Cabot Microelectronics Corporation (Nasdaq: CCMP), a leading
global supplier of consumable materials to semiconductor
manufacturers and pipeline companies, today reported financial
results for its fourth quarter and full fiscal year 2019, which
ended September 30, 2019.
Key Highlights
The company delivered record revenue of $278.6
million in the fourth fiscal quarter, essentially flat compared
with the pro forma revenue in the same quarter last year. The
year-over-year revenue growth in CMP pads, electronic chemicals and
pipeline performance products offset lower CMP slurries revenue due
to semiconductor industry softness. Adjusted pro forma EBITDA
was $85.3 million, or 30.6% of revenue, in the quarter. Full year
revenue was a record $1,037.7 million, $447.6 million, or 75.8%
higher than last year primarily due to the company’s acquisition of
KMG Chemicals, Inc. (“KMG”), and growth of its CMP pads business.
The company generated $177.1 million in cash flow from operations
during the year, and had $188.5 million of cash on hand and $941.8
million in total debt as of September 30, 2019. The company has
made a decision to focus its future capital investments on
high-growth businesses complementary to its core, and to cease
future investments in the KMG-Bernuth wood treatment business;
thus, it recorded a non-cash impairment charge of $67.4 million2,
or $50.3 million after-tax.
“We are proud of another year of record results
for our company,” said David Li, President and CEO of Cabot
Microelectronics Corporation. “We completed the largest acquisition
in our history, which broadened our product portfolio and
geographic reach, and nearly doubled our size. With some signs of
stabilization in the semiconductor industry and continued robust
demand for our pipeline performance products, we look forward to
another year of strong performance in fiscal 2020, and remain
optimistic about the bright future for our company with continued
growth expectations for our revenue and profitability.”
1 Adjusted pro forma results, including
adjusted pro forma gross margin, adjusted pro forma net income,
adjusted pro forma EBITDA and adjusted pro forma diluted EPS, are
considered as non-GAAP financial measures by the U.S. Securities
and Exchange Commission (SEC). These adjusted pro forma
results are presented as if the company’s acquisition of KMG
Chemicals, Inc. (“KMG”) had been consummated on October 1, 2017,
and exclude the impact of non-recurring acquisition and integration
related costs, acquisition-related amortization expenses, the
effect of the enactment of the Tax Cuts and Jobs Act in December
2017 in the United States (“tax act”) and the newly issued final
regulations related to the tax act, the effect of asset impairment
and restructuring charges related to the company’s wood treatment
business (recorded in fourth quarter of fiscal 2019), and certain
costs related to a warehouse fire at KMG-Bernuth in Tuscaloosa,
Alabama (recorded in third and fourth quarters of fiscal 2019). See
“Use of Certain GAAP and Non-GAAP Adjusted Pro Forma Financial
Information” below for more information about these measures.
In addition, reconciliations of these non-GAAP measures to their
most comparable GAAP measures and reconciliations of selected pro
forma financial information to adjusted pro forma financial
information are included in the financial statements portion of
this press release. 2 Asset impairment charge for the
KMG-Bernuth wood treatment business is preliminary and subject to
finalization of impairment analysis and control procedures.
Key Financial Information for Fourth
Quarter of Fiscal 2019
- Revenue was $278.6 million, which is $121.9 million, or 77.8%
higher than the revenue reported in the same quarter last year. Pro
forma revenue was essentially flat compared to the same quarter
last year as revenue growth in CMP pads, electronic chemicals and
pipeline performance products offset lower CMP slurries revenue.
Electronic chemicals revenue benefited from growth in advanced
logic while CMP pads continued to gain traction with customers. CMP
slurries revenue declined due to soft semiconductor industry
demand, primarily from memory customers.
- Net loss for the quarter was $20.2 million, which is $68.5
million lower than in the same quarter last year. Excluding the
impact of acquisition-related amortization and integration
expenses, additional cleanup costs related to a wood treatment
business warehouse fire in Tuscaloosa, Alabama, which occurred in
the third quarter of fiscal 2019, and the asset impairment and
restructuring charges related to the wood treatment business,
adjusted pro forma net income was $49.8 million, which is $1.1
million, or 2.2%, lower than in the prior year.
- Loss per share was $0.70 this quarter, which is $2.54 lower
than in the fourth quarter of fiscal 2018. Adjusted pro forma
EPS was $1.68, which is $0.05, or 2.9%, lower than in the same
quarter last year.
- Adjusted pro forma EBITDA was $85.3 million, which is $1.4
million, or 1.6%, lower than in the same quarter last year,
primarily due to lower gross margin, which was partially offset by
lower selling, general and administrative expenses. Adjusted
pro forma EBITDA margin for the quarter was 30.6%, compared to
31.1% in the same quarter last year.
Electronic Materials – Revenue
was $217.5 million, which is $8.0 million, or 3.6%, lower than pro
forma revenue in the same quarter last year. CMP pads and
electronic chemicals delivered results that were 1.8% and 1.5%
higher, respectively, than in the same quarter last year. CMP
slurries revenue declined 7.7% from last year’s quarter, primarily
due to softer industry conditions and lower demand from memory
customers. The Electronic Materials segment adjusted EBITDA
was $74.3 million, or 34.2% of revenue.
Performance Materials – Revenue
was $61.2 million for the quarter, which is $7.8 million, or 14.7%,
higher than pro forma revenue in the prior year’s quarter.
The increase was driven by higher revenue from pipeline
performance products, which was partially offset by a decline in
QED revenue. The Performance Materials segment adjusted EBITDA was
$28.2 million, or 46.1% of revenue.
Asset Impairment ChargeDuring
the quarter, the company made a decision to further focus its
future capital investments on high-growth core businesses such as
pipeline performance products, CMP slurries and pads and electronic
chemicals. As a result, it has decided to cease future investment
in the wood treatment business and not construct a new production
facility to replace operations in Matamoros, Mexico and Tuscaloosa,
Alabama. The company is considering various options regarding this
business. This decision has triggered a non-cash impairment
charge of $67.4 million, or $50.3 million after tax, that
negatively impacted fourth fiscal quarter and full year reported
results; this amount is preliminary and subject to finalization of
procedures.
Key Financial Information for Full
Fiscal Year 2019
- Revenue was $1,037.7 million, which is $447.6 million, or 75.8%
higher than the revenue reported in fiscal year 2018. Pro forma
revenue of $1099.7 million was $36.1 million, or 3.4%, higher
compared to last year. Results benefited from revenue growth in CMP
pads and pipeline performance products, but were offset by lower
CMP slurries revenue. CMP slurries revenue declined due to soft
semiconductor industry demand, primarily from memory and foundry
customers.
- Net income was $39.2 million, which is $70.8 million, or 64.4%
lower than in fiscal year 2018. Excluding the impact of
acquisition-related amortization and integration expenses, an
adjustment related to newly issued final regulations for the tax
act, additional cleanup costs related to the wood treatment
business warehouse fire in Tuscaloosa, Alabama, and the asset
impairment and restructuring charges related to the wood treatment
business, adjusted pro forma net income was $198.4 million, which
is $17.0 million, or 9.4%, higher than in the prior year.
- Diluted EPS was $1.35, which is $2.84, or 67.8% lower than in
fiscal year 2018. Adjusted pro forma EPS was $6.72, which is
$0.57, or 9.3%, higher than last year.
- Adjusted pro forma EBITDA was $345.4 million, which is $34.4
million, or 11.0% higher than in fiscal year 2018, primarily due to
lower selling, general and administrative expenses. Adjusted
pro forma EBITDA margin was 31.4%.
