NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
1. BACKGROUND AND BASIS OF PRESENTATION
On October 1, 2020, Cabot Microelectronics Corporation changed its name to CMC Materials, Inc. (“CMC”, “the Company”, “us”, “we”, or “our”'). CMC is a leading global supplier of consumable materials to semiconductor manufacturers and pipeline companies. The Company's products play a critical role in the production of advanced semiconductor devices, helping to enable the manufacture of smaller, faster and more complex devices by its customers. The Consolidated Financial Statements included in this Annual Report on Form 10-K include the financial results of KMG Chemicals, Inc. (“KMG”) since the Company’s acquisition of 100% of the outstanding stock of KMG (the “Acquisition”) on November 15, 2018 (the “Acquisition Date”).
Since the Acquisition, we operate our business within two reportable segments: Electronic Materials and Performance Materials. The Electronic Materials segment consists of our chemical mechanical planarization (“CMP”) slurries business, CMP pads business, and electronic chemicals business. The Performance Materials segment consists of our pipeline and industrial materials (“PIM”) business, wood treatment business and QED Technologies International, Inc. (“QED”) business.
The audited consolidated financial statements have been prepared by CMC 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” or “GAAP”).
In Note 19. Income Taxes of this Annual Report on Form 10-K, the presentation for the table with the reconciliation between the Federal statutory rate and the Provision for income taxes at our effective tax rate has been updated for the fiscal year’s 2019 and 2018 to conform to the current year’s presentation. The amounts for those fiscal years that related to a change in reserve position and included in “U.S. benefits from research and experimentation activities” and “Other, net” previously, are now presented separately under “Change in reserve positions.”
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of CMC Materials, Inc. and its subsidiaries. All intercompany transactions and balances between the companies have been eliminated.
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. 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.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
We consider investments in all highly liquid financial instruments with original maturities of three months or less to be cash equivalents. Short-term investments include securities generally having maturities of 90 days to one year. We did not own any securities that were considered short-term investments as of September 30, 2020 or 2019.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. We maintain an allowance for doubtful accounts for estimated losses resulting from the potential inability of our customers to make required payments. Our allowance for doubtful accounts is based on historical collection experience, adjusted for any specific known conditions or circumstances such as customer bankruptcies and increased risk due to economic conditions. Uncollectible account balances are charged against the allowance when we believe that it is probable that the receivable will not be recovered. Amounts charged to bad debt expense are recorded in Selling, general and administrative expenses.
Our allowance for doubtful accounts changed during the fiscal year ended September 30, 2020 and 2019 as follows:
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2020
|
|
2019
|
Beginning Balance
|
$
|
2,377
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|
|
$
|
1,900
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|
Amount of charge (benefit) to expense
|
(1,122)
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|
|
432
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|
Deductions and adjustments
|
(672)
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|
|
45
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|
Ending Balance at September 30
|
$
|
583
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|
|
$
|
2,377
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|
CONCENTRATION OF CREDIT RISK
Financial instruments that subject us to concentrations of credit risk consist principally of accounts receivable. We perform ongoing credit evaluations of our customers' financial conditions and generally do not require collateral to secure accounts receivable. Our exposure to credit risk associated with nonpayment is affected principally by conditions or occurrences within the semiconductor industry, pipeline and adjacent industries, and the global economy. We have not experienced significant losses relating to accounts receivable from individual customers or groups of customers.
Customers who represented more than 10% of consolidated revenue, all of which are in the Electronic Materials segment, are as follows:
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Year Ended September 30,
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2020
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|
2019
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2018
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|
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|
Intel
|
15
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%
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|
14
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%
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|
*
|
Samsung Group (Samsung)
|
11
|
%
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|
11
|
%
|
|
18
|
%
|
Taiwan Semiconductor Manufacturing Co. (TSMC)
|
*
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|
*
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|
12
|
%
|
SK Hynix Inc.
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*
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*
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|
10
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%
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|
* Customer did not represent more than 10% of consolidated revenue.
