
Mar. 31, 2019 |
Dec. 31, 2018 |
Mar. 31, 2018 |
Dec. 31, 2017 |
|
Statement of Stockholders' Equity [Abstract] | ||||
Dividends (in dollars per share) | $ 0.42 | $ 0.40 | $ 0.40 | $ 0.20 |
BACKGROUND AND BASIS OF PRESENTATION |
9 Months Ended |
---|---|
Jun. 30, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
BACKGROUND AND BASIS OF PRESENTATION | BACKGROUND AND BASIS OF PRESENTATION Cabot Microelectronics Corporation (“Cabot Microelectronics”, “the Company”, “us”, “we”, or “our”') is a leading global supplier of consumable materials to semiconductor manufacturers and pipeline operators. On November 15, 2018 (“Acquisition Date”), we completed our acquisition of KMG Chemicals, Inc. (“KMG”), which produces and distributes specialty chemicals and performance materials for the semiconductor, pipeline operations, energy industries and industrial wood preservation industries (“Acquisition”). The Acquisition has extended and strengthened our position as one of the leading suppliers of consumable materials to the semiconductor industry and expands our portfolio with the addition of KMG’s businesses, which we believe enables us to be a leading global provider of performance products and services to the pipeline companies and energy industries. The Consolidated Financial Statements included in this Report on Form 10-Q include the financial results of KMG from the Acquisition Date. Subsequent to the Acquisition, we have operated our business within two reportable segments: Electronic Materials and Performance Materials. The Electronic Materials segment consists of our heritage 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 Cabot Microelectronics’ heritage QED business. For additional information, refer to Part 1, Item 1, “Business”, in our and KMG’s Annual Reports on Form 10-K for the fiscal year ended September 30, 2018 and July 31, 2018, respectively. The unaudited Consolidated Financial Statements have been prepared by Cabot Microelectronics pursuant to the rules of the Securities and Exchange Commission (SEC) and accounting principles generally accepted in the United States of America (U.S. GAAP). 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’ financial position as of June 30, 2019, cash flows for the nine months ended June 30, 2019 and June 30, 2018, and results of operations for the three and nine months ended June 30, 2019 and June 30, 2018. The Consolidated Balance Sheets as of September 30, 2018 were derived from audited financial statements. The results of operations for the three and nine months ended June 30, 2019 may not be indicative of results to be expected for future periods, including the fiscal year ending September 30, 2019. Certain prior period amounts have been reclassified to conform to the current period presentation. This Report on Form 10-Q does not contain all of the footnote disclosures from our annual financial statements and should be read in conjunction with the Consolidated Financial Statements and related notes thereto included in Cabot Microelectronics’ Annual Report on Form 10-K for the fiscal year ended September 30, 2018. The Consolidated Financial Statements include the accounts of Cabot Microelectronics and its subsidiaries. All intercompany transactions and balances between the companies have been eliminated as of June 30, 2019. 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 difficult and subjective judgments include, but are not limited to, those estimates related to bad debt expense, inventory valuation, impairment of long-lived assets, business combinations, goodwill, other intangible assets, share-based compensation, 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.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS Significant Accounting Policies and Estimates Except for the discussion on revenue recognition below, no material changes have been made to the Company’s significant accounting policies disclosed in Note 2 of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. REVENUE RECOGNITION As of October 1, 2018, the Company began applying the provisions of Accounting Standards Codification 606-10, “Revenue from Contracts with Customers” (“ASC 606”), and all related applicable guidance using the modified retrospective method applied to those contracts that were not completed as of October 1, 2018. The Company recognizes revenue under the core principle of depicting the transfer of control to the Company’s customers in an amount reflecting the consideration to which the Company expects to be entitled. In order to achieve that core principle, the Company applies the following five step approach: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and, (5) recognize revenue when a performance obligation is satisfied. Upon adoption of ASC 606, we recognized a $933 decrease to the opening balance of retained earnings, net of tax, due to the cumulative impact of adopting the new revenue standard. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company changed its accounting policy for revenue recognition for customer incentives that provide free products and tiered pricing. For free products, the new revenue standard requires that a portion of the transaction price be allocated to the free product and deferred until the product has been delivered. We previously accrued for undelivered free product as a charge to cost of sales. In prior fiscal years, in accordance with ASC 605, we did not consider prospective tiered pricing to represent a material right. The cumulative effect of the changes made to our Consolidated Balance Sheet as of October 1, 2018 for the adoption of the new revenue standard was:
We have determined that the effect of applying the new revenue standard during the three and nine months ended June 30, 2019 was immaterial to our financial statements compared to revenue guidance in effect before the adoption of the new revenue standard. As a result, for the three and nine months ended June 30, 2019, we are not disclosing the quantitative amount by which each financial statement line item is affected by the application of the new revenue standard. As part of the adoption of ASU 606, the Company elected to use certain allowed practical expedients. For the Company’s contracts that have an original duration of one year or less as of the adoption date, the Company uses the practical expedient applicable to such contracts and does not consider the time value of money. Further, because of the short duration of these contracts, the Company has not disclosed the transaction price for the future performance obligations as of the end of each reporting period for contracts having an expected duration of one year or less. See Note 3 of this Report on Form 10-Q for disaggregated revenue, the reconciliation of contract balances and transaction price allocation to remaining performance obligations for contracts expected to remain effective beyond one year. Performance Obligations and Material Rights At contract inception, the Company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each material promise to the customer. A performance obligation is a promise in a contract to transfer a distinct good or service, or a bundle of goods or services, to the customer, and is the unit of accounting under ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. A majority of the Company’s contracts have a single performance obligation which represents, in most cases, the products, equipment or services being sold to the customer. Some contracts include multiple performance obligations, including prospective tiered price discounts or delivery of free product that we have concluded represents a material right. Contracts with prospective tiered price discounts require judgment in determining if that discount represents a material right. Contracts vary in length, and payment terms vary by the type and location of the Company’s customers and the products or services offered. However, the period of time between invoicing and when payment is due is typically not significant and has no significant financing components. Customers pay in accordance with negotiated terms upon receipt of goods or completion of services. For these contracts, the transaction price is determined upon establishment of the contract that contains the final terms of the sale, including the description, quantity, and price of goods or services purchased. In certain instances, we receive consideration from a customer prior to transferring goods or services to the customer under the terms of a sales contract. In such cases, we record deferred revenue until the performance obligation is satisfied, which represents a contract liability, and is included in the contract liabilities discussed in Note 3 of this Report on Form 10-Q. The Company recognizes revenue related to product sales at a point in time following the transfer of control of such products to the customer, which generally occurs upon shipment, or delivery depending on the terms of the underlying contracts. The Company considers control to have transferred upon shipment or delivery because the Company has a present right to payment at that time, the customer has legal title to the asset, the Company has transferred physical possession of the asset, and the customer has significant risks and rewards of ownership of the asset. Revenue is recognized on consignment sales when control transfers to the customer, generally at the point of customer usage of the product. The Company also records revenue for services provided to the pipeline and oilfield energy industries. These services include preventive maintenance, repair and specialized isolation sealing on pipelines and training. Revenue is recorded at a point in time when the services are completed as this is when right to payment and customer acceptance occurs. For sales contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation identified in the contract based on relative standalone selling prices or estimates of such prices. Standalone selling price, once established, is then used to allocate total consideration proportionally to the various performance obligations within a contract. Most contracts where we have determined there to be multiple performance obligations relate to where we have identified the existence of a material right such that we provide prospective tiered pricing discounts or free product. When we invoice for products shipped under these contracts, we defer the revenue associated with these rights on the balance sheet as a contract liability. Revenue is recognized when the customer exercises the option to purchase goods at a discount in the case of the prospective tiered pricing discounts or when we ship the free product. Variable Consideration The primary type of variable consideration present in the Company’s contracts are rebates and early payment discounts, both of which are immaterial. Early payment discounts are offered on a limited basis and are not significant. The Company also offers rebates based upon cumulative volume of purchases within a quarter and accrues for the rebate obligation within the quarter that the rebate is earned. ASC 606 did not change the accounting for rebates under ASC 605. Costs to Obtain and Fulfill a Contract For certain contracts within the Performance Materials segment, commissions are paid to sales agents based upon a percentage of end-customer invoice value. Agents are paid the commissions after funds are received by the Company from its customers. Under ASC 340, sales commissions are required to be capitalized and expensed over the associated contract period. However, as a