Guidance for First Quarter and Full
Fiscal Year 2020
For the first quarter of fiscal 2020, the
company currently expects total revenue to be approximately flat
compared to the company’s revenue for the fourth quarter of fiscal
2019. Electronic Materials revenue is expected to be approximately
flat sequentially and Performance Materials revenue is expected to
be approximately flat to up low single digits sequentially.
The company currently expects full fiscal year
2020 adjusted EBITDA to be between $350 million and $380 million.
Additional current expectations are provided on slide 10 in the
related slide presentation.
RELATED SLIDE PRESENTATIONA
slide presentation related to this press release will be available
at ir.cabotcmp.com in the Quarterly Results section of the
Investor Relations center at approximately the same time that this
press release is issued.
CONFERENCE CALLCabot
Microelectronics Corporation’s quarterly earnings conference call
will be held at 10:00 a.m. Eastern Time (9:00 a.m. Central Time) on
Monday, November 18. The conference call will be available
via live webcast and replay from the company’s website,
www.cabotcmp.com, or by phone at (844) 825-4410. Callers
outside the U.S. may dial (973) 638-3236. The conference code for
the call is 1096337. A transcript of the formal comments made
during the conference call will also be available in the Investor
Relations section of the company’s website.
ABOUT CABOT MICROELECTRONICS
CORPORATIONCabot Microelectronics Corporation,
headquartered in Aurora, Illinois, is a leading global supplier of
consumable materials to semiconductor manufacturers and pipeline
companies. The company’s products play a critical role in the
production of advanced semiconductor devices, helping to enable the
manufacture of smaller, faster and more complex devices by its
customers. Cabot Microelectronics Corporation is also a
leading provider of performance materials to pipeline companies.
The company's mission is to create value by delivering
high-performing and innovative solutions that solve its customers’
challenges. The company has approximately 1,900 employees
globally. For more information about Cabot Microelectronics
Corporation, visit www.cabotcmp.com, or contact Colleen Mumford,
Vice President, Communications and Marketing, at 630-499-2600.
USE OF CERTAIN GAAP AND NON-GAAP
ADJUSTED PRO FORMA FINANCIAL INFORMATIONThe company
presented the following measures considered as non-GAAP by the SEC:
adjusted pro forma EBITDA (earnings before interest, taxes,
depreciation and amortization), adjusted pro forma EBITDA margin,
adjusted pro forma net income and adjusted pro forma diluted
earnings per share. These adjusted pro forma results are presented
as if the company’s acquisition of KMG Chemicals, Inc. (“KMG”), had
been consummated on October 1, 2017 and exclude the impact of
non-recurring acquisition and integration related costs,
acquisition related amortization expenses, the adjustments related
to the effect of the enactment of the Tax Cuts and Jobs Act in
December 2017 in the United States (“tax act”) and the newly issued
final regulations related to the tax act, the effect of asset
impairment and restructuring charges related to the company’s wood
treatment business, and certain costs related to a warehouse fire
at KMG-Bernuth in Tuscaloosa, Alabama. The non-GAAP adjusted
pro forma financial information provided in this press release is a
supplement to, and not a substitute for, the company’s financial
results presented in accordance with U.S. GAAP. These
non-GAAP adjusted pro forma financial measures are provided to
enhance the investor's understanding about the company's ongoing
operations. Specifically, the company believes the impact of
the adjustments related to the effect of the enactment of the Tax
Cuts and Jobs Act in December 2017 in the United States (“tax act”)
and the newly issued final regulations related to the tax act, KMG
acquisition and integration-related expenses, the effect of asset
impairment and restructuring charges related to the company’s wood
treatment business, certain costs related to a warehouse fire at
KMG-Bernuth in Tuscaloosa, Alabama, and acquisition-related
amortization expenses are not indicative of its core operating
results, and thus presents these certain metrics excluding these
effects. The presentation of non-GAAP adjusted pro forma
financial information is not meant to be considered in isolation or
as a substitute for results prepared and presented in accordance
with U.S. GAAP. Reconciliations of non-GAAP measures to
their most comparable GAAP measures and reconciliations of pro
forma financial information to adjusted pro forma financial
information are included in the financial statements portion of
this press release.
The company has not quantitatively reconciled
its guidance for adjusted EBITDA to its most comparable GAAP
measure because the company does not provide specific guidance for
the various reconciling items as certain items that impact this
measure have not occurred, are out of the company’s control, or
cannot be reasonably predicted. Accordingly, a reconciliation
to the nearest GAAP financial metric is not available without
unreasonable effort. Please note that the unavailable
reconciling items could significantly impact the company’s
results.
Adjusted EBITDA for the Electronic Materials and
Performance Materials segments is presented in conformity with
Accounting Standards Codification Topic 280, Segment Reporting.
This measure is reported to the chief operating decision maker for
purposes of making decisions about allocating resources to the
segments and assessing their performance. For these reasons, this
measure is excluded from the definition of non-GAAP financial
measures under the SEC Regulation G and Item 10(e) of Regulation
S-K.
FORWARD LOOKING STATEMENTSThis
press release contains forward-looking statements, which address a
variety of subjects including, for example, future sales and
operating results; growth or contraction, and trends in the
industry and markets in which the Company participates; the
acquisition of, investment in, or collaboration with other
entities, including the Company’s acquisition of KMG Chemicals,
Inc. (“KMG”), and the expected benefits and synergies of such
acquisition; divestment or disposition, or cessation of investment
in certain, of the Company’s businesses; new product introductions;
development of new products, technologies and markets; product
performance; the financial conditions of the Company's customers;
competitive landscape; the Company's supply chain; natural
disasters; various economic or political factors and international
or national events, including related to the enactment of trade
sanctions, tariffs, or other similar matters; the generation,
protection and acquisition of intellectual property, and litigation
related to such intellectual property or third party intellectual
property; environmental, health and safety laws and regulations,
and related compliance; the operation of facilities by Cabot
Microelectronics; the Company's management; foreign exchange
fluctuation; the Company's current or future tax rate, including
the effects of the Tax Cuts and Jobs Act in the United States (“tax
act”); cybersecurity threats; financing facilities and related
debt, pay off or payment of principal and interest, and compliance
with covenants and other terms; and, uses and investment of the
Company's cash balance, including dividends and share repurchases,
which may be suspended, terminated or modified at any time for any
reason by the Company, based on a variety of factors. Statements
that are not historical facts, including statements about Cabot
Microelectronics’ beliefs, plans and expectations, are
forward-looking statements. Such statements are based on current
expectations of Cabot Microelectronics’ management and are subject
to a number of factors and uncertainties, which could cause actual
results to differ materially from those described in the
forward-looking statements. For information about factors that
could cause actual results to differ materially from those
described in the forward-looking statements, please refer to Cabot
Microelectronics’ filings with the Securities and Exchange
Commission (“SEC”), including the risk factors contained in Cabot
Microelectronics’ Annual Report on Form 10-K for the fiscal year
ended September 30, 2018 and its Quarterly Report on Form 10-Q for
the quarter ended June 30, 2019. Except as required by law,
Cabot Microelectronics undertakes no obligation to update
forward-looking statements made by it to reflect new information,
subsequent events or circumstances.