Of those customers who represented more than 10% of consolidated revenue, their net accounts receivable as a percentage of total net accounts receivable are as follows:
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September 30,
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2020
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|
2019
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|
|
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|
Intel
|
8.5
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%
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|
8.1
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%
|
Samsung Group (Samsung)
|
7.0
|
%
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|
5.5
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%
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|
FAIR VALUES OF FINANCIAL INSTRUMENTS
The recorded amounts of cash, accounts receivable, and accounts payable approximate their fair values due to their short-term, highly liquid characteristics. 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.
INVENTORIES
Inventories are recorded on the first-in, first-out (FIFO) basis and are stated at the lower of cost or net realizable value. Finished goods and work in process inventories include material, labor and manufacturing overhead costs. We regularly review and write down the value of inventory as required for estimated obsolescence or lack of marketability.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is based on the following estimated useful lives of the assets using the straight-line method:
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Land Improvements
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10-20 years
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Buildings
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15-30 years
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Machinery and equipment
|
3-20 years
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Furniture and fixtures
|
5-10 years
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Vehicles
|
5-8 years
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Information systems
|
3-5 years
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Assets under financing leases
|
The shorter of the term of the lease or estimated useful life
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Expenditures for repairs and maintenance are charged to expense as incurred.
LEASES
Effective October 1, 2019, the Company adopted the new lease accounting guidance which requires the recognition of a right of use asset and a corresponding lease liability for operating leases. The Company applies provisions of the guidance to operating leases with terms of more than twelve months for all lease classes except for real estate leases for which the guidance is applied to all leases. Additionally, the Company elected to account for non-lease components and lease components together as a single lease component for all asset classes. The Company’s lease transactions primarily consist of leases for facilities, equipment, and vehicles under operating leases. The Company does not have any material finance leases. Certain of the Company’s leases have an option to extend the lease term and the renewal period is included in determining the lease term for leases where the renewal option is reasonably certain to be exercised.
The new standard was adopted in our first quarter of fiscal 2020 using the modified retrospective transition method; however, we applied the optional transition adjustment that permits us to continue applying Topic 840 within the comparative periods disclosed.
ASSET RETIREMENT OBLIGATIONS
Our asset retirement obligations (“AROs”) include reclamation requirements as regulated by government authorities or contractual obligations for the removal or storage of hazardous materials, decontamination or demolition of above ground storage tanks, and certain restoration and decommissioning obligations related to certain of our owned and leased properties. The Company recognizes an ARO in the period in which it is incurred, if a reasonable estimate can be made. The accounting for ARO requires estimates by management about when and how the assets will be retired, the cost of retirement obligations, discount and inflation rates used in determining fair values and the methods of remediation associated with our AROs. We generally use assumptions and estimates that reflect the most likely remediation method. Our estimated liability for AROs is revised annually, and whenever events or changes in circumstances indicate that a revision to the estimate is necessary.
In subsequent periods, the Company recognizes accretion expense in Cost of sales increasing the ARO balances, such that the balance will ultimately equal the expected cash flows at the time of settlement. AROs are included in Other long-term liabilities on the Consolidated Balance Sheets.
The Company has multiple production facilities with an indeterminate useful life and there is insufficient information available to estimate a range of potential settlement dates for the obligation. Therefore, the Company cannot reasonably estimate the fair value of the liability. When a reasonable estimate can be made, an asset retirement obligation will be recorded, and such amounts may be material to the consolidated financial statements in the period in which they are recorded.
IMPAIRMENT OF LONG-LIVED ASSETS
We assess the recoverability of the carrying value of long-lived assets to be held and used, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. For purposes of recognition and measurement of an impairment loss, long-lived assets are either individually identified or grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. When a long-lived asset is considered impaired a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the aggregate purchase price over the fair value of the net assets acquired in business combinations. Goodwill and Intangible assets that have indefinite lives are tested for impairment annually on September 30, or between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company’s reporting units are CMP slurries, CMP pads, electronic chemicals, PIM, wood treatment, and QED.
Intangible assets that have finite lives are amortized over their respective useful lives of 2 to 20 years. Intangible assets are tested for impairment if an event occurs or circumstances change that indicates the carrying value may not be recoverable.