practical expedient, the Company does not capitalize commissions as the associated contracts are generally one year or less in duration. For shipping and handling activities performed after a customer obtains control of the goods, the Company has elected to account for these costs as activities to fulfill the promise to transfer the goods and included in cost of sales. EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS In February 2016, the FASB issued ASU No. 2016-02, "Leases" (Topic 842). The provisions of ASU 2016-02 require a dual approach for lessee accounting under which a lessee would recognize a right-of-use asset and a corresponding lease liability. Leases will be classified as either finance or operating leases. For finance leases, a lessee will recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee will recognize a straight-line total lease expense. The guidance also requires qualitative and specific quantitative disclosures to supplement the amounts recorded in the financial statements, to afford better understanding of an entity's leasing activities, including any significant judgments and estimates. The guidance was amended through various ASU's subsequent to ASU 2016-02, all of which will be effective for us beginning October 1, 2019, but early adoption is permitted. We have finished reviewing the population of our lease contracts and are in the process of implementing a new third party lease software system. The Company currently plans to elect the optional package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs and therefore, does not expect the adoption of ASU 2016-02 to have a significant impact on the Consolidated Statements of Income. We expect to adopt the new standard in our first quarter of fiscal 2020 applying the optional transition method upon adoption. We continue to evaluate the amount of right-of-use asset and lease liability that will ultimately be recorded on the Consolidated Balance Sheets and the impact on the Consolidated Statements of Income. In June 2016, the FASB issued ASU No. 2016-13, "Measurement of Credit Losses on Financial Instruments" (Topic 326). The provisions of this standard require financial assets measured at amortized cost to be presented at the net amount expected to be collected. An allowance account would be established to present the net carrying value at the amount expected to be collected. ASU 2016-13 also provides that credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. The guidance was amended through various ASU's subsequent to ASU 2016-13, all of which will be effective for us beginning October 1, 2020, but early adoption is permitted as of October 1, 2019. We are currently evaluating the impact of implementation of this standard on our financial statements. In March 2017, the FASB issued ASU No. 2017-07 "Improving the Presentation of Net Period Pension Cost and Net Period Postretirement Benefit Cost" (Topic 715). The provisions of ASU 2017-07 provided specific guidance on the presentation of the components of net benefit cost. We adopted this standard ASU 2017-07 effective October 1, 2018 and applied it retrospectively. Pursuant to the adoption, 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 impact of the retrospective adoption in fiscal year 2018 is not material. In May 2017, the FASB issued ASU No. 2017-09 "Scope of Modification Accounting" (Topic 718). The provisions of ASU 2017-09 provide specific guidance about which changes to the term or conditions of a share-based payment require an entity to apply modification accounting. We adopted ASU 2017-09 effective October 1, 2018 and will apply this new standard to our share-based compensation awards, to the extent modified. In August 2017, the FASB issued ASU No. 2017-12 "Derivatives and Hedging" (Topic 815). The provisions of this standard amend the hedge accounting model in ASC 815 to expand an entity's ability to hedge nonfinancial and financial risk components, reduce complexity in fair value hedges of interest rate risk, eliminate the requirement to separately measure and report hedge ineffectiveness, and generally require the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. We early adopted this guidance effective January 1, 2019, and we did not have any hedges that existed as of the initial application date. We applied the new guidance to the interest rate swap that we entered into during our second quarter of fiscal 2019. Pursuant to the guidance, we performed initial quantitative hedge effectiveness testing upon the inception of the hedge, and determined the hedge to be highly effective. Therefore, unrealized changes in fair value are recorded in other comprehensive income. In addition, we reclassify the realized gains and losses out of other comprehensive income, and into interest expense in our Consolidated Statements of Income, which is the same financial statement line as the hedged item. We will perform subsequent assessments of hedge effectiveness qualitatively on a quarterly basis. In February 2018, the FASB issued ASU No. 2018-02 "Income Statement – Reporting Comprehensive Income (Topic 220)". The amendments in this standard allow a company to reclassify the stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Tax Act") from accumulated other comprehensive income to retained earnings. ASU 2018-02 will be effective for us beginning October 1, 2019, but early adoption is permitted. We are currently evaluating and quantifying the amount to be reclassified into retained earnings and expect to record the reclassification on October 1, 2019. In June 2018, the FASB issued ASU No. 2018-07 " Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting." The ASU simplified the accounting for share-based payments granted to nonemployees for goods and services, therefore guidance on such payments to nonemployees would be mostly aligned with the requirements for share-based payments granted to employees. ASU 2018-07 will be effective for us beginning October 1, 2019, but early adoption is permitted (but no earlier than the adoption date of Topic 606). We do not expect implementation of this standard to have material impact on our financial statements. In August 2018, the FASB issued ASU No. 2018-13 " Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement". The ASU provides specific guidance on various disclosure requirements in Topic 820, including removal, modification and addition to current disclosure requirements. ASU 2018-13 will be effective for us beginning October 1, 2020, but early adoption is permitted. We are currently evaluating the impact of implementation of this standard on our disclosures. In August 2018, the FASB issued 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 (a consensus of the FASB Emerging Issues Task Force)". The ASU Requires an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. ASU 2018-15 will be effective for us beginning October 1, 2020, but early adoption is permitted. We are currently evaluating the impact of implementation of this standard on our financial statements.
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REVENUE FROM CONTRACTS WITH CUSTOMERS |
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REVENUE FROM CONTRACTS WITH CUSTOMERS | REVENUE FROM CONTRACTS WITH CUSTOMERS Disaggregation of Revenue The Company disaggregates revenue by product area and segment as it best depicts the nature and amount of the Company’s revenue. The following table shows revenue generated by product area during the three and nine months ended June 30, 2019 and 2018:
Reconciliation of Contract Liability Balances The following table provides information about contract liability balances:
The contract liability balances as of October 1, 2018 in the table above include the amounts recorded upon the adoption of ASC 606. At June 30, 2019, the current portion of contract liabilities of $3,958 is included in accrued liabilities, taxes payable and other current liabilities, and the noncurrent portion of $1,378 is included in other long-term liabilities in the Consolidated Balance Sheets. The amount of revenue recognized during the three and nine months ended June 30, 2019 that was included in the opening current contract liability balances in our Performance Materials segment was $697 and $4,857, respectively. The amount of revenue recognized during the three and nine months ended June 30, 2019 that was included in our opening contract liability balances in our Electronic Materials segment was not material. Transaction Price Allocated to Remaining Performance Obligations The table below discloses (1) the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period for contracts with an original duration of greater than one year and (2) when the Company expects to recognize this revenue.
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BUSINESS COMBINATION |
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BUSINESS COMBINATION | BUSINESS COMBINATION On the Acquisition Date, the Company completed its acquisition of 100% of the outstanding stock of KMG, which was a publicly held company headquartered in Fort Worth, Texas. KMG specialized in producing, processing, and distributing electronic chemicals for the semiconductor industry and performance materials for the pipeline operations and energy, and industrial wood preservation industries. We acquired KMG to extend and strengthen our position as one of the leading suppliers of consumable materials to the semiconductor industry and to expand our portfolio with the addition of KMG’s performance materials businesses, which we believe enables us to become a leading global provider of performance products and services to the pipeline operations and energy industries. The purchase consideration was $1,513,235, including consideration transferred of $1,536,452, less cash acquired of $23,217. The consideration was comprised of cash consideration to KMG common shareholders and equity award holders, stock consideration to KMG common shareholders and equity award holders, and cash consideration in the form of the retirement of KMG’s preexisting debt obligations. Under the terms of the definitive agreement to acquire KMG, each share of KMG common stock was converted into the right to receive $55.65 in cash and 0.2000 of a share of Cabot Microelectronics common stock. As a result, we issued 3,237,005 shares of our common stock to KMG’s common stockholders, with a stock price of $102.27 on the Acquisition Date. In connection with the Acquisition, we entered into a credit agreement (the “Credit Agreement”), which provided us with a seven-year, $1,065,000 term loan facility (the “Term Loan Facility”), which we drew on the Acquisition Date to fund the Acquisition along with cash on hand, and a five-year, $200,000 revolving credit facility (the “Revolving Credit Facility”), which has not been drawn. In connection with the borrowing, we incurred $21,408 in debt issuance costs and original issue discount fees, $859 of which relates to the Revolving Credit Facility and is recorded as a prepaid asset, and the remaining $20,549 in debt issuance costs relates to the Term Loan Facility and is presented as a reduction of long-term debt. These debt issuance costs are amortized and recorded in Interest expense in the Consolidated Statements of Income over the life of the Revolving Credit Facility and Term Loan Facility, respectively. See below for a summary of the different components that comprise the total consideration.
The following table summarizes the preliminary allocation of fair values of assets acquired and liabilities assumed as of the Acquisition Date.