Contact:Colleen MumfordVice
President, Communications and MarketingCabot Microelectronics
Corporation(630) 499-2600
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CABOT
MICROELECTRONICS CORPORATION |
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CONSOLIDATED
STATEMENTS OF INCOME (LOSS) |
|
|
|
(Unaudited and amounts
in thousands, except per share amounts) |
|
|
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|
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|
|
|
|
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Quarter Ended |
|
Year Ended |
|
|
September 30, 2019 |
|
June 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
|
|
|
|
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|
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|
|
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|
|
|
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|
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|
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|
Revenue |
|
$278,645 |
|
|
$271,882 |
|
|
$156,729 |
|
|
$1,037,696 |
|
|
$590,123 |
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales |
|
|
165,535 |
|
|
|
156,492 |
|
|
|
72,383 |
|
|
|
595,043 |
|
|
|
276,018 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
113,110 |
|
|
|
115,390 |
|
|
|
84,346 |
|
|
|
442,653 |
|
|
|
314,105 |
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|
|
|
|
|
|
|
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Operating
expenses: |
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|
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|
|
|
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Research, development & technical |
|
|
12,698 |
|
|
|
12,191 |
|
|
|
13,372 |
|
|
|
51,707 |
|
|
|
51,950 |
|
|
|
|
|
|
|
|
|
|
|
Selling, general & administrative |
|
|
50,663 |
|
|
|
50,959 |
|
|
|
26,986 |
|
|
|
213,078 |
|
|
|
102,037 |
|
|
|
|
|
|
|
|
|
|
|
Asset Impairment Charges |
|
|
67,372 |
|
|
|
- |
|
|
|
- |
|
|
|
67,372 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
130,733 |
|
|
|
63,150 |
|
|
|
40,358 |
|
|
|
332,157 |
|
|
|
153,987 |
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss) |
|
|
(17,623 |
) |
|
|
52,240 |
|
|
|
43,988 |
|
|
|
110,496 |
|
|
|
160,118 |
|
|
|
|
|
|
|
|
|
|
|
Interest
expense |
|
|
12,703 |
|
|
|
12,757 |
|
|
|
102 |
|
|
|
45,681 |
|
|
|
2,905 |
|
|
|
|
|
|
|
|
|
|
|
Interest
income |
|
|
342 |
|
|
|
417 |
|
|
|
1,161 |
|
|
|
2,346 |
|
|
|
4,409 |
|
|
|
|
|
|
|
|
|
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Other income
(expense), net |
|
|
(1,158 |
) |
|
|
(472 |
) |
|
|
(24 |
) |
|
|
(4,055 |
) |
|
|
89 |
|
|
|
|
|
|
|
|
|
|
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Income
(loss) before income taxes |
|
|
(31,142 |
) |
|
|
39,428 |
|
|
|
45,023 |
|
|
|
63,106 |
|
|
|
161,711 |
|
|
|
|
|
|
|
|
|
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Provision
for income taxes (benefit) |
|
|
(10,899 |
) |
|
|
20,550 |
|
|
|
(3,195 |
) |
|
|
23,891 |
|
|
|
51,668 |
|
|
|
|
|
|
|
|
|
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|
Net income (loss) |
|
($20,243 |
) |
|
$18,878 |
|
|
$48,218 |
|
|
$39,215 |
|
|
$110,043 |
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Basic
earnings (loss) per share |
|
|
($0.70 |
) |
|
$0.65 |
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|
$1.89 |
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|
$1.37 |
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|
$4.31 |
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|
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Weighted
average basic shares outstanding |
|
|
29,084 |
|
|
|
29,064 |
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|
25,520 |
|
|
|
28,571 |
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|
|
25,518 |
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|
|
|
|
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|
Diluted
earnings (loss) per share |
|
|
($0.70 |
) |
|
$0.64 |
|
|
$1.84 |
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|
$1.35 |
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|
$4.19 |
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|
|
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|
|
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Weighted average diluted shares outstanding |
|
29,084 |
|
|
|
29,568 |
|
|
|
26,213 |
|
|
|
29,094 |
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|
|
26,243 |
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CABOT MICROELECTRONICS CORPORATION |
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CONSOLIDATED CONDENSED BALANCE SHEETS |
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(Unaudited and amounts in thousands) |
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September 30, 2019 |
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September 30, 2018 |
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ASSETS: |
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Current assets: |
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Cash and cash equivalents |
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$188,495 |
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$352,921 |
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Accounts receivable, net |
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|
146,113 |
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|
75,886 |
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Inventories, net |
|
|
|
|
145,278 |
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|
71,926 |
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Other current assets |
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|
28,670 |
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|
22,048 |
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Total current assets |
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|
508,556 |
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|
522,781 |
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|
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|
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Property, plant and equipment, net |
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|
276,818 |
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|
111,403 |
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Other long-term assets |
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|
1,476,392 |
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|
146,789 |
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Total assets |
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$2,261,766 |
|
$780,973 |
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LIABILITIES AND STOCKHOLDERS' EQUITY: |
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Current liabilities: |
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Accounts payable |
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$54,529 |
|
$18,171 |
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Current portion of long-term debt |
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13,313 |
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- |
|
Accrued expenses, income taxes payable and other current
liabilities |
|
|
103,618 |
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|
82,983 |
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Total current liabilities |
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|
|
171,460 |
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|
101,154 |
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|
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|
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|
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Long-term debt, net of current portion |
|
|
|
|
928,463 |
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|
- |
|
Other long-term liabilities |
|
|
|
|
181,466 |
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|
13,127 |
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Total liabilities |
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|
|
|
1,281,389 |
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|
114,281 |
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|
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|
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|
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|
Stockholders' equity |
|
|
|
|
980,377 |
|
|
666,692 |
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Total liabilities and stockholders' equity |
|
|
|
$2,261,766 |
|
$780,973 |
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CABOT MICROELECTRONICS CORPORATION |
|
|
|
|
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|
Reconciliation of GAAP Net Income to Non-GAAP Adjusted
EBITDA |
|
|
|
|
|
|
|
(Unaudited and amounts in thousands, except percentage
amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Three Months Ended |
|
Twelve Months Ended |
|
|
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
($20,243 |
) |
|
$48,218 |
|
|
$39,215 |
|
|
$110,043 |
|
|
Interest expense |
|
|
12,703 |
|
|
|
102 |
|
|
|
45,681 |
|
|
|
2,905 |
|
|
Interest
income |
|
|
(342 |
) |
|
|
(1,161 |
) |
|
|
(2,346 |
) |
|
|
(4,409 |
) |
|
Income taxes
(benefit) |
|
|
(10,899 |
) |
|
|
(3,195 |
) |
|
|
23,891 |
|
|
|
51,668 |
|
|
Depreciation
& amortization |
|
|
28,116 |
|
|
|
6,349 |
|
|
|
98,592 |
|
|
|
25,876 |
|
EBITDA* |
|
$9,335 |
|
|
$50,313 |
|
|
$205,033 |
|
|
$186,083 |
|
|
Acquisition
and integration-related expenses |
|
|
1,601 |
|
|
|
3,861 |
|
|
|
34,709 |
|
|
|
3,861 |
|
|
Charge for
fair value write-up of acquired inventory sold |
|
|
- |
|
|
|
- |
|
|
|
14,869 |
|
|
|
- |
|
|
Costs
related to KMG-Bernuth fire |
|
|
5,455 |
|
|
|
- |
|
|
|
9,905 |
|
|
|
- |
|
|
Costs
related to restructuring of wood treatment business |
|
|
1,530 |
|
|
|
- |
|
|
|
1,530 |
|
|
|
- |
|
|
Charges
related to asset impairment of wood treatment business |
|
|
67,372 |
|
|
|
- |
|
|
|
67,372 |
|
|
|
- |
|
Adjusted EBITDA** |
|
$85,293 |
|
|
$54,174 |
|
|
$333,418 |
|
|
$189,944 |
|
Adjusted EBITDA margin |
|
|
30.6 |
% |
|
|
34.6 |
% |
|
|
32.1 |
% |
|
|
32.2 |
% |
|
|
|
|
|
|
|
|
|
|
* EBITDA represents earnings before interest, taxes, depreciation
and amortization. |
|
|
|
|
|
|
** Adjusted EBITDA is
calculated by excluding items from EBITDA that are believed to be
infrequent or not indicative of the company's continuing
operating performance. |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed
Combined Financial Information is presented to illustrate the
estimated effects of the company’s acquisition of KMG (the
“Acquisition”), which was consummated on November 15, 2018 (the
“Acquisition Date”), based on the historical results of operations
of Cabot Microelectronics and KMG. The following Unaudited Pro
Forma Condensed Combined Statements of Income for the three and
twelve months ended September 30, 2019 and September 30, 2018 are
based on the historical financial statements of Cabot
Microelectronics and KMG after giving effect to the Acquisition,
and the assumptions and adjustments described in the accompanying
notes to these Unaudited Pro Forma Condensed Combined Statements of
Income.