For each reporting unit, the Company has the option to perform either the qualitative analysis ("step zero") or a quantitative analysis ("step one"). In the event a reporting unit fails the qualitative assessment, it is required to perform the quantitative test. The goodwill impairment assessment is performed by comparing the estimated fair value of the reporting units to their carrying amounts. Estimated fair values are determined using the average of a discounted cash flows model and a market approach based on earnings before interest, taxes, and depreciation for a group of guideline comparable companies. Factors requiring significant judgment include the selection of valuation approach and assumptions related to future revenue and gross margin, discount rates, and terminal growth rates. If the fair value of the reporting unit is less than its carrying value, the reporting unit will recognize an impairment for the lesser of either the amount by which the reporting unit's carrying amount exceeds the fair value of the reporting unit or the reporting unit’s goodwill carrying value. We used a step zero qualitative analysis for the CMP slurries reporting unit in fiscal 2018, 2019 and 2020, and for precision optics in fiscal 2019 and 2020. Aside from those previously noted, all other reporting units were assessed for goodwill impairment using a step one approach.
The Flowchem LLC (“Flowchem”) trade name, an indefinite-lived intangible asset, was assessed for impairment using a relief from royalty approach. Factors requiring significant judgment include projected revenue, royalty rates, terminal growth rates, and discount rates.
The Company provides disclosure of the potential risk of impairment when a reporting unit’s fair value exceeds its carrying value by less than ten percent.
REVENUE RECOGNITION
Performance Obligations and Material Rights
The Company recognizes revenue using the five-step process of 1) identifying the contract, 2) identifying the performance obligation within the contract, 3) determining the transaction price, 4) allocating the transaction price to the performance obligations, and 5) recognizing the revenue as the performance obligations are satisfied through the transfer of control. 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 delivery of free product that we have concluded represents a material right.
Contracts vary in length and payment terms vary depending on the products or services offered, however, the period of time between invoicing and when payment is due is typically not significant. As a result, we do not have significant financing components. 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 instances where we receive consideration from a customer prior to transferring goods or services to the customer under the terms of a sales contract, we record a contract liability until the performance obligation is satisfied. Contracts with prospective tiered price discounts require judgment in determining the transaction price. 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. When we invoice for products shipped under contracts with multiple performance obligations, we defer a portion of the revenue associated with the material rights on the balance sheet as a contract liability.
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. Revenue is recognized on consignment sales when control transfers to the customer, generally at the point of customer usage of the product. For services provided to customers in the pipeline and adjacent industries, including 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.
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 after funds are received by the Company from its customers. 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.
RESEARCH, DEVELOPMENT AND TECHNICAL
Research, development and technical costs are expensed as incurred and consist primarily of staffing costs, materials and supplies, depreciation, utilities and other facilities costs.
LEGAL COSTS
Legal costs are expensed as incurred.
INCOME TAXES
Current income taxes are determined based on estimated taxes payable or refundable on tax returns for the current year. Deferred income taxes are determined using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in income in the period that includes the enactment date. Provisions are made for both U.S. and any foreign deferred income tax liability or benefit. We assess whether or not our deferred tax assets will ultimately be realized and record an estimated valuation allowance on those deferred tax assets that may not be realized. We recognize the tax benefit of an uncertain tax position only if it is more likely than not that the tax position will be sustained by the taxing authorities, based on the technical merits of the position.
The Company recognizes interest and penalties related to unrecognized tax benefits within the Provision for income taxes. Accrued interest and penalties are included in Other long-term liabilities.
DERIVATIVES AND HEDGING
The Company is 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 recorded on the Consolidated Balance Sheets at fair value on a gross basis.