The Acquisition was accounted for using the acquisition method of accounting. Tangible and identifiable intangible assets acquired and liabilities assumed are recorded at fair value as of the Acquisition Date. These valuations are preliminary based on the information currently available, and the expectations and assumptions that have been deemed reasonable by the Company’s management. The Company has not finalized the fair value determinations of the assets acquired and liabilities assumed and expects to finalize such as soon as practicable, but not later than one-year from the Acquisition Date. As a result, certain adjustments have been made and will continue to be made to the Company’s Consolidated Balance Sheet and Statements of Income. The fair values of identifiable assets and liabilities acquired were developed with the assistance of a third-party valuation firm. The fair value of acquired property, plant and equipment is primarily valued at its “value-in-use.” The fair value of acquired identifiable intangible assets was determined using the “income approach” on an individual asset basis. The key assumptions used in the calculation of the discounted cash flows include projected revenue, gross margin, operating expenses, discount rate and customer attrition. The valuations and the underlying assumptions have been deemed reasonable by the Company’s management. There are inherent uncertainties and management judgment required in these determinations. The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the Acquisition Date:
Customer relationships represent the estimated fair value of the underlying relationships and agreements with KMG’s customers and are being amortized on an accelerated basis in order for the expense to most accurately match the periods of highest cash flows attributable to the identified relationships. Technology and know-how represent the estimated fair value of KMG’s technology, processes and knowledge regarding its product offerings, and are being amortized on a straight-line basis. Trade names represent the estimated fair value of the brand and name recognition associated with the marketing of KMG’s product offerings and are being amortized on a straight-line basis, except for the Flowchem trade name, which we believe has an indefinite life. These intangible assets are capitalized and accounted for as indefinite-lived intangible assets and will be subject to impairment testing. The intangible assets subject to amortization have a weighted average useful life of 17.9 years. The excess of consideration transferred over the 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 combined company product portfolio, expected synergies of the combined company, and the assembled workforce of KMG. The preliminary allocation of goodwill to each of the Electronic Materials and Performance Materials segments as a result of the Acquisition was $261,733 and $344,888, respectively. For the three and nine months ended June 30, 2019, we recorded $2,910 and $33,108 in acquisition and integration-related expenses, including transaction costs, stock compensation expense, severance and retention costs. These items are included within Selling, general and administrative in the Consolidated Statements of Income. In the same three and nine months ended June 30, 2019, we also recorded a charge of $42 and $14,869, respectively related to the fair value write-up of acquired inventory sold, which is included in Cost of sales in the Consolidated Statements of Income. KMG’s results of operations have been included in our unaudited Consolidated Statements of Income and Consolidated Statements of Comprehensive Income from the Acquisition Date. Net sales of the acquired KMG business since the Acquisition Date through June 30, 2019 were $316,690. KMG’s net income since the Acquisition Date was $4,782, which includes $21,889 of acquisition-related costs and a $14,869 charge for fair value write-up of inventory sold. Further, additional amortization and depreciation expense associated with recording KMG’s net assets at fair value decreased KMG’s net income post-Acquisition. The following unaudited supplemental pro forma information summarizes the combined results of operations for Cabot Microelectronics and KMG as if the Acquisition had occurred on October 1, 2017.
The following costs are included in the three and nine months ended June 30, 2018:
The historical financial information has been adjusted by applying the Company’s accounting policies and giving effect to the pro forma adjustments, which consist of (i) amortization expense associated with identified intangible assets; (ii) depreciation of fixed asset step-up (for pre-acquisition periods only); (iii) accretion of inventory step-up value; (iv) the elimination of interest expense on pre-acquisition KMG debt and replacement of interest expense related to the acquisition-related financing; (v) transaction-related costs; (vi) accelerated share-based compensation expense (pre-acquisition periods only); (vii) retention and severance expense incurred as a direct result of the Acquisition; and (viii) an adjustment to tax-effect the aforementioned unaudited pro forma adjustments using an estimated weighted-average effective income tax rate of each entity and the jurisdictions to which the above adjustments relate. The pro forma consolidated results are not necessarily indicative of what the consolidated results actually would have been had the Acquisition been completed on October 1, 2017. The pro forma consolidated results do not purport to project future results of combined operations, nor do they reflect the expected realization of any revenue or cost synergies associated with the Acquisition.
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FAIR VALUE OF FINANCIAL INSTRUMENTS |
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUE OF FINANCIAL INSTRUMENTS | 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 Financial Accounting Standards Board (“FASB”) established a three-level hierarchy for disclosure based on the extent and level of judgment used to estimate fair value. Level 1 inputs consist of valuations based on quoted market prices in active markets for identical assets or liabilities. Level 2 inputs consist of valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in an inactive market, or other observable inputs. Level 3 inputs consist of valuations based on unobservable inputs that are supported by little or no market activity. The following table presents financial instruments, other than long-term debt, that we measured at fair value on a recurring basis at June 30, 2019 and September 30, 2019. See Note 10 for a detailed discussion of our long-term debt. We have classified the following assets and liabilities in accordance with the fair value hierarchy set forth in the applicable standards. In instances where the inputs used to measure the fair value of an asset fall into more than one level of the hierarchy, we have classified them based on the lowest-level input that is significant to the determination of the fair value.
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 nonqualified 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 nonqualified plan. Consequently, the Company owns the assets and the related offsetting liability for disbursement until a participant makes a qualifying withdrawal. The long-term investment was adjusted to $1,411 in the third quarter of fiscal 2019 to reflect its fair value as of June 30, 2019. Our derivative financial instruments include foreign exchange contracts and an interest rate swap. During the second quarter, we entered into a floating-to-fixed interest rate swap agreement to hedge the variability in LIBOR-based interest payments on a portion of our outstanding variable rate debt. The fair value of our derivative instruments is estimated using standard valuation models and market-based observable inputs over the contractual term, including one-month LIBOR-based yield curves for the interest rate swap, and forward rates and/or the Overnight Index Swap (OIS) curve for forward foreign exchange contracts, among others. We consider the risk of nonperformance, including counterparty credit risk, in the calculation of the fair value of derivative financial instruments. See Note 11 of this Report on Form 10-Q for more information on our use of derivative financial instruments.
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INVENTORIES |
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Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVENTORIES | INVENTORIES Inventories consisted of the following:
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GOODWILL AND OTHER INTANGIBLE ASSETS |
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GOODWILL AND OTHER INTANGIBLE ASSETS | GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill was $708,390 as of June 30, 2019, and $101,083 as of September 30, 2018. The increase in goodwill was due to $606,621 in goodwill related to the Acquisition offset by $686 in foreign exchange fluctuations. The amount of goodwill assigned to each of the Electronic Materials and Performance Materials segments was $358,108 and $350,282, respectively. The components of other intangible assets are:
*Other indefinite-lived intangible assets not subject to amortization consist primarily of trade names. As discussed in Note 4 of this Report on Form 10-Q, we recorded $844,800 of intangible assets related to the Acquisition. The allocation of the amount into the various categories of intangible assets, as well as useful lives we have established, are discussed in Note 4. Amortization expense on our intangible assets was $16,926 and $43,244 for the three and nine months ended June 30, 2019, respectively, and was $1,780 and $5,716 for the three and nine months ended June 30, 2018, respectively. Estimated future amortization expense for the five succeeding fiscal years is as follows:
Goodwill and indefinite-lived intangible assets are tested for impairment annually in the fourth quarter of our fiscal year or more frequently if indicators of potential impairment exist, using a fair-value-based approach. The recoverability of goodwill is measured at the reporting unit level, which is defined as either an operating segment or one level below an operating segment. An entity has the option to assess the fair value of a reporting unit either using a qualitative analysis ("step zero") or a quantitative analysis ("step one"). Similarly, an entity has the option to use a step zero or a step one approach to determine the recoverability of indefinite-lived intangible assets. In 2018, we chose to use a step one analysis for both goodwill impairment and for indefinite-lived intangible asset impairment, with the exception of our CMP slurries reporting unit, for which we chose to use a step zero analysis for fiscal 2018. We completed our annual impairment test during our fourth quarter of fiscal 2018 and concluded that no impairment existed. There were no indicators of potential impairment during the quarter ended June 30, 2019, so it was not necessary to perform an impairment review for goodwill and indefinite-lived intangible assets during the quarter. There have been no impairment charges recorded on the goodwill for any of our reporting units.