The historical Cabot Microelectronics
Consolidated Statements of Income for the three and twelve months
ended September 30, 2019 and September 30, 2018 were derived from
the consolidated financial statements included elsewhere in this
release. The historical KMG Consolidated Statements of Income for
the twelve months ended September 30, 2019, as well as the
historical KMG Consolidated Statements of Income for the three and
twelve months ended September 30, 2018 includes information derived
from KMG’s books and records. Prior to the Acquisition, KMG was on
a July 31st fiscal year end reporting cycle. These pro forma
financials include actual KMG’s pre-acquisition results with the
months aligned to Cabot Microelectronics’ fiscal periods, and
therefore, they do not align with consolidated financial statements
included in KMG’s Quarterly or Annual Reports on Form 10-Q or
10-K.
The Unaudited Pro Forma Condensed Combined
Statements of Income are presented as if the Acquisition had been
consummated on October 1, 2017, the first business day of our 2018
fiscal year, and combine the historical results of Cabot
Microelectronics and KMG, which is consistent with internal
management reporting, after primarily giving effect to the
following assumptions and adjustments:
- Application of the acquisition method of accounting;
- Elimination of transaction costs incurred in connection with
the Acquisition;
- Adjustments to reflect the new financing arrangements entered
into and legacy financing arrangements retired in connection with
the Acquisition;
- The exchange of 0.2000 share(s) of Cabot Microelectronics
common stock for each share of KMG common stock; and
- Conformance of accounting policies.
The Unaudited Pro Forma Condensed Combined
Financial Information was prepared using the acquisition method of
accounting, which requires, among other things, that assets
acquired and liabilities assumed in a business combination be
recognized at their fair values as of the completion of the
acquisition. We utilized estimated fair values at the Acquisition
Date to allocate the total consideration exchanged to the net
tangible and intangible assets acquired and liabilities assumed.
This allocation was initially completed as of November 15, 2018.
The allocation may be adjusted for up to one-year post closing.
The Unaudited Pro Forma Condensed Combined
financial information has been prepared on the basis of SEC
Regulation S-X Article 11 and is not necessarily indicative of the
results of operations that would have been realized had the
transactions been completed as of the dates indicated, nor are they
meant to be indicative of our anticipated combined future results.
In addition, the accompanying Unaudited Pro Forma Condensed
Combined Statements of Income do not reflect any additional
anticipated synergies, operating efficiencies, cost savings, or any
integration costs that may result from the Acquisition.
The historical consolidated financial
information has been adjusted in the accompanying Unaudited Pro
Forma Condensed Combined Statements of Income to give effect to
unaudited pro forma events that are (1) directly attributable to
the transaction, (2) factually supportable and (3) are expected to
have a continuing impact on the results of operations of the
combined company. As a result, under SEC Regulation S-X Article 11,
certain non-recurring expenses such as deal costs and compensation
expenses related to severance or accelerated stock compensation and
certain non-cash costs related to the fair value step-up of
inventory are eliminated from pro forma results in the periods
presented. Certain recurring historical KMG expenses related to
depreciation, amortization, financing costs and costs of sales have
been adjusted as if the Acquisition had occurred on October 1,
2017.
The Unaudited Pro Forma Condensed Combined
Financial Information, including the related notes included
herein, should be read in conjunction with
Cabot Microelectronics’ Current Report on Form 8-K/A filed on
January 30, 2019, as well as our consolidated financial statements
included in this release and the historical consolidated financial
statements and related notes of Cabot Microelectronics and KMG,
which are available to the public at the SEC’s website at
www.sec.gov.
|
|
|
|
|
|
|
|
|
CABOT MICROELECTRONICS CORPORATION |
|
|
|
|
|
|
|
Unaudited Pro Forma Condensed Combined Statements of
Income |
|
|
|
|
|
|
For the Three and Twelve Months Ended September 30, 2019
and September 30, 2018 |
|
|
|
|
(in thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Twelve Months Ended |
|
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
|
|
|
|
|
|
|
|
Revenue |
|
$278,645 |
|
|
$278,869 |
|
|
$1,099,674 |
|
|
$1,063,563 |
|
Cost of sales |
|
165,757 |
|
|
|
154,989 |
|
|
|
623,303 |
|
|
|
598,049 |
|
Gross profit |
|
112,888 |
|
|
|
123,880 |
|
|
|
476,371 |
|
|
|
465,514 |
|
Operating expenses: |
|
|
|
|
|
|
|
Research, development and technical |
|
12,698 |
|
|
|
13,372 |
|
|
|
51,707 |
|
|
|
51,950 |
|
Selling, general and administrative expenses |
|
55,322 |
|
|
|
49,560 |
|
|
|
221,758 |
|
|
|
204,875 |
|
Asset impairment charges |
|
51,186 |
|
|
|
- |
|
|
|
51,186 |
|
|
|
- |
|
Total operating expenses |
|
119,206 |
|
|
|
62,932 |
|
|
|
324,651 |
|
|
|
256,825 |
|
Operating income (loss) |
|
(6,318 |
) |
|
|
60,948 |
|
|
|
151,720 |
|
|
|
208,689 |
|
Interest expense |
|
12,844 |
|
|
|
13,251 |
|
|
|
53,743 |
|
|
|
51,804 |
|
Interest income |
|
342 |
|
|
|
1,234 |
|
|
|
2,397 |
|
|
|
4,493 |
|
Other income (expense), net |
|
(1,158 |
) |
|
|
(184 |
) |
|
|
(4,313 |
) |
|
|
(1,073 |
) |
Income (loss) before income taxes |
|
(19,978 |
) |
|
|
48,747 |
|
|
|
96,061 |
|
|
|
160,305 |
|
Provision for income taxes (benefit) |
|
(7,885 |
) |
|
|
(4,200 |
) |
|
|
26,388 |
|
|
|
33,925 |
|
Net income (loss) |
($12,093 |
) |
|
$52,947 |
|
|
$69,673 |
|
|
$126,380 |
|
Basic earnings (loss) per share |
($0.42 |
) |
|
$1.84 |
|
|
$2.40 |
|
|
$4.40 |
|
Weighted average basic shares outstanding |
|
29,084 |
|
|
|
28,757 |
|
|
|
28,979 |
|
|
|
28,755 |
|
Diluted earnings (loss) per share |
($0.42 |
) |
|
$1.80 |
|
|
$2.36 |
|
|
$4.29 |
|
Weighted average diluted shares outstanding |
|
29,084 |
|
|