Interest Rate Swaps
During the second quarter of fiscal 2019, we entered into a floating-to-fixed interest rate swap agreement to hedge the variability in London Inter-bank Offered Rate (“LIBOR”) based interest payments on a portion of our outstanding variable rate debt. The fair value of our interest rate swaps is estimated using standard valuation models using market-based observable inputs over the contractual term, including one-month LIBOR-based yield curves, among others. We consider the risk of nonperformance, including counterparty credit risk, in the calculation of the fair value. We have designated these swap agreements as cash flow hedges. As cash flow hedges, unrealized gains are recognized as assets and unrealized losses are recognized as liabilities. Unrealized gains and losses are designated as effective or ineffective based on a comparison of the changes in fair value of the interest rate swaps and changes in fair value of the underlying exposures being hedged. The effective portion is recorded as a component of accumulated other comprehensive income or loss, while the ineffective portion is recorded as a component of Interest expense. Changes in the method by which we pay interest from one-month LIBOR to another rate of interest could create ineffectiveness in the swaps, and result in amounts being reclassified from other comprehensive income into Net income. Hedge effectiveness is tested quarterly to determine if hedge treatment is appropriate. 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.
SHARE-BASED COMPENSATION
The Company’s long-term equity incentive plan authorizes the Compensation Committee of the Board of Directors to provide equity-based compensation in the form of stock options, restricted stock, restricted stock units (“RSUs”), and performance share units (“PSUs”) for the purpose of providing our employees, officers, and non-employee directors incentives and rewards for performance. We also have an employee stock purchase plan (“ESPP”). All grants under share-based payment plans are accounted for at fair value at the date of grant. We recognize expense on share-based awards to employees expected to vest over the service period, which is the shorter of the period until the employees’ retirement eligibility dates or the service period of the award.
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 with a right to receive non-forfeitable dividends, which are considered participating securities and are included in the calculation using the two-class method. 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.
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements
Accounting Standards Update ("ASU") 2016-02 “Leases” (Topic 842) changed the criteria for recognizing leasing transactions. The provisions of this guidance require a lessee to recognize a right of use asset and a corresponding lease liability for operating leases. Under this guidance, rental expense for operating leases, continues to be recognized on a straight-line basis over the non-cancelable lease term. As of October 1, 2019, the Company began applying the provisions of this standard prospectively for all lease transactions as of and after the effective date. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the historical lease classification to carry forward. We did not elect the hindsight practical expedient. Upon adoption, the Company recorded a lease liability of $30,881 and a right of use asset of $30,115. The difference between the right of use asset and lease liability primarily relates to deferred rent recorded prior to adoption. The new guidance did not have a material impact on our results of operations or cash flows for the year ended September 30, 2020. Refer to Note 14 of this Annual Report on Form 10-K for additional information regarding the Company’s lease transactions.
ASU No. 2018-02 “Income Statement – Reporting Comprehensive Income” (Topic 220) allows for an optional one-time reclassification of the stranded tax effects resulting from the change in the U.S. federal corporate income tax rate under the Tax Cuts and Jobs Act (the "Tax Act") from Accumulated other comprehensive income to Retained earnings. The Company adopted this standard effective October 1, 2019, which resulted in an increase of $488 to both Retained earnings and Accumulated other comprehensive loss.
Accounting Pronouncements Issued But Not Yet Adopted
ASU No. 2016-13, "Measurement of Credit Losses on Financial Instruments" (Topic 326) requires financial assets measured at amortized cost to be presented at the net amount expected to be collected using an allowance account and 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 is effective for the Company beginning October 1, 2020. We are finalizing the impact of this standard on our financial statements and it is not expected to have a material impact to the Company’s results of operations or financial condition.
ASU No. 2018-13 “Fair Value Measurement” (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement provides specific guidance on various disclosure requirements in Topic 820, including removal, modification and addition to current disclosure requirements. ASU 2018-13 will be effective for us beginning October 1, 2020. We are finalizing the impact of this standard on our disclosures and do not expect the adoption to have a material impact in our disclosures.
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) 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. We are finalizing the impact of this standard on our financial statements and do not expect the adoption to have a material impact.
ASU No. 2019-12 “Income Taxes” (Topic 740): Simplifying the Accounting for Income Taxes was issued to simplify Topic 740 through improving consistency and removing certain exceptions to general principles. ASU 2019-12 will be effective for us beginning October 1, 2021. We are currently evaluating the impact of implementing this standard on our financial statements.
ASU No. 2020-04 “Reference Rate Reform” (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting provides optional guidance for accounting for contracts, hedging relationships, and other transactions affected by the reference rate reform, if certain criteria are met. The provisions of this standard are available for election through December 31, 2022. We are currently evaluating the impact of the reference rate reform on our contracts and the resulting impact of adopting this standard on our financial statements.
3. REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregated Revenue
The Company disaggregates revenue by product area and segment as it best depicts the nature and amount of the Company’s revenue. See Note 23 of this Annual Report on Form 10-K for more information.
Contract Balances
The following table provides information about contract liability balances:
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|
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|
Consolidated Balance Sheet Location
|
|
September 30, 2020
|
|
September 30, 2019
|
Contract liabilities (current)
|
Accrued expenses, income taxes payable and other current liabilities
|
|
$
|
8,501
|
|
|
$
|
5,008
|
|
Contract liabilities (noncurrent)
|
Other long-term liabilities
|
|
1,288
|
|
|
1,130
|
|
The amount of revenue recognized during the year ended September 30, 2020 and 2019 that was included in the opening current contract liability balances in our Performance Materials segment was $3,576 and $4,989, respectively. The amount of revenue recognized during the year ended September 30, 2020 and 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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Less Than 1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
Total
|
Revenue expected to be recognized on contract liability amounts as of September 30, 2020
|
$
|
1,446
|
|
|
$
|
1,288
|
|
|
$
|
—
|
|
|
$
|
2,734
|
|
4. BUSINESS COMBINATION
On the Acquisition Date, the Company completed the Acquisition, and KMG’s results of operations have been included in our Consolidated Statements of Income and Consolidated Statements of Comprehensive Income (Loss) from that date. The Acquisition was accounted for using the acquisition method of accounting and the total purchase consideration was $1,513,235, including consideration transferred of $1,536,452, less cash acquired of $23,217. See below for a summary of the different components that comprise the total consideration.
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|
|
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|
|
Amount
|
Total cash consideration paid for KMG outstanding common stock and equity awards
|
$
|
900,756
|
|
Cash provided to payoff KMG debt
|
304,648
|
|
Total cash consideration paid
|
1,205,404
|
|
Fair value of CMC common stock issued for KMG outstanding common stock and equity awards
|
331,048
|
|
Total consideration transferred
|
$
|
1,536,452
|
|
The following table sets forth the components of identifiable intangible assets acquired:
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|
|
Acquisition Date Fair Value
|
|
Estimated Useful Life
(years)
|
Customer relationships - Flowchem
|
$
|
315,000
|
|
|
20
|
Customer relationships - Electronic chemicals
|
280,000
|
|
|
19
|
Customer relationships - all other
|
109,000
|
|
|
15-16
|
Technology and know-how
|
85,500
|
|
|
9-11
|
Trade name - Flowchem
|
46,000
|
|
|
Indefinite
|
Trade name - all other
|
7,000
|
|
|
1-15
|
EPA product registration rights
|
2,300
|
|
|
15
|
Total intangible assets
|
$
|
844,800
|
|
|
|
The intangible assets subject to amortization have a weighted average useful life of 17.9 years. For intangible assets related to the wood treatment business, the remaining useful lives were limited to the end of the calendar year 2021.
The allocation of goodwill to each of the Electronic Materials and Performance Materials segments as a result of the Acquisition was $259,859 and $353,475, respectively.
The following unaudited supplemental pro forma information summarizes the combined results of operations as if the Acquisition had occurred on October 1, 2017.
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|
Year Ended September 30,
|
|
|
|
2019
|
|
2018
|
Revenue
|
|
|
$
|
1,099,674
|
|
|
$
|
1,063,563
|
|
Net income
|
|
|
67,722
|
|
|
50,055
|
|
Earnings per share - basic
|
|
|
$
|
2.34
|
|
|
$
|
1.74
|
|
Earnings per share - diluted
|
|
|
$
|
2.30
|
|
|
$
|
1.70
|
|
The following costs are included in the years ended September 30, 2019 and 2018:
•Non-recurring transaction costs of $2,495 and $33,208, respectively.
•Non-recurring transaction-related employee costs, such as accelerated stock compensation costs, retention and severance expense of $427 and $38,132, respectively.
•Non-recurring charge for fair value write-up of inventory sold of $0 and $14,869, respectively.