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OTHER LONG-TERM ASSETS |
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Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
OTHER LONG-TERM ASSETS | OTHER LONG-TERM ASSETS Other long-term assets consisted of the following:
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ACCRUED EXPENSES, INCOME TAXES PAYABLE AND OTHER CURRENT LIABILITIES |
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Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACCRUED EXPENSES, INCOME TAXES PAYABLE AND OTHER CURRENT LIABILITIES | ACCRUED EXPENSES, INCOME TAXES PAYABLE AND OTHER CURRENT LIABILITIES Accrued expenses, income taxes payable and other current liabilities consisted of the following:
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DEBT |
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||
DEBT | DEBT On the Acquisition Date, we entered into the Credit Agreement by and among the Company, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, which provides for senior secured financing of up to $1,265.0 million, consisting of the Term Loan Facility in an aggregate principal amount of $1,065.0 million and the Revolving Credit Facility in an aggregate principal amount of up to $200.0 million, including a letter of credit sub-facility of up to $50.0 million. The Term Loan Facility and the Revolving Credit Facility are referred to as the “Credit Facilities.” Proceeds of the loans borrowed under the Term Loan Facility on the Acquisition Date were used to fund, in part, the Acquisition and certain of KMG’s existing indebtedness, and to pay related fees and expenses. The Revolving Credit Facility remains undrawn. The Credit Facilities are guaranteed by each of the Company’s wholly-owned domestic subsidiaries, including KMG and its subsidiaries, and are secured by substantially all assets of the Company and of each subsidiary guarantor, in each case subject to certain exceptions. Borrowings under the Credit Facilities bear interest at a rate per annum equal to, at the Company’s option, either (a) a LIBOR, subject to a 0.00% floor, or (b) a base rate, in each case plus an applicable margin of, in the case of borrowings under the Term Loan Facility, 2.25% for LIBOR loans and 1.25% for base rate loans and, in the case of borrowings under the Revolving Credit Facility, initially, 1.50% for LIBOR loans and 0.50% for base rate loans. The applicable margin for borrowings under the Revolving Credit Facility varies depending on the Company’s first lien secured net leverage ratio. The Company is also required to pay a commitment fee currently equal to 0.25% per annum to the lenders under the Revolving Credit Facility in respect of the unutilized commitments thereunder. The commitment fee under the Revolving Credit Facility varies depending on the Company’s first lien secured net leverage ratio. The Term Loan Facility matures on November 15, 2025, the seven-year anniversary of the Acquisition Date, and amortizes in equal quarterly installments of 0.25% of the initial principal amount, starting with the first full fiscal quarter after the Acquisition Date. The Revolving Facility matures on November 15, 2023, the five-year anniversary of the Acquisition Date. In addition, the Company is required to prepay outstanding loans under the Term Loan Facility, subject to certain exceptions, with up to 50% of the Company’s annual excess cash flow, as defined under the Credit Agreement, and 100% of the net cash proceeds of certain recovery events and non-ordinary course asset sales. The Company may generally prepay outstanding loans under the Credit Facilities at any time, without prepayment premium or penalty, subject to customary “breakage” costs with respect to LIBOR rate loans. We made a prepayment of $55.0 million and a total prepayment of $100.0 million during the three and nine months ended June 30, 2019, respectively. The Revolving Credit Facility requires that the Company maintain a maximum first lien secured net leverage ratio, as defined in the Credit Agreement, of 4.00 to 1.00 as of the last day of each fiscal quarter if any revolving loans are outstanding, commencing with the first full fiscal quarter after the Acquisition Date. The Credit Agreement contains certain affirmative and negative covenants that limit the ability of the Company, among other things and subject to certain significant exceptions, to incur debt or liens, make investments, enter into certain mergers, consolidations, asset sales and acquisitions, pay dividends and make other restricted payments and enter into transactions with affiliates. We believe we are in compliance with these covenants. The Credit Agreement contains certain events of default, including relating to a change of control. If an event of default occurs, the lenders under the Credit Facilities will be entitled to take various actions, including the acceleration of amounts due under the Credit Facilities. At June 30, 2019, the fair value of the Term Loan Facility, using level 2 inputs, approximated its carrying value of $962,338 as the loan bears a floating market rate of interest. As of June 30, 2019, $13,313 of the debt outstanding was classified as short-term, and $18,655 of debt issuance costs related to our Term Loan were presented as a reduction of long-term debt. In the second quarter of fiscal 2019, we entered into a floating-to-fixed interest rate swap agreement to hedge the variability in our LIBOR-based interest payments on approximately 70% of our Term Loan Facility balance. See Note 11 in this Report on Form 10-Q for additional information. Principal repayments of the Term Loan Facility are generally made on the last calendar day of each quarter if that day is considered to be a business day. As of June 30, 2019, scheduled principal repayments of the Term Loan were:
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DERIVATIVE FINANCIAL INSTRUMENTS |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DERIVATIVE FINANCIAL INSTRUMENTS | 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 Agreement During the second quarter, we entered into a floating-to-fixed interest rate swap agreement to hedge the variability in LIBOR-based interest payments on a portion of our outstanding variable rate debt. As of June 30, 2019, the notional value of the swap was $746,000 and this value is scheduled to decrease bi-annually, and to expire on January 31, 2024. We have designated this swap agreement as a cash flow hedge pursuant to ASC 815, "Derivatives and Hedging". Based on certain quantitative and qualitative assessments, we have determined that the hedge is highly effective and qualifies for hedge accounting. Accordingly, unrealized gains and losses on the hedge are recorded in other comprehensive income. Realized gains and losses are recorded on the same financial statement line as the hedged item, which is Interest expense. Foreign Currency Contracts Not Designated as Hedges On a regular basis, we enter into forward foreign exchange contracts in an effort to mitigate the risks associated with currency fluctuations on certain foreign currency balance sheet exposures. These foreign exchange contracts do not qualify for hedge accounting; therefore, the gains and losses resulting from the impact of currency exchange rate movements on our forward foreign exchange contracts are recognized as Other income (expense), net in the accompanying Consolidated Statements of Income in the period in which the exchange rates change. As of June 30, 2019 and September 30, 2018, the notional amounts of the forward contracts we held to purchase U.S. dollars in exchange for foreign currencies were $9,636 and $7,652, respectively, and the notional amounts of forward contracts we held to sell U.S. dollars in exchange for foreign currencies were $17,880 and $24,860, respectively. Net Investment Hedge - Foreign Exchange Contracts In September 2017, we entered into forward contracts to sell 100 billion Korean won and buy U.S. dollars, which we subsequently terminated in the third quarter of fiscal 2018. We had designated these forward contracts as effective net investment hedges. The fair value of our derivative instruments included in the Consolidated Balance Sheets, which was determined using Level 2 inputs, was:
The following table summarizes the effect of our derivative instruments on our Consolidated Statements of Income for the three and nine months ended June 30, 2019 and 2018:
The interest rate swap agreement has been deemed to be effective, and realized gains and losses were immaterial to our Consolidated Statement of Income. We recorded an unrealized loss of $15,536, net of tax, in Accumulated comprehensive income during the nine months ended June 30, 2019 for this interest rate swap. As of June 30, 2019, during the next 12 months, we expect approximately $4,274 to be reclassed from Accumulated other comprehensive income (loss) into Interest expense related to our interest rate swap based on projected rates of the LIBOR forward curve as of June 30, 2019.
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COMMITMENTS AND CONTINGENCIES |
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Jun. 30, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | 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, 2019, a fire occurred at the warehouse of the facility of KMG’s subsidiary, KMG-Bernuth, in Tuscaloosa, Alabama, which processes pentachlorophenol (“penta”) for sale to customers in the United States and Canada. The warehouse fire, which we believe originated from non-hazardous waste materials temporarily stored in the warehouse for recycling purposes, caused no injuries and was extinguished in less than an hour. Company personnel investigated the incident, and KMG-Bernuth commenced cleanup with oversight from certain local, state and federal authorities. The carrying value of the warehouse and the affected inventory are not material. Applying the accounting guidance under ASC 410-30, Environmental Obligations and ASC 450, Contingencies, we determined that since we have environmental obligations as of the date of the fire, costs for the fire waste cleanup and disposal should be recognized to the extent they are probable and reasonably estimable. We have applied these criteria and recorded an undiscounted amount of $4,200 loss contingency regarding disposal costs that can be reasonably estimated at this time. These disposal costs were charged to Cost of sales. There are potential additional disposal and other costs that cannot be reasonably estimated as of this time related to materials in the warehouse or otherwise impacted by the incident. We will continue to update the estimated losses as new information becomes available. We also recognized $250 in Selling, general and administrative expense for professional fees incurred during the quarter related to the incident. In addition, we are working with our insurance carriers on possible recovery of losses and costs, but at this point we cannot reasonably estimate whether we will receive, or the amount of, any potential insurance recoveries. As such, no insurance recoveries have been recognized as of June 30, 2019. Separately, the United States Environmental Protection Agency (“EPA”) has notified KMG-Bernuth, that the EPA considered it to be a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”) by virtue of its relationship with certain alleged predecessor companies, including Idacon, Inc (f/k/a Sonford Chemical Company) in connection with the Star Lake Canal Superfund Site near Beaumont, Texas. The EPA has estimated that the remediation will cost approximately $22.0 million. KMG-Bernuth and approximately seven other parties entered into an agreement with the EPA in September 2016 to complete a remedial design phase of the remediation of the site. The remediation work will be performed under a separate future agreement. Although KMG-Bernuth has not conceded liability, a reserve in connection with the remedial design has been established, and as of June 30, 2019, the reserve remaining was $1,008. We also may face other governmental or third-party claims, or otherwise incur costs, relating to cleanup of, or for injuries resulting from, contamination at sites associated with this or other past and present operations. We accrue for environmental liabilities when a determination can be made that they are probable and reasonably estimable. Other than as described herein, we are not involved in any legal proceedings that we believe could have a material impact on our consolidated financial position, results of operations or cash flows. In addition, our Company is subject to extensive federal, state and local laws, regulations and ordinances in the U.S. and in other countries. These regulatory requirements relate to the use, generation, storage, handling, emission, transportation and discharge of certain hazardous materials, substances and waste into the environment. The Company, including its KMG entities, manage 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 have the power to 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. Certain licenses, permits and product registrations are required for the Company’s products and operations in the U.S., Mexico and other countries in which it does business. The licenses, permits and product registrations are subject to revocation, modification and renewal by governmental authorities. In the U.S. in particular, producers and distributors of penta, which is a product manufactured and sold by KMG-Bernuth as part of the wood treatment business, are subject to registration and notification requirements under the Federal Insecticide, Fungicide and Rodenticide Act (“FIFRA”) and comparable state law in order to sell this product in the U.S. Compliance with these requirements may have a significant effect on our business, financial condition and results of operations. We are subject to contingencies, including litigation relating to EHS laws and regulations, commercial disputes and other matters. Certain of these contingencies are discussed above and below. The ultimate resolution of these contingencies is subject to significant uncertainty, and should we fail to prevail in any of them or should several of them be resolved against us in the same reporting period, these matters could, individually or in the aggregate, be material to the consolidated financial statements. The ultimate outcome of these matters, 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. Refer to Note 17 of “Notes to the Consolidated Financial Statements” in Item 8 of Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2018, for additional information regarding commitments and contingencies. POSTRETIREMENT OBLIGATIONS IN FOREIGN JURISDICTIONS We have defined benefit plans covering employees in certain foreign jurisdictions as required by local law, which are unfunded. We adopted ASU 2017-7 during the first quarter of the fiscal year and pursuant to the adoption, 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 the fiscal year. Benefit payments under all such unfunded plans to be paid over the next ten years are expected to be approximately $7,906. For more information regarding these plans, refer to Note 17 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, 2018. PURCHASE OBLIGATIONS Purchase obligations include take-or-pay arrangements with suppliers, and purchase orders and other obligations entered into in the normal course of business regarding the purchase of goods and services. We have been operating under a fumed silica supply agreement with Cabot Corporation, our former parent company which is not a related party, the current term of which runs through December 2019. As of June 30, 2019, purchase obligations include $8,859 of contractual commitments related to this agreement.