|
29,450 |
|
|
|
29,502 |
|
|
|
29,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CABOT MICROELECTRONICS CORPORATION |
|
|
|
|
Unaudited Pro Forma Condensed Combined Statements of
Income |
|
|
|
|
For the Three Months Ended September 30, 2019 |
|
|
|
|
(in thousands, except per share data) |
|
|
|
|
|
|
|
Cabot Microelectronics |
|
|
|
|
|
|
Three Months Ended September 30, 2019 |
|
Pro Forma Adjustments 1 |
|
Pro Forma Combined |
|
|
|
|
|
|
|
Revenue |
|
$278,645 |
|
|
- |
|
|
$278,645 |
|
Cost of sales |
|
165,535 |
|
|
|
222 |
|
|
|
165,757 |
|
Gross profit |
|
113,110 |
|
|
|
(222 |
) |
|
|
112,888 |
|
Operating expenses: |
|
|
|
|
|
Research, development and technical |
|
12,698 |
|
|
|
- |
|
|
|
12,698 |
|
Selling, general and administrative expenses |
|
50,663 |
|
|
|
4,659 |
|
|
|
55,322 |
|
Asset impairment charges |
|
67,372 |
|
|
|
(16,186 |
) |
|
|
51,186 |
|
Total operating expenses |
|
130,733 |
|
|
|
(11,527 |
) |
|
|
119,206 |
|
Operating income (loss) |
|
(17,623 |
) |
|
|
11,305 |
|
|
|
(6,318 |
) |
Interest expense |
|
12,703 |
|
|
|
141 |
|
|
|
12,844 |
|
Interest income |
|
342 |
|
|
|
- |
|
|
|
342 |
|
Other income (expense), net |
|
(1,158 |
) |
|
|
- |
|
|
|
(1,158 |
) |
Income (loss) before income taxes |
|
(31,142 |
) |
|
|
11,164 |
|
|
|
(19,978 |
) |
Provision for income taxes (benefit) |
|
(10,899 |
) |
|
|
3,014 |
|
|
|
(7,885 |
) |
Net income (loss) |
($20,243 |
) |
|
$8,150 |
|
|
($12,093 |
) |
Basic earnings (loss) per share |
($0.70 |
) |
|
|
|
($0.42 |
) |
Weighted average basic shares outstanding |
|
29,084 |
|
|
|
|
|
29,084 |
|
Diluted earnings (loss) per share |
($0.70 |
) |
|
|
|
($0.42 |
) |
Weighted average diluted shares outstanding |
|
29,084 |
|
|
|
|
|
29,084 |
|
|
|
|
|
|
|
|
1 Pro forma
adjustments are related to non-recurring items directly
attributable to the transaction as well as recurring differences
related to amortization or financing costs that were included as if
the companies were combined as of October 1, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
CABOT MICROELECTRONICS CORPORATION |
|
|
|
|
|
|
|
|
|
Unaudited Pro Forma Condensed Combined Statements of
Income |
|
|
|
|
|
|
|
|
For the Year Ended September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
Cabot Microelectronics 1 |
|
KMG Chemicals 2 |
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2019 |
|
October 1, 2018 to November 14, 2018 |
|
Presentation
Reclassification 3 |
|
Pro Forma Adjustments 4 |
|
Pro Forma Combined |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$1,037,696 |
|
|
$61,978 |
|
|
|
- |
|
|
|
- |
|
|
$1,099,674 |
|
|
Cost of sales |
|
595,043 |
|
|
|
36,534 |
|
|
|
4,741 |
|
|
|
(13,015 |
) |
|
|
623,303 |
|
|
Gross profit |
|
442,653 |
|
|
|
25,444 |
|
|
|
(4,741 |
) |
|
|
13,015 |
|
|
|
476,371 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
Distribution expenses |
|
- |
|
|
|
4,741 |
|
|
|
(4,741 |
) |
|
|
- |
|
|
|
- |
|
|
Research, development and technical |
|
51,707 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
51,707 |
|
|
Selling, general and administrative expenses |
|
213,078 |
|
|
|
40,504 |
|
|
|
- |
|
|
|
(31,824 |
) |
|
|
221,758 |
|
|
Amortization of intangibles |
|
- |
|
|
|
1,943 |
|
|
|
- |
|
|
|
(1,943 |
) |
|
|
- |
|
|
Asset impairment charge |
|
67,372 |
|
|
|
- |
|
|
|
- |
|
|
|
(16,186 |
) |
|
|
51,186 |
|
|
Total operating expenses |
|
332,157 |
|
|
|
47,188 |
|
|
|
(4,741 |
) |
|
|
(49,953 |
) |
|
|
324,651 |
|
|
Operating income (loss) |
|
110,496 |
|
|
|
(21,744 |
) |
|
|
- |
|
|
|
62,968 |
|
|
|
151,720 |
|
|
Interest expense |
|
45,681 |
|
|
|
8,537 |
|
|
|
- |
|
|
|
(475 |
) |
|
|
53,743 |
|
|
Interest income |
|
2,346 |
|
|
|
51 |
|
|
|
- |
|
|
|
- |
|
|
|
2,397 |
|
|
Derivative fair value gain |
|
- |
|
|
|
567 |
|
|
|
- |
|
|
|
(567 |
) |
|
|
- |
|
|
Other income (expense), net |
|
(4,055 |
) |
|
|
(258 |
) |
|
|
- |
|
|
|
- |
|
|
|
(4,313 |
) |
|
Income (loss) before income taxes |
|
63,106 |
|
|
|
(29,921 |
) |
|
|
- |
|
|
|
62,876 |
|
|
|
96,061 |
|
|
Provision for income taxes (benefit) |
|
23,891 |
|
|
|
(3,722 |
) |
|
|
- |
|
|
|
6,219 |
|
|
|
26,388 |
|
|
Net income (loss) |
$39,215 |
|
|
($26,199 |
) |
|
|
- |
|
|
$56,657 |
|
|
$69,673 |
|
|
Basic earnings per share |
$1.37 |
|
|
|
- |
|
|
|
|
|
|
$2.40 |
|
|
Weighted average basic shares outstanding |
|
28,571 |
|
|
|
- |
|
|
|
|
|
|
|
28,979 |
|
|
Diluted earnings per share |
$1.35 |
|
|
|
- |
|
|
|
|
|
|
$2.36 |
|
|
Weighted average diluted shares outstanding |
|
29,094 |
|
|
|
- |
|
|
|
|
|
|
|
29,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Includes
heritage Cabot Microelectronics from October 1, 2018 to September
30, 2019 and heritage KMG from November 15, 2018 to September 30,
2019. On November 15, 2018, the Acquisition was completed and
actual combined company results are included. |
|
2 Heritage KMG
results that occurred prior to the Acquisition on November 15,
2018 |
|
3 Represents the
reclassification of KMG distribution expenses from operating
expenses to cost of sales, in order to conform with Cabot
Microelectronics’ accounting policies. |
|
4 Certain pro
forma adjustments related to depreciation, amortization, financing
costs and costs of sales have been made for the October 1, 2018 to
September 30, 2019 period assuming that the Acquisition occurred on
October 1, 2017. Additionally, nonrecurring pro forma adjustments
have been made for deal costs, compensation expenses related to
severance or accelerated stock compensation, and the fair value
step-up of inventory directly attributable throughout the
twelve-month period. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CABOT MICROELECTRONICS CORPORATION |
|
|
|
|
|
|
|
|
Unaudited Pro Forma Condensed Combined Statements of
Income |
|
|
|
|
|
|
|
|
For the Three Months Ended September 30, 2018 |
|
|
|
|
|
|
|
|
(in thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
Cabot Microelectronics |
|
KMG Chemicals 1 |
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018 |
|
Three Months Ended September 30, 2018 |
|
Presentation Reclassification
2 |
|
Pro Forma Adjustments 3 |
|
Pro Forma Combined |
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$156,729 |
|
|
$122,140 |
|
|
|
- |
|
|
|