The historical financial information has been adjusted by applying the Company’s accounting policies and giving effect to the pro forma adjustments, which consist of (i) amortization expense associated with identified intangible assets; (ii) depreciation of fixed asset step-up (for pre-Acquisition periods only); (iii) accretion of inventory step-up value; (iv) the elimination of Interest expense on pre-Acquisition KMG debt and replacement of Interest expense related to the Acquisition-related financing; (v) transaction-related costs; (vi) accelerated share-based compensation expense (pre-Acquisition periods only); (vii) retention and severance expense incurred as a direct result of the Acquisition; and (viii) an adjustment to tax-effect the aforementioned unaudited pro forma adjustments using an estimated weighted-average effective income tax rate of each entity and the jurisdictions to which the above adjustments relate. The pro forma consolidated results are not necessarily indicative of what the consolidated results actually would have been had the Acquisition been completed on October 1, 2017. The pro forma consolidated results do not purport to project future results of combined operations, nor do they reflect the expected realization of any revenue or cost synergies associated with the Acquisition.
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents financial instruments, other than debt, that we measured at fair value on a recurring basis at September 30, 2020 and 2019. See Note 13 of this Annual Report on Form 10-K for a discussion of our debt. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
Fair Value
|
Assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
257,354
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
257,354
|
|
Other long-term investments
|
1,214
|
|
|
—
|
|
|
—
|
|
|
1,214
|
|
Derivative financial instruments
|
—
|
|
|
27
|
|
|
—
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative financial instruments
|
$
|
—
|
|
|
$
|
38,157
|
|
|
$
|
—
|
|
|
$
|
38,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
Fair Value
|
Assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
188,495
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
188,495
|
|
Other long-term investments
|
980
|
|
|
—
|
|
|
—
|
|
|
980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative financial instruments
|
$
|
—
|
|
|
$
|
24,244
|
|
|
$
|
—
|
|
|
$
|
24,244
|
|
|
|
|
|
|
|
|
|
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 our supplemental employee retirement plan (“SERP”), which is a non-qualified supplemental savings plan. The fair value of the investments is determined through quoted market prices within actively traded markets. Although the investments are allocated to individual participants and investment decisions are made solely by those participants, the SERP is a non-qualified plan. Consequently, the Company owns the assets and the related offsetting liability for disbursement until such time as a participant makes a qualifying withdrawal.
Our derivative financial instruments include foreign exchange contracts and an interest rate swap contract. During the second quarter of fiscal 2019, we entered into a floating-to-fixed interest rate swap contract to hedge the variability in LIBOR-based interest payments on a portion of our outstanding variable rate debt. 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 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 15 of this Annual Report on Form 10-K for more information on our use of derivative financial instruments.
6. INVENTORIES
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2020
|
|
2019
|
Raw materials
|
$
|
66,591
|
|
|
$
|
60,157
|
|
Work in process
|
15,148
|
|
|
12,940
|
|
Finished goods
|
77,395
|
|
|
72,181
|
|
Total
|
$
|
159,134
|
|
|
$
|
145,278
|
|
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2020
|
|
2019
|
Land
|
$
|
36,775
|
|
|
$
|
36,276
|
|
Buildings
|
166,907
|
|
|
142,585
|
|
Machinery and equipment
|
280,432
|
|
|
257,706
|
|
Vehicles
|
18,719
|
|
|
13,497
|
|
Furniture and fixtures
|
9,865
|
|
|
9,615
|
|
Information systems
|
56,573
|
|
|
46,516
|
|
Finance leases
|
2,514
|
|
|
1,200
|
|
Construction in progress
|
123,441
|
|
|
63,636
|
|
Total property, plant and equipment
|
695,226
|
|
|
571,031
|
|
Less: accumulated depreciation
|
(333,159)
|
|
|
(294,213)
|
|
Net property, plant and equipment
|
$
|
362,067
|
|
|
$
|
276,818
|
|
Depreciation expense was $39,929, $37,584 and $17,255 for the years ended September 30, 2020, 2019 and 2018, respectively.