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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The table below summarizes the components of accumulated other comprehensive income (loss) (AOCI), net of tax provision/(benefit), as of June 30, 2019 and 2018:
The before tax amount reclassified from AOCI to net income during the three and nine months ended June 30, 2019 and 2018, related to cash flow hedges, were recorded as Interest expense on our Consolidated Statement of Income.
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SHARE-BASED COMPENSATION PLANS |
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SHARE-BASED COMPENSATION PLANS | 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 (DDCP), and our 2001 Executive Officer Deposit Share Program (DSP). In March 2017, our stockholders reapproved 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. For additional information regarding these programs, refer to Note 12 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, 2018. We record share-based compensation expense for all share-based awards, including stock option grants, and restricted stock, restricted stock unit and performance share unit ("PSU") awards, and employee stock purchase plan 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 employee stock purchase plan purchases. This model requires the input of highly subjective assumptions, including the price volatility of the underlying stock, the expected term of our stock options, expected dividend yield and the risk-free interest rate. We estimate the expected volatility of our stock options based on a combination of our stock's historical volatility and the implied volatilities from actively-traded options on our stock. We calculate the expected term of our stock options using historical stock option exercise data, and for stock option grants made prior to December 2017, we have added a slight premium to this expected term for employees who meet the definition of retirement-eligible pursuant to their stock option grants during the contractual term of the grant. As of December 2017, the provisions of stock option grants and restricted stock unit awards stated that, except in certain circumstances including termination for cause, once an employee meets the retirement eligibility requirements, any remaining unvested share-based awards will continue to vest regardless of termination of service. Consequently, the requisite service period for the award is satisfied upon retirement eligibility. Therefore, we record the total share-based compensation expense upon award for those employees who have met the retirement eligibility at the grant date. The expected dividend yield represents our annualized dividend in dollars divided by the stock price on the date of grant. The risk-free interest 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 results expected due to the Acquisition. KMG awards granted subsequent to the entry into the definitive agreement for the Acquisition, but prior to the Acquisition Date, were converted to our restricted stock units (“Replacement Award”), with vesting in three equal installments on the first three anniversaries of the original award date. If the recipient is terminated without cause or resigns with good reason during the 18 months following the Acquisition Date, the Replacement Award will vest as of such termination date in a number of shares equal to 150% of the Replacement Award. The share-based compensation expense related to the Replacement Awards, including accelerated vesting, was $3,253 in the first quarter of fiscal 2019 and not material in the second and third quarters of fiscal 2019. The expense was included in the table below. Share-based compensation expense for the three and nine months ended June 30, 2019 and 2018, was as follows:
For additional information regarding the estimation of fair value, refer to Note 12 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, 2018.
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INCOME TAXES |
9 Months Ended |
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Jun. 30, 2019 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | INCOME TAXES The Company’s effective income tax rate was 52.1% and 36.9% for the three and nine months ended June 30, 2019, respectively, compared to an effective income tax rate of 18.3% and 47.0% for the three and nine months ended June 30, 2018, respectively. In the third quarter of fiscal 2019, the Company recorded a discrete charge of $9,128 related to newly issued final regulations related to U.S. Tax Reform which impacted the Company’s reserves for uncertain tax positions. Other factors that impacted the Company’s effective income tax rate for the nine months ended June 30, 2019 were primarily related to unfavorable tax treatment of certain KMG acquisition-related costs, such as compensation deduction limitations, as well as non-deductibility of certain professional fees. Additionally, we recorded incremental tax expense for the Global Intangible Low Taxed Income (“GILTI”) provision of the Tax Act, which was effective for the first time during our fiscal 2019. Partially offsetting these adverse items, the Tax Act reduced the corporate income tax rate to 21.0% effective January 1, 2018, resulting in a change in our blended tax rate of 24.5% in fiscal 2018 to 21.0% beginning with our fiscal 2019. In the quarter ended December 31, 2018, the Company completed its provisional estimates with regard to the Tax Act, and the Transition Tax and Withholding Tax obligations are now determined to be complete.
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EARNINGS PER SHARE |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EARNINGS PER SHARE | EARNINGS PER SHARE Basic earnings per share (EPS) is calculated by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period, excluding the effects of unvested restricted stock awards that have 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”. Beginning in the first quarter of fiscal 2019, the amount of participating securities was no longer material and therefore, we have excluded such securities from our calculation of EPS in fiscal 2019. Diluted EPS is calculated in a similar manner, but the weighted-average number of common shares outstanding during the period is increased to include the weighted-average dilutive effect of “in-the-money” stock options and unvested restricted stock shares using the treasury stock method. The standards of accounting for earnings per share require companies to provide a reconciliation of the numerator and denominator of the basic and diluted earnings per share computations. Basic and diluted earnings per share were calculated as follows:
Approximately 0.1 million and 0.2 million shares for the three and nine months ended June 30, 2019, respectively, and 0.1 million shares for both the three and nine months ended June 30, 2018, attributable to outstanding stock options were excluded from the calculation of diluted earnings per share.
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SEGMENT REPORTING |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SEGMENT REPORTING | SEGMENT REPORTING We identify our segments based on our management structure and the financial information used by our chief executive officer, who is our chief operating decision maker, to assess segment performance and allocate resources among our operating units. We historically had operated predominantly in one industry segment – the development, manufacture and sale of Chemical Mechanical Planarization (CMP) consumables products. In connection with the Acquisition, we reassessed our operating and reportable segments, and determined that we have the following two reportable segments: Electronic Materials Electronic Materials includes products and solutions for the semiconductor industry. We manufacture and sell CMP consumables, including CMP slurries and polishing pad products, and high-purity process chemicals used to etch and clean silicon wafers in the production of semiconductors, photovoltaics (solar cells) and flat panel displays. Performance Materials Performance Materials includes pipeline performance products and services for energy industries, wood treatment products, and products and equipment used in the precision optics industry. Beginning in fiscal 2019 and with the Acquisition, our chief operating decision maker evaluates segment performance based upon revenue and segment adjusted EBITDA. Segment adjusted EBITDA is defined as earnings before interest, income taxes, depreciation and amortization, adjusted for certain items that affect comparability from period to period. These adjustments include items related to the Acquisition, such as expenses incurred to complete the acquisition, integration-related expenses and impact of fair value adjustments to inventory acquired from KMG, and certain costs related to the KMG-Bernuth warehouse fire. 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 2019 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, we do not disclose assets by segment. Revenue from external customers and segment adjusted EBITDA were (in thousands):
We began to manage and report our results under the new organizational structure in conjunction with the Acquisition in fiscal 2019 and have reflected this change for all historical periods presented. Since the two segments operate independently and serve different markets and customers, there are no sales between segments. Revenue from external customers and segment adjusted EBITDA shown for Performance Materials for the quarter ended June 30, 2018 includes Cabot Microelectronics’ heritage QED business. The adjustments to segment EBITDA for the three and nine months ended June 30, 2019 represent addbacks of KMG acquisition and integration related expenses, and a charge for the write-up of inventory acquired from KMG to fair value, for inventory sold in the period, and costs related to KMG-Bernuth warehouse fire. There were no adjustments to segment EBITDA for the three and nine months ended June 30, 2018. Unallocated corporate expenses include expenses associated with executive leadership and public company costs, and the unallocated portions of corporate functions including finance, legal, human resources, information technology, and corporate development not directly attributable to a reportable segment.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS (Policies) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
USE OF ESTIMATES | 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 difficult and subjective judgments include, but are not limited to, those estimates related to bad debt expense, inventory valuation, impairment of long-lived assets, business combinations, goodwill, other intangible assets, share-based compensation, 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.