- |
|
|
$278,869 |
|
Cost of sales |
|
72,383 |
|
|
|
70,335 |
|
|
|
8,956 |
|
|
|
3,315 |
|
|
|
154,989 |
|
Gross profit |
|
84,346 |
|
|
|
51,805 |
|
|
|
(8,956 |
) |
|
|
(3,315 |
) |
|
|
123,880 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Distribution expenses |
|
- |
|
|
|
8,956 |
|
|
|
(8,956 |
) |
|
|
- |
|
|
|
- |
|
Research, development and technical |
|
13,372 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
13,372 |
|
Selling, general and administrative expenses |
|
26,986 |
|
|
|
18,740 |
|
|
|
|
|
3,834 |
|
|
|
49,560 |
|
Amortization of intangibles |
|
- |
|
|
|
3,854 |
|
|
|
- |
|
|
|
(3,854 |
) |
|
|
- |
|
Total operating expenses |
|
40,358 |
|
|
|
31,550 |
|
|
|
(8,956 |
) |
|
|
(20 |
) |
|
|
62,932 |
|
Operating income |
|
43,988 |
|
|
|
20,255 |
|
|
|
- |
|
|
|
(3,295 |
) |
|
|
60,948 |
|
Interest expense |
|
102 |
|
|
|
4,166 |
|
|
|
- |
|
|
|
8,983 |
|
|
|
13,251 |
|
Interest income |
|
1,161 |
|
|
|
73 |
|
|
|
- |
|
|
|
- |
|
|
|
1,234 |
|
Loss on the extinguishment of debt |
|
- |
|
|
|
355 |
|
|
|
- |
|
|
|
(355 |
) |
|
|
- |
|
Derivative fair value gain |
|
- |
|
|
|
353 |
|
|
|
- |
|
|
|
(353 |
) |
|
|
- |
|
Other income (expense), net |
|
(24 |
) |
|
|
(160 |
) |
|
|
- |
|
|
|
- |
|
|
|
(184 |
) |
Income before income taxes |
|
45,023 |
|
|
|
16,000 |
|
|
|
- |
|
|
|
(12,276 |
) |
|
|
48,747 |
|
Provision for income taxes (benefit) |
|
(3,195 |
) |
|
|
3,662 |
|
|
|
- |
|
|
|
(4,667 |
) |
|
|
(4,200 |
) |
Net income |
$48,218 |
|
|
$12,338 |
|
|
|
- |
|
|
($7,609 |
) |
|
$52,947 |
|
Basic earnings per share |
$1.89 |
|
|
$0.80 |
|
|
|
|
|
|
$1.84 |
|
Weighted average basic shares outstanding |
|
25,520 |
|
|
|
15,506 |
|
|
|
|
|
|
|
28,757 |
|
Diluted earnings per share |
$1.84 |
|
|
$0.77 |
|
|
|
|
|
|
$1.80 |
|
Weighted average diluted shares outstanding |
|
26,213 |
|
|
|
15,992 |
|
|
|
|
|
|
|
29,450 |
|
|
|
|
|
|
|
|
|
|
|
|
1 Shares outstanding
for KMG are calculated from the KMG fiscal year FY2018 10K ended
July 31, 2018 and the nine month ended April 30, 2018. They are
intended for illustrative purposes only and do not impact pro forma
EPS calculations at right. Three months ended September 30, 2018
KMG share calculations were not available. |
2 Represents the
reclassification of KMG distribution expenses from operating
expenses to cost of sales, in order to conform with Cabot
Microelectronics’ accounting policies. |
3 Pro forma
adjustments are related to non-recurring items directly
attributable to the transaction as well as recurring differences
related to depreciation, amortization, compensation or financing
costs that were included as if the companies were combined as of
October 1, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CABOT MICROELECTRONICS CORPORATION |
|
|
|
|
|
|
|
|
Unaudited Pro Forma Condensed Combined Statements of
Income |
|
|
|
|
|
|
|
|
For the Year Ended September 30, 2018 |
|
|
|
|
|
|
|
|
(in thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
Cabot Microelectronics |
|
KMG Chemicals 1 |
|
|
|
|
|
|
|
|
Year Ended September 30, 2018 |
|
Year Ended September 30, 2018 |
|
Presentation Reclassification
2 |
|
Pro Forma Adjustments 3 |
|
Pro Forma Combined |
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$590,123 |
|
$473,440 |
|
|
|
- |
|
|
|
- |
|
|
$1,063,563 |
|
Cost of sales |
|
276,018 |
|
|
272,517 |
|
|
|
35,939 |
|
|
|
13,575 |
|
|
|
598,049 |
|
Gross profit |
|
314,105 |
|
|
200,923 |
|
|
|
(35,939 |
) |
|
|
(13,575 |
) |
|
|
465,514 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Distribution expenses |
|
- |
|
|
35,939 |
|
|
|
(35,939 |
) |
|
|
- |
|
|
|
- |
|
Research, development and technical |
|
51,950 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
51,950 |
|
Selling, general and administrative expenses |
|
102,037 |
|
|
62,563 |
|
|
|
|
|
40,275 |
|
|
|
204,875 |
|
Amortization of intangibles |
|
- |
|
|
14,690 |
|
|
|
- |
|
|
|
(14,690 |
) |
|
|
- |
|
Total operating expenses |
|
153,987 |
|
|
113,192 |
|
|
|
(35,939 |
) |
|
|
25,585 |
|
|
|
256,825 |
|
Operating income |
|
160,118 |
|
|
87,731 |
|
|
|
- |
|
|
|
(39,160 |
) |
|
|
208,689 |
|
Interest expense |
|
2,905 |
|
|
18,899 |
|
|
|
- |
|
|
|
30,000 |
|
|
|
51,804 |
|
Interest income |
|
4,409 |
|
|
84 |
|
|
|
- |
|
|
|
- |
|
|
|
4,493 |
|
Loss on the extinguishment of debt |
|
- |
|
|
6,858 |
|
|
|
- |
|
|
|
(6,858 |
) |
|
|
- |
|
Derivative fair value gain |
|
- |
|
|
5,685 |
|
|
|
- |
|
|
|
(5,685 |
) |
|
|
- |
|
Other income (expense), net |
|
89 |
|
|
(1,162 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1,073 |
) |
Income before income taxes |
|
161,711 |
|
|
66,581 |
|
|
|
- |
|
|
|
(67,987 |
) |
|
|
160,305 |
|
Provision for income taxes |
|
51,668 |
|
|
57 |
|
|
|
- |
|
|
|
(17,800 |
) |
|
|
33,925 |
|
Net income |
$110,043 |
|
$66,524 |
|
|
|
- |
|
|
($50,187 |
) |
|
$126,380 |
|
Basic earnings per share |
$4.31 |
|
$4.52 |
|
|
|
|
|
|
$4.40 |
|
Weighted average basic shares outstanding |
|
25,518 |
|
|
14,708 |
|
|
|
|
|
|
|
28,755 |
|
Diluted earnings per share |
$4.19 |
|
$4.40 |
|
|
|
|
|
|
$4.29 |
|
Weighted average diluted shares outstanding |
|
26,243 |
|
|
15,111 |
|
|
|
|
|
|
|
29,480 |
|
|
|
|
|
|
|
|
|
|
|
|
1 Shares
outstanding for KMG are calculated from the KMG fiscal year FY2018
10K ended July 31, 2018. They are intended for illustrative
purposes only and do not impact pro forma EPS calculations at
right. Twelve months ended September 30, 2018 KMG share
calculations were not available. |
2 Represents the
reclassification of KMG distribution expenses from operating
expenses to cost of sales, in order to conform with Cabot
Microelectronics’ accounting policies. |
3 Pro forma
adjustments are related to non-recurring items directly
attributable to the transaction as well as recurring differences
related to depreciation, amortization, compensation or financing
costs that were included as if the companies were combined as of
October 1, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CABOT MICROELECTRONICS CORPORATION |
|
|
|
|
|
|
|
Summary of Pro Forma Adjustments |
|
|
|
|
|
|
|
(in thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019 |
|
Three Months Ended September 30, 2018 |
|
Year Ended September 30, 2019 |
|