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REVENUE RECOGNITION | REVENUE RECOGNITION As of October 1, 2018, the Company began applying the provisions of Accounting Standards Codification 606-10, “Revenue from Contracts with Customers” (“ASC 606”), and all related applicable guidance using the modified retrospective method applied to those contracts that were not completed as of October 1, 2018. The Company recognizes revenue under the core principle of depicting the transfer of control to the Company’s customers in an amount reflecting the consideration to which the Company expects to be entitled. In order to achieve that core principle, the Company applies the following five step approach: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and, (5) recognize revenue when a performance obligation is satisfied. Upon adoption of ASC 606, we recognized a $933 decrease to the opening balance of retained earnings, net of tax, due to the cumulative impact of adopting the new revenue standard. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company changed its accounting policy for revenue recognition for customer incentives that provide free products and tiered pricing. For free products, the new revenue standard requires that a portion of the transaction price be allocated to the free product and deferred until the product has been delivered. We previously accrued for undelivered free product as a charge to cost of sales. In prior fiscal years, in accordance with ASC 605, we did not consider prospective tiered pricing to represent a material right. The cumulative effect of the changes made to our Consolidated Balance Sheet as of October 1, 2018 for the adoption of the new revenue standard was:
We have determined that the effect of applying the new revenue standard during the three and nine months ended June 30, 2019 was immaterial to our financial statements compared to revenue guidance in effect before the adoption of the new revenue standard. As a result, for the three and nine months ended June 30, 2019, we are not disclosing the quantitative amount by which each financial statement line item is affected by the application of the new revenue standard. As part of the adoption of ASU 606, the Company elected to use certain allowed practical expedients. For the Company’s contracts that have an original duration of one year or less as of the adoption date, the Company uses the practical expedient applicable to such contracts and does not consider the time value of money. Further, because of the short duration of these contracts, the Company has not disclosed the transaction price for the future performance obligations as of the end of each reporting period for contracts having an expected duration of one year or less. See Note 3 of this Report on Form 10-Q for disaggregated revenue, the reconciliation of contract balances and transaction price allocation to remaining performance obligations for contracts expected to remain effective beyond one year. Performance Obligations and Material Rights At contract inception, the Company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each material promise to the customer. A performance obligation is a promise in a contract to transfer a distinct good or service, or a bundle of goods or services, to the customer, and is the unit of accounting under ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. A majority of the Company’s contracts have a single performance obligation which represents, in most cases, the products, equipment or services being sold to the customer. Some contracts include multiple performance obligations, including prospective tiered price discounts or delivery of free product that we have concluded represents a material right. Contracts with prospective tiered price discounts require judgment in determining if that discount represents a material right. Contracts vary in length, and payment terms vary by the type and location of the Company’s customers and the products or services offered. However, the period of time between invoicing and when payment is due is typically not significant and has no significant financing components. Customers pay in accordance with negotiated terms upon receipt of goods or completion of services. For these contracts, the transaction price is determined upon establishment of the contract that contains the final terms of the sale, including the description, quantity, and price of goods or services purchased. In certain instances, we receive consideration from a customer prior to transferring goods or services to the customer under the terms of a sales contract. In such cases, we record deferred revenue until the performance obligation is satisfied, which represents a contract liability, and is included in the contract liabilities discussed in Note 3 of this Report on Form 10-Q. The Company recognizes revenue related to product sales at a point in time following the transfer of control of such products to the customer, which generally occurs upon shipment, or delivery depending on the terms of the underlying contracts. The Company considers control to have transferred upon shipment or delivery because the Company has a present right to payment at that time, the customer has legal title to the asset, the Company has transferred physical possession of the asset, and the customer has significant risks and rewards of ownership of the asset. Revenue is recognized on consignment sales when control transfers to the customer, generally at the point of customer usage of the product. The Company also records revenue for services provided to the pipeline and oilfield energy industries. These services include preventive maintenance, repair and specialized isolation sealing on pipelines and training. Revenue is recorded at a point in time when the services are completed as this is when right to payment and customer acceptance occurs. For sales contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation identified in the contract based on relative standalone selling prices or estimates of such prices. Standalone selling price, once established, is then used to allocate total consideration proportionally to the various performance obligations within a contract. Most contracts where we have determined there to be multiple performance obligations relate to where we have identified the existence of a material right such that we provide prospective tiered pricing discounts or free product. When we invoice for products shipped under these contracts, we defer the revenue associated with these rights on the balance sheet as a contract liability. Revenue is recognized when the customer exercises the option to purchase goods at a discount in the case of the prospective tiered pricing discounts or when we ship the free product. Variable Consideration The primary type of variable consideration present in the Company’s contracts are rebates and early payment discounts, both of which are immaterial. Early payment discounts are offered on a limited basis and are not significant. The Company also offers rebates based upon cumulative volume of purchases within a quarter and accrues for the rebate obligation within the quarter that the rebate is earned. ASC 606 did not change the accounting for rebates under ASC 605. Costs to Obtain and Fulfill a Contract For certain contracts within the Performance Materials segment, commissions are paid to sales agents based upon a percentage of end-customer invoice value. Agents are paid the commissions after funds are received by the Company from its customers. Under ASC 340, sales commissions are required to be capitalized and expensed over the associated contract period. However, as a practical expedient, the Company does not capitalize commissions as the associated contracts are generally one year or less in duration. For shipping and handling activities performed after a customer obtains control of the goods, the Company has elected to account for these costs as activities to fulfill the promise to transfer the goods and included in cost of sales.
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EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS | EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS In February 2016, the FASB issued ASU No. 2016-02, "Leases" (Topic 842). The provisions of ASU 2016-02 require a dual approach for lessee accounting under which a lessee would recognize a right-of-use asset and a corresponding lease liability. Leases will be classified as either finance or operating leases. For finance leases, a lessee will recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee will recognize a straight-line total lease expense. The guidance also requires qualitative and specific quantitative disclosures to supplement the amounts recorded in the financial statements, to afford better understanding of an entity's leasing activities, including any significant judgments and estimates. The guidance was amended through various ASU's subsequent to ASU 2016-02, all of which will be effective for us beginning October 1, 2019, but early adoption is permitted. We have finished reviewing the population of our lease contracts and are in the process of implementing a new third party lease software system. The Company currently plans to elect the optional package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs and therefore, does not expect the adoption of ASU 2016-02 to have a significant impact on the Consolidated Statements of Income. We expect to adopt the new standard in our first quarter of fiscal 2020 applying the optional transition method upon adoption. We continue to evaluate the amount of right-of-use asset and lease liability that will ultimately be recorded on the Consolidated Balance Sheets and the impact on the Consolidated Statements of Income. In June 2016, the FASB issued ASU No. 2016-13, "Measurement of Credit Losses on Financial Instruments" (Topic 326). The provisions of this standard require financial assets measured at amortized cost to be presented at the net amount expected to be collected. An allowance account would be established to present the net carrying value at the amount expected to be collected. ASU 2016-13 also provides that credit losses relating to available-for-sale debt securities should be recorded through an allowance for credit losses. The guidance was amended through various ASU's subsequent to ASU 2016-13, all of which will be effective for us beginning October 1, 2020, but early adoption is permitted as of October 1, 2019. We are currently evaluating the impact of implementation of this standard on our financial statements. In March 2017, the FASB issued ASU No. 2017-07 "Improving the Presentation of Net Period Pension Cost and Net Period Postretirement Benefit Cost" (Topic 715). The provisions of ASU 2017-07 provided specific guidance on the presentation of the components of net benefit cost. We adopted this standard ASU 2017-07 effective October 1, 2018 and applied it retrospectively. Pursuant to the adoption, 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 impact of the retrospective adoption in fiscal year 2018 is not material. In May 2017, the FASB issued ASU No. 2017-09 "Scope of Modification Accounting" (Topic 718). The provisions of ASU 2017-09 provide specific guidance about which changes to the term or conditions of a share-based payment require an entity to apply modification accounting. We adopted ASU 2017-09 effective October 1, 2018 and will apply this new standard to our share-based compensation awards, to the extent modified. In August 2017, the FASB issued ASU No. 2017-12 "Derivatives and Hedging" (Topic 815). The provisions of this standard amend the hedge accounting model in ASC 815 to expand an entity's ability to hedge nonfinancial and financial risk components, reduce complexity in fair value hedges of interest rate risk, eliminate the requirement to separately measure and report hedge ineffectiveness, and generally require the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. We early adopted this guidance effective January 1, 2019, and we did not have any hedges that existed as of the initial application date. We applied the new guidance to the interest rate swap that we entered into during our second quarter of fiscal 2019. Pursuant to the guidance, we performed initial quantitative hedge effectiveness testing upon the inception of the hedge, and determined the hedge to be highly effective. Therefore, unrealized changes in fair value are recorded in other comprehensive income. In addition, we reclassify the realized gains and losses out of other comprehensive income, and into interest expense in our Consolidated Statements of Income, which is the same financial statement line as the hedged item. We will perform subsequent assessments of hedge effectiveness qualitatively on a quarterly basis. In February 2018, the FASB issued ASU No. 2018-02 "Income Statement – Reporting Comprehensive Income (Topic 220)". The amendments in this standard allow a company to reclassify the stranded tax effects resulting from the Tax Cuts and Jobs Act (the "Tax Act") from accumulated other comprehensive income to retained earnings. ASU 2018-02 will be effective for us beginning October 1, 2019, but early adoption is permitted. We are currently evaluating and quantifying the amount to be reclassified into retained earnings and expect to record the reclassification on October 1, 2019. In June 2018, the FASB issued ASU No. 2018-07 " Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting." The ASU simplified the accounting for share-based payments granted to nonemployees for goods and services, therefore guidance on such payments to nonemployees would be mostly aligned with the requirements for share-based payments granted to employees. ASU 2018-07 will be effective for us beginning October 1, 2019, but early adoption is permitted (but no earlier than the adoption date of Topic 606). We do not expect implementation of this standard to have material impact on our financial statements. In August 2018, the FASB issued ASU No. 2018-13 " Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement". The ASU provides specific guidance on various disclosure requirements in Topic 820, including removal, modification and addition to current disclosure requirements. ASU 2018-13 will be effective for us beginning October 1, 2020, but early adoption is permitted. We are currently evaluating the impact of implementation of this standard on our disclosures. In August 2018, the FASB issued 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 (a consensus of the FASB Emerging Issues Task Force)". The ASU Requires an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. ASU 2018-15 will be effective for us beginning October 1, 2020, but early adoption is permitted. We are currently evaluating the impact of implementation of this standard on our financial statements.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS (Tables) |
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Cumulative effect adoption of ASC 606 on balance sheet | The cumulative effect of the changes made to our Consolidated Balance Sheet as of October 1, 2018 for the adoption of the new revenue standard was:
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Disaggregation of revenue | The following table shows revenue generated by product area during the three and nine months ended June 30, 2019 and 2018:
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Reconciliation of contract liability balances | The following table provides information about contract liability balances:
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Transaction price allocated to remaining performance obligation | The table below discloses (1) the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period for contracts with an original duration of greater than one year and (2) when the Company expects to recognize this revenue.
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BUSINESS COMBINATION (Tables) |
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of components of total consideration | See below for a summary of the different components that comprise the total consideration.
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Summary of preliminary allocation of fair values of assets acquired and liabilities assumed | The following table summarizes the preliminary allocation of fair values of assets acquired and liabilities assumed as of the Acquisition Date.
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Components of identifiable intangible asset acquired and their estimated useful lives | The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the Acquisition Date:
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||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Acquisition, Pro Forma Information [Table Text Block] | The following unaudited supplemental pro forma information summarizes the combined results of operations for Cabot Microelectronics and KMG as if the Acquisition had occurred on October 1, 2017.
|
FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value of financial instruments | The following table presents financial instruments, other than long-term debt, that we measured at fair value on a recurring basis at June 30, 2019 and September 30, 2019. See Note 10 for a detailed discussion of our long-term debt. We have classified the following assets and liabilities in accordance with the fair value hierarchy set forth in the applicable standards. In instances where the inputs used to measure the fair value of an asset fall into more than one level of the hierarchy, we have classified them based on the lowest-level input that is significant to the determination of the fair value.
|
INVENTORIES (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of inventories | Inventories consisted of the following:
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GOODWILL AND OTHER INTANGIBLE ASSETS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of other intangible assets | The components of other intangible assets are:
*Other indefinite-lived intangible assets not subject to amortization consist primarily of trade names.
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Schedule of amortization expense on intangible assets | Amortization expense on our intangible assets was $16,926 and $43,244 for the three and nine months ended June 30, 2019, respectively, and was $1,780 and $5,716 for the three and nine months ended June 30, 2018, respectively. Estimated future amortization expense for the five succeeding fiscal years is as follows:
|
OTHER LONG-TERM ASSETS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other long-term assets | Other long-term assets consisted of the following:
|
ACCRUED EXPENSES, INCOME TAXES PAYABLE AND OTHER CURRENT LIABILITIES (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accrued expenses, income taxes payable and other current liabilities | Accrued expenses, income taxes payable and other current liabilities consisted of the following:
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DEBT (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of principal repayments of debt | As of June 30, 2019, scheduled principal repayments of the Term Loan were:
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DERIVATIVE FINANCIAL INSTRUMENTS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of derivative instruments in the Consolidated Balance Sheets | The fair value of our derivative instruments included in the Consolidated Balance Sheets, which was determined using Level 2 inputs, was:
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Schedule of derivative instruments on Consolidated Statements of Income | The following table summarizes the effect of our derivative instruments on our Consolidated Statements of Income for the three and nine months ended June 30, 2019 and 2018:
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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated other comprehensive income (loss) | The table below summarizes the components of accumulated other comprehensive income (loss) (AOCI), net of tax provision/(benefit), as of June 30, 2019 and 2018:
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SHARE-BASED COMPENSATION PLANS (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of share-based compensation expense | Share-based compensation expense for the three and nine months ended June 30, 2019 and 2018, was as follows:
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EARNINGS PER SHARE (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of earnings per share | The standards of accounting for earnings per share require companies to provide a reconciliation of the numerator and denominator of the basic and diluted earnings per share computations. Basic and diluted earnings per share were calculated as follows:
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SEGMENT REPORTING (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of segment revenue | Revenue from external customers and segment adjusted EBITDA were (in thousands):
|
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Schedule of segment adjusted EBITDA |
|
BACKGROUND AND BASIS OF PRESENTATION (Details) - segment |
3 Months Ended | 9 Months Ended |
---|---|---|
Jun. 30, 2019 |
Jun. 30, 2019 |
|
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Number of reportable segments | 2 | 2 |
REVENUE FROM CONTRACTS WITH CUSTOMERS - Disaggregation of Revenue (Details) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2019
USD ($)
segment
|
Jun. 30, 2018
USD ($)
|
Jun. 30, 2019
USD ($)
segment
|
Jun. 30, 2018
USD ($)
|
|
Revenue from Contract with Customer [Abstract] | ||||
Number of reportable segments | segment | 2 | 2 | ||
Disaggregation of Revenue [Abstract] | ||||
Revenue | $ 271,882 | $ 150,437 | $ 759,051 | $ 433,394 |
Electronic Materials | ||||
Disaggregation of Revenue [Abstract] | ||||
Revenue | 212,123 | 143,810 | 615,586 | 413,227 |
Electronic Materials | CMP Slurries | ||||
Disaggregation of Revenue [Abstract] | ||||
Revenue | 108,617 | 122,893 | 345,244 | 352,414 |
Electronic Materials | Electronic Chemicals | ||||
Disaggregation of Revenue [Abstract] | ||||
Revenue | 80,103 | 0 | 198,474 | 0 |
Electronic Materials | CMP Pads | ||||
Disaggregation of Revenue [Abstract] | ||||
Revenue | 23,403 | 20,917 | 71,868 | 60,813 |
Performance Materials | ||||
Disaggregation of Revenue [Abstract] | ||||
Revenue | $ 59,759 | $ 6,627 | $ 143,465 | $ 20,167 |
REVENUE FROM CONTRACTS WITH CUSTOMERS - Reconciliation of Contract Balances (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |
---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2019 |
Oct. 01, 2018 |
|
Contract with Customer, Liability [Abstract] | |||
Contract liabilities (current) | $ 3,958 | $ 3,958 | $ 5,310 |
Contract liabilities (noncurrent) | 1,378 | 1,378 | $ 1,239 |
Change in Contract with Customer, Liability [Abstract] | |||
Revenue recognized in contract liability | 697 | 4,857 | |
Accrued expenses, income taxes payable and other current liabilities | |||
Contract with Customer, Liability [Abstract] | |||
Contract liabilities (current) | 3,958 | 3,958 | |
Other long-term liabilities | |||
Contract with Customer, Liability [Abstract] | |||
Contract liabilities (noncurrent) | $ 1,378 | $ 1,378 |
BUSINESS COMBINATION - Consideration (Details) - KMG $ in Thousands |
Nov. 15, 2018
USD ($)
|
---|---|
Business Combination, Consideration Transferred [Abstract] | |
Cash consideration paid | $ 1,205,404 |
Cash provided to payoff KMG debt | 304,648 |
Fair value of Cabot Microelectronics common stock issued for KMG outstanding common stock and equity awards | 331,048 |
Total consideration transferred | 1,536,452 |
Common stock and equity awards | |
Business Combination, Consideration Transferred [Abstract] | |
Cash consideration paid | $ 900,756 |
BUSINESS COMBINATION - Allocation of Fair Values of Assets Acquired and Liabilities Assumed (Details) - USD ($) $ in Thousands |
Jun. 30, 2019 |
Nov. 15, 2018 |
Sep. 30, 2018 |
---|---|---|---|
Fair values of assets acquired and liabilities assumed [Abstract] | |||
Goodwill | $ 708,390 | $ 101,083 | |
KMG | |||
Fair values of assets acquired and liabilities assumed [Abstract] | |||