Year Ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
Impact to cost of sales: |
|
|
|
|
|
|
|
Depreciation and amortization, net (a) |
$222 |
|
|
$3,315 |
|
|
$1,855 |
|
|
$13,575 |
|
Inventory step-up (b) |
|
- |
|
|
|
- |
|
|
|
(14,870 |
) |
|
|
- |
|
Impact to cost of sales |
|
222 |
|
|
|
3,315 |
|
|
|
(13,015 |
) |
|
|
13,575 |
|
|
|
|
|
|
|
|
|
|
Impact to operating expense: |
|
|
|
|
|
|
|
Depreciation and amortization, net (a) |
|
6,004 |
|
|
|
12,183 |
|
|
|
30,689 |
|
|
|
48,806 |
|
Asset impairment true up (c) |
|
(16,186 |
) |
|
|
- |
|
|
|
(16,186 |
) |
|
|
- |
|
Compensation expense (d) |
|
(740 |
) |
|
|
66 |
|
|
|
(38,099 |
) |
|
|
263 |
|
Deal costs (e) |
|
(605 |
) |
|
|
(8,415 |
) |
|
|
(24,414 |
) |
|
|
(8,794 |
) |
Historical KMG amortization in other operating expenses removal
(a) |
|
- |
|
|
|
(3,854 |
) |
|
|
(1,943 |
) |
|
|
(14,690 |
) |
Impact to operating expense |
($11,527 |
) |
|
($20 |
) |
|
($49,953 |
) |
|
$25,585 |
|
|
|
|
|
|
|
|
|
|
Impact to other expense: |
|
|
|
|
|
|
|
Loss on the extinguishment of debt (f) |
|
- |
|
|
|
(355 |
) |
|
|
- |
|
|
|
(6,858 |
) |
Derivative fair value gain (f) |
|
- |
|
|
|
353 |
|
|
|
(567 |
) |
|
|
5,685 |
|
Impact to other expense |
|
- |
|
|
($2 |
) |
|
($567 |
) |
|
($1,173 |
) |
|
|
|
|
|
|
|
|
|
Impact to interest, net: |
|
|
|
|
|
|
|
Interest expense (g) |
|
141 |
|
|
|
8,983 |
|
|
|
(475 |
) |
|
|
30,000 |
|
Impact to interest |
$141 |
|
|
$8,983 |
|
|
($475 |
) |
|
$30,000 |
|
|
|
|
|
|
|
|
|
|
Adjustments included in the accompanying Unaudited Pro Forma
Condensed Combined Statements of Income are as follows:
- 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.
- 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.
- During the three months ended September 30, 2019, an impairment
charge in the amount of $67.4 million was incurred related to the
Wood Treatment business, which was acquired from KMG. While
still within the one-year remeasurement period after the
Acquisition Date, it was determined that the facts and
circumstances that triggered the impairment were not known, or
could have been reasonably known, at the time of the transaction.
Further, it was determined that the impairment charge was not
directly attributable to the transaction and therefore, would not
be wholly removed for purposes of pro forma reporting. Since
the impairment charge taken for September 2019 reported results was
based on the actual Acquisition Date while the pro forma financials
are based upon an October 1, 2017 acquisition date, the pro forma
adjustment of $16.2 million to reduce the impairment charge to
$51.2 million for pro forma results is required. This
adjustment reflects the difference between amortization and
depreciation expense recognized post-acquisition from the earlier
pro forma acquisition date vs. the amortization and depreciation
expense recognized in reported results from the actual Acquisition
Date. The impairment adjustment is tax effected at 25.3%, which
considers the taxing jurisdictions where the impaired assets are
held (United States and Mexico) and the period for which the
impairment is deemed to have occurred (the three months ended
September 30, 2019).
- 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.
- The elimination of non-recurring deal costs incurred in
connection with the Acquisition.
- 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.
- 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. The calculation of interest expense considers the
changing LIBOR rate and uses monthly period end averages from
October 1, 2017 to September 30, 2019.
We calculated the income tax effect of the pro forma adjustments
using a 21.4% and 23.4% tax rate, which represent the weighted
average statutory tax rate for the years ended September 30, 2019
and September 30, 2018, respectively.
Additionally, for the 2018 periods presented, we calculated the
unaudited pro forma weighted average number of basic shares
outstanding by adding the Cabot Microelectronics weighted average
number of basic shares outstanding from the share amounts disclosed
in the historical Quarterly and Annual reports on Form 10-Q and
10-K to the amount of shares issued in connection with the
Acquisition, as if the shares were held for the entire period.
We calculated the unaudited pro forma weighted average number of
diluted shares outstanding by adding the number of shares issued in
the Acquisition to the amount disclosed in the historical Cabot
Microelectronics Quarterly and Annual Reports on Form 10-Q and
10-K.The basic and diluted EPS calculation takes pro forma net
income divided by the applicable number of shares outstanding.
Quarter over quarter and year over year numbers may not always
roll forward when comparing to prior period Pro Forma reported
results. Variances can be attributed to: changes in purchase price
allocation values and useful lives, differences in the allocation
between cost of sales and selling, general and administrative
expenses, tax rate assumptions and interest rate calculations.
Reconciliation of Pro Forma and Non-GAAP Adjusted Pro
Forma Information
The company reports its financial results in accordance with
U.S. GAAP. However, management believes that certain non-GAAP
financial measures that reflect the way that management evaluates
the business may provide investors with additional information
regarding the company’s results, trends and ongoing performance on
a comparable basis. We refer to these measures “Adjusted Pro
Forma”, which begin with Pro Forma results that are prepared in
accordance with SEC Regulation S-X Article 11 and are included
above. These results are then adjusted for the following additional
items:
- 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 the difference between reported GAAP interest
expense and Article 11 pro forma interest expense, which is
prepared as if the acquisition occurred on October 1, 2017. This
adjustment is made for periods when Cabot Microelectronics owned
KMG for the full reporting period.
- 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.
- Removal of certain costs related to the restructuring of wood
treatment business.
- Removal of charges related to asset impairment of wood
treatment business.