Cash | $ 23,217 | ||
Accounts receivable | 64,711 | ||
Inventories | 68,963 | ||
Prepaid expenses and other current assets | 14,798 | ||
Property, plant and equipment | 147,398 | ||
Intangible assets | 844,800 | ||
Other long-term assets | 6,208 | ||
Accounts payable | (28,894) | ||
Accrued expenses and other current liabilities | (43,451) | ||
Deferred income taxes liabilities | (164,165) | ||
Other long-term liabilities | (3,754) | ||
Total identifiable net assets acquired | 929,831 | ||
Goodwill | 606,621 | ||
Total consideration transferred | $ 1,536,452 |
BUSINESS COMBINATION - Pro Forma Information (Details) - KMG - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
|
Business Acquisition, Pro Forma Information [Abstract] | ||||
Revenues | $ 271,882 | $ 272,589 | $ 821,029 | $ 784,694 |
Net income (loss) | $ 16,077 | $ 33,211 | $ 88,938 | $ (1,369) |
Earnings per share - basic (in dollars per share) | $ 0.55 | $ 1.15 | $ 3.07 | $ (0.05) |
Earnings per share - diluted (in dollars per share) | $ 0.54 | $ 1.12 | $ 3.02 | $ (0.05) |
INVENTORIES (Details) - USD ($) $ in Thousands |
Jun. 30, 2019 |
Sep. 30, 2018 |
---|---|---|
Inventory, Net, Items Net of Reserve Alternative [Abstract] | ||
Raw materials | $ 59,684 | $ 35,150 |
Work in process | 13,119 | 8,117 |
Finished goods | 72,980 | 28,659 |
Total | $ 145,783 | $ 71,926 |
GOODWILL AND OTHER INTANGIBLE ASSETS - Narrative (Details) - USD ($) |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
Sep. 30, 2018 |
|
Goodwill [Line Items] | |||||
Goodwill | $ 708,390,000 | $ 708,390,000 | $ 101,083,000 | ||
Goodwill, acquired | 606,621,000 | ||||
Goodwill, foreign exchange gain (loss) | 686,000 | ||||
Intangible assets acquired | $ 844,800,000 | ||||
Amortization of intangible assets | 16,926,000 | $ 1,780,000 | 43,244,000 | $ 5,716,000 | |
Goodwill, impairment | 0 | ||||
Electronic Materials | |||||
Goodwill [Line Items] | |||||
Goodwill | 358,108,000 | 358,108,000 | |||
Performance Materials | |||||
Goodwill [Line Items] | |||||
Goodwill | $ 350,282,000 | $ 350,282,000 |
GOODWILL AND OTHER INTANGIBLE ASSETS - Amortization Expense (Details) $ in Thousands |
Jun. 30, 2019
USD ($)
|
---|---|
Estimated Amortization Expense | |
Remainder of 2019 | $ 16,931 |
2020 | 87,940 |
2021 | 87,243 |
2022 | 79,832 |
2023 | $ 67,674 |
OTHER LONG-TERM ASSETS (Details) - USD ($) $ in Thousands |
Jun. 30, 2019 |
Sep. 30, 2018 |
---|---|---|
Other long-term assets [Abstract] | ||
Long-term contract assets | $ 674 | $ 1,548 |
Long-term SERP Investment | 1,411 | 1,137 |
Prepaid unamortized debt issuance cost - revolver | 752 | 0 |
Other long-term assets | 2,821 | 1,979 |
Total | $ 5,658 | $ 4,664 |
ACCRUED EXPENSES, INCOME TAXES PAYABLE AND OTHER CURRENT LIABILITIES (Details) - USD ($) $ in Thousands |
Jun. 30, 2019 |
Oct. 01, 2018 |
Sep. 30, 2018 |
---|---|---|---|
Payables and Accruals [Abstract] | |||
Accrued compensation | $ 31,362 | $ 35,367 | |
Income taxes payable | 14,418 | 18,045 | |
Dividends payable | 12,879 | 10,822 | |
Taxes, other than income taxes | 6,806 | 1,976 | |
KMG - Bernuth warehouse fire related (See Note 12) | 4,450 | 0 | |
Accrued interest | 3,677 | 0 | |
Contract liabilities | 3,958 | $ 5,310 | |
Contract liabilities | 4,894 | ||
Goods and services received, not yet invoiced | 3,772 | 1,954 | |
Other accrued expenses | 13,939 | 9,925 | |
Total | $ 95,261 | $ 82,936 | $ 82,983 |
DEBT - Principal Repayments (Details) - Term Loan Facility $ in Thousands |
Jun. 30, 2019
USD ($)
|
---|---|
Principal Repayments | |
Remainder of 2019 | $ 5,325 |
2020 | 10,650 |
2021 | 10,650 |
2022 | 10,650 |
2023 | 10,650 |
Greater than 5 years | 914,413 |
Total | $ 962,338 |
DERIVATIVE FINANCIAL INSTRUMENTS - Narrative (Details) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2019
USD ($)
|
Jun. 30, 2019
USD ($)
|
Sep. 30, 2018
USD ($)
|
Sep. 30, 2017
KRW (₩)
|
|
Derivative Instruments [Abstract] | ||||
Unrealized gain (loss) on cash flow hedging instruments | $ (15,487) | |||
Gain (loss) reclassified from accumulated other comprehensive income into interest expense, estimated time to transfer | 12 months | |||
Interest rate swap | ||||
Derivative Instruments [Abstract] | ||||
Derivative notional amount | $ 746,000 | 746,000 | ||
Unrealized gain (loss) on cash flow hedging instruments | (15,536) | (15,536) | ||
Reclassified from accumulated other comprehensive income into interest expense | 4,274 | |||
Foreign contracts | Buy | ||||
Derivative Instruments [Abstract] | ||||
Derivative notional amount | 9,636 | 9,636 | $ 7,652 | |
Foreign contracts | Sell | ||||
Derivative Instruments [Abstract] | ||||
Derivative notional amount | $ 17,880 | $ 17,880 | $ 24,860 | |
Net investment hedge | ||||
Derivative Instruments [Abstract] | ||||
Derivative notional amount | ₩ | ₩ 100,000,000,000 |
DERIVATIVE FINANCIAL INSTRUMENTS - Effect of Derivative Instruments on the Consolidated Statement of Income (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
|
Derivatives not designated as hedging instruments | Foreign contracts | Other income (expense), net | ||||
Derivative, Gain (Loss) on Derivative, Net [Abstract] | ||||
Other income (loss), net | $ (29) | $ (1,080) | $ (67) | $ (1,002) |
COMMITMENTS AND CONTINGENCIES (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |
---|---|---|---|
Nov. 15, 2018 |
Jun. 30, 2019 |
Jun. 30, 2019 |
|
Postretirement Obligations in Foreign Jurisdictions [Abstract] | |||
Expected term for benefit payments of all unfunded plans | 10 years | ||
Expected future benefit payments | $ 7,906 | $ 7,906 | |
Unrecorded Unconditional Purchase Obligation, Fiscal Year Maturity [Abstract] | |||
Purchase obligation | 8,859 | 8,859 | |
KMG-Bernuth | |||
Environmental Exit Cost [Line Items] | |||
Loss contingency | 4,200 | 4,200 | |
Remediation expense recognized | 250 | ||
Estimated remediation cost | $ 22,000 | ||
Estimated reserve, remaining | $ 1,008 | $ 1,008 |
SHARE-BASED COMPENSATION PLANS - Narrative (Details) $ in Thousands |
9 Months Ended | |
---|---|---|
Jun. 30, 2019
USD ($)
installment
|
Jun. 30, 2018
USD ($)
|
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Share-based compensation expense | $ 15,048 | $ 14,269 |
Restricted Stock Units (RSUs) [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Share-based Compensation Arrangement by Share-based Payment Award, Award Number of Vesting Installment | installment | 3 | |
Period of Termination to Accelerate Vest Awards to Shares | 18 months | |
Percentage of Accelerate Vest Awards to Number of Shares | 150.00% | |
Stock Option and Restricted Stock [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Share-based compensation expense | $ 3,253 |
SHARE-BASED COMPENSATION PLANS - Share-Based Compensation Expense (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Total share-based compensation expense | $ 3,340 | $ 4,186 | $ 15,048 | $ 14,269 |
Tax benefit | (670) | (1,023) | (3,121) | (3,272) |
Total share-based compensation expense, net of tax | 2,670 | 3,163 | 11,927 | 10,997 |
Cost of sales | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Total share-based compensation expense | 540 | 542 | 2,169 | 1,896 |
Research, development and technical | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Total share-based compensation expense | 390 | 445 | 1,733 | 1,491 |
Selling, general and administrative | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Total share-based compensation expense | $ 2,410 | $ 3,199 | $ 11,146 | $ 10,882 |
INCOME TAXES (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | |||||
---|---|---|---|---|---|---|---|---|
Jun. 14, 2019 |
Jan. 01, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
|
Income Tax [Abstract] | ||||||||
Effective tax rate | 52.10% | 18.30% | 36.90% | 47.00% | ||||
Tax benefit adjustment on transition tax obligation | $ 9,128 | |||||||
Corporate statutory rate | 21.00% | 24.50% | ||||||
Forecast | ||||||||
Income Tax [Abstract] | ||||||||
Corporate statutory rate | 21.00% |
Label | Element | Value |
---|---|---|
Cumulative Effect of New Accounting Principle in Period of Adoption | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | $ (933,000) |
Retained Earnings [Member] | ||
Cumulative Effect of New Accounting Principle in Period of Adoption | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | $ (933,000) |
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