Reconciliations for these items are provided in the tables
below.
|
CABOT MICROELECTRONICS CORPORATION |
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited
Reconciliation of Certain Pro Forma Financial Measures to Certain
Non-GAAP Adjusted Pro Forma Financial Measures |
|
|
(Unaudited and amounts
in thousands, except per share and percentage amounts) |
|
|
|
|
|
|
Unaudited
Reconciliation of Pro Forma Net Income (Loss) to Non-GAAP Adjusted
Pro Forma Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Twelve Months Ended |
|
|
|
|
September 30, 2019 |
|
|
September 30, 2018 |
|
|
September 30, 2019 |
|
|
September 30, 2018 |
|
|
Pro forma
net income (loss) |
|
($12,093 |
) |
|
|
$52,947 |
|
|
|
$69,673 |
|
|
|
$126,380 |
|
|
|
Adjustments
(net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquisition related intangibles |
|
17,997 |
|
|
|
|
12,137 |
|
|
|
|
70,913 |
|
|
|
|
48,921 |
|
|
|
Integration expenses |
|
|
201 |
|
|
|
|
199 |
|
|
|
|
1,913 |
|
|
|
|
199 |
|
|
|
Costs related to KMG-Bernuth warehouse fire |
|
4,235 |
|
|
|
|
- |
|
|
|
|
7,683 |
|
|
|
|
- |
|
|
|
Costs related to restructuring of wood treatment business |
|
1,075 |
|
|
|
|
- |
|
|
|
|
1,075 |
|
|
|
|
- |
|
|
|
Charges related to asset impairment of wood treatment business |
|
|
38,215 |
|
|
|
|
- |
|
|
|
|
38,215 |
|
|
|
|
- |
|
|
|
Interest expense |
|
|
111 |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
U. S tax reform |
|
|
36 |
|
|
|
|
(14,403 |
) |
|
|
|
8,905 |
|
|
|
|
5,852 |
|
|
|
Adjusted pro
forma net income |
|
$49,777 |
|
|
|
$50,880 |
|
|
|
$198,377 |
|
|
|
$181,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited
Reconciliation of Pro Forma Revenue to Non-GAAP Adjusted Pro Forma
Gross Profit/ Gross Margin |
|
|
|
|
|
Three Months Ended |
|
Twelve Months Ended |
|
|
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
revenue |
|
$278,645 |
|
|
|
$278,869 |
|
|
|
$1,099,674 |
|
|
|
$1,063,563 |
|
|
|
Cost of sales |
|
|
165,757 |
|
|
|
|
154,989 |
|
|
|
|
623,303 |
|
|
|
|
598,049 |
|
|
|
Gross
profit/margin |
|
|
112,888 |
|
40.5 |
% |
|
|
123,880 |
|
44.4 |
% |
|
|
476,371 |
|
43.3 |
% |
|
|
465,514 |
|
43.8 |
% |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquisition related intangibles |
|
3,470 |
|
1.2 |
% |
|
|
3,470 |
|
1.3 |
% |
|
|
13,879 |
|
1.3 |
% |
|
|
13,806 |
|
1.3 |
% |
|
Costs related to KMG-Bernuth warehouse fire |
|
5,294 |
|
1.9 |
% |
|
|
- |
|
- |
|
|
|
9,494 |
|
0.9 |
% |
|
|
- |
|
- |
|
|
Costs related to restructuring of wood treatment business |
|
1,530 |
|
0.6 |
% |
|
|
- |
|
- |
|
|
|
1,530 |
|
0.1 |
% |
|
|
- |
|
- |
|
|
Adjusted pro
forma gross profit/gross margin |
|
|
123,182 |
|
44.2 |
% |
|
|
127,350 |
|
45.7 |
% |
|
|
501,274 |
|
45.6 |
% |
|
|
479,320 |
|
45.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited
Reconciliation of Pro Forma Diluted Earnings (Loss) Per Share to
Non-GAAP Adjusted Pro Forma Diluted Earnings Per
Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Twelve Months Ended |
|
|
|
|
September 30, 2019 |
|
|
September 30, 2018 |
|
|
September 30, 2019 |
|
|
September 30, 2018 |
|
|
Pro forma
diluted earnings (loss) per share |
|
($0.42 |
) |
|
|
$1.80 |
|
|
|
$2.36 |
|
|
|
$4.29 |
|
|
|
Adjustments
(net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquisition related intangibles |
|
0.62 |
|
|
|
|
0.41 |
|
|
|
|
2.40 |
|
|
|
|
1.65 |
|
|
|
Integration expenses |
|
|
0.01 |
|
|
|
|
0.01 |
|
|
|
|
0.06 |
|
|
|
|
0.01 |
|
|
|
Costs related to KMG-Bernuth warehouse fire |
|
0.15 |
|
|
|
|
- |
|
|
|
|
0.26 |
|
|
|
|
- |
|
|
|
Costs related to restructuring of wood treatment business |
|
0.04 |
|
|
|
|
- |
|
|
|
|
0.04 |
|
|
|
|
- |
|
|
|
Charges related to asset impairment of wood treatment business |
|
|
1.31 |
|
|
|
|
- |
|
|
|
|
1.30 |
|
|
|
|
- |
|
|
|
Interest expense |
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
U. S tax reform |
|
|
- |
|
|
|
|
(0.49 |
) |
|
|
|
0.30 |
|
|
|
|
0.20 |
|
|
|
Adjustment to weighted average diluted shares
outstanding* |
|
(0.03 |
) |
|
|
|
- |
|
|
|
|
- |
|
|
|
|
- |
|
|
|
Adjusted pro
forma diluted earnings per share |
|
$1.68 |
|
|
|
$1.73 |
|
|
|
$6.72 |
|
|
|
$6.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*This line represents
the effect of anti-dilution vs. dilution of dilutive securities (
exercise of stock options and vesting of restricted stock units)
when it was a net loss for pro forma results vs. a net gain for
adjusted pro forma results. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited
Reconciliation of Pro Forma Net Income to Non-GAAP Adjusted Pro
Forma EBITDA/ EBITDA Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Twelve Months Ended |
|
|
|
September 30, 2019 |
|
September 30, 2018 |
|
September 30, 2019 |
|
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
net income (loss) |
|
($12,093 |
) |
|
|
$52,947 |
|
|
|
$69,673 |
|
|
|
$126,380 |
|
|
|
Interest expense |
|
|
12,844 |
|
|
|
|
13,251 |
|
|
|
|
53,743 |
|
|
|
|
51,804 |
|
|
|
Interest income |
|
|
(342 |
) |
|
|
|
(1,234 |
) |
|
|
|
(2,397 |
) |
|
|
|
(4,493 |
) |
|
|
Depreciation and amortization |
|
|
34,342 |
|
|
|
|
25,678 |
|
|
|
|
132,942 |
|
|
|
|
103,191 |
|
|
|
Provision for income taxes (benefit) |
|
|
(7,885 |
) |
|
|
|
(4,200 |
) |
|
|
|
26,388 |
|
|
|
|
33,925 |
|
|
|
Pro forma
EBITDA **/ EBITDA margin |
|
$26,866 |
|
9.6 |
% |
|
$86,442 |
|
31.0 |
% |
|
$280,349 |
|
25.5 |
% |
|
$310,807 |
|
29.2 |
% |
|
Adjustments
(pre-tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Integration expenses |
|
|
256 |
|
0.1 |
% |
|
|
260 |
|
0.1 |
% |
|
|
2,465 |
|
0.2 |
% |
|
|
260 |
|
0.0 |
% |
|
Costs related to KMG-Bernuth warehouse fire |
|
5,455 |
|
2.0 |
% |
|
|
- |
|
- |
|
|
|
9,905 |
|
0.9 |
% |
|
|
- |
|
- |
|
|
Costs related to restructuring of wood treatment business |
|
1,530 |
|
0.5 |
% |
|
|
- |
|
- |
|
|
|
1,530 |
|
0.1 |
% |
|
|
- |
|
- |
|
|
Charges related to asset impairment of wood treatment business |
|
|
51,186 |
|
18.4 |
% |
|
|
- |
|
- |
|
|
|
51,186 |
|
4.7 |
% |
|
|
- |
|
- |
|
|
Adjusted pro forma EBITDA ***/EBITDA margin |
$85,293 |
|
30.6 |
% |
|
$86,702 |
|
31.1 |
% |
|
$345,435 |
|
31.4 |
% |
|
$311,067 |
|
29.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
** Pro forma EBITDA
represents pro forma earnings before interest, taxes, depreciation
and amortization. |
|
*** Adjusted pro forma
EBITDA is calculated by excluding items from pro forma EBITDA that
are believed to be infrequent or not indicative. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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