In fiscal 2020 and 2019, we recorded impairment charges of $450 and $4,063, respectively, of property, plant and equipment related to the wood treatment asset group, and adjusted the remaining useful lives such that they do not extend beyond the announced plant closures around the end of the calendar year 2021. See Note 10 of this Annual Report on Form 10-K for further information. We did not record any impairment expense on property, plant and equipment in fiscal 2018.
8. ASSET RETIREMENT OBLIGATIONS
The following table provides a roll-forward of the AROs reflected in the Company’s Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Beginning Balance
|
$
|
12,675
|
|
|
$
|
—
|
|
Purchase Accounting in connection with the Acquisition
|
(860)
|
|
|
12,145
|
|
Liabilities settled
|
—
|
|
|
—
|
|
Accretion of discount
|
599
|
|
|
530
|
|
Estimate revision
|
(655)
|
|
|
—
|
|
Ending Balance at September 30
|
$
|
11,759
|
|
|
$
|
12,675
|
|
9. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill activity for each of the Company’s reportable segments for the years ended September 30, 2020 and 2019 is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic Materials
|
|
Performance Materials
|
|
Total
|
Balance at September 30, 2018
|
$
|
96,083
|
|
|
$
|
5,000
|
|
|
$
|
101,083
|
|
|
|
|
|
|
|
Foreign currency translation impact
|
(3,145)
|
|
|
4
|
|
|
(3,141)
|
|
Goodwill arising from the Acquisition
|
259,859
|
|
|
352,270
|
|
|
612,129
|
|
|
|
|
|
|
|
Balance at September 30, 2019
|
$
|
352,797
|
|
|
$
|
357,274
|
|
|
$
|
710,071
|
|
|
|
|
|
|
|
Foreign currency translation impact
|
7,628
|
|
|
(257)
|
|
|
7,371
|
|
Other
|
—
|
|
|
1,205
|
|
|
1,205
|
|
|
|
|
|
|
|
Balance at September 30, 2020
|
$
|
360,425
|
|
|
$
|
358,222
|
|
|
$
|
718,647
|
|
The components of other intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
September 30, 2019
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
Other intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships, trade names, and distribution rights
|
$
|
690,716
|
|
|
$
|
140,037
|
|
|
$
|
550,679
|
|
|
$
|
684,764
|
|
|
$
|
64,471
|
|
|
$
|
620,293
|
|
Product technology, trade secrets and know-how
|
122,135
|
|
|
49,228
|
|
|
72,907
|
|
|
123,948
|
|
|
37,993
|
|
|
85,955
|
|
Acquired patents and licenses
|
8,921
|
|
|
8,713
|
|
|
208
|
|
|
9,023
|
|
|
8,397
|
|
|
626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other intangible assets subject to amortization
|
821,772
|
|
|
197,978
|
|
|
623,794
|
|
|
817,735
|
|
|
110,861
|
|
|
706,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
Other indefinite-lived intangibles*
|
47,170
|
|
|
—
|
|
|
47,170
|
|
|
47,170
|
|
|
—
|
|
|
47,170
|
|
Total other intangible assets not subject to amortization
|
47,170
|
|
|
—
|
|
|
47,170
|
|
|
47,170
|
|
|
—
|
|
|
47,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other intangible assets
|
$
|
868,942
|
|
|
$
|
197,978
|
|
|
$
|
670,964
|
|
|
$
|
864,905
|
|
|
$
|
110,861
|
|
|
$
|
754,044
|
|
*Other indefinite-lived intangibles not subject to amortization primarily consist of trade names.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
|
|
|
|
Balance at September 30, 2019
|
|
|
Impairment1
|
|
FX and Other
|
|
Balance at September 30, 2020
|
|
Accumulated Amortization
|
|
Net at September 30, 2020
|
Other intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships, trade names, and distribution rights
|
$
|
684,764
|
|
|
|
$
|
(1,419)
|
|
|
$
|
7,371
|
|
|
$
|
690,716
|
|
|
$
|
140,037
|
|
|
$
|
550,679
|
|
Product technology, trade secrets and know-how
|
123,948
|
|
|
|
(343)
|
|
|
(1,470)
|
|
|
122,135
|
|
|
49,228
|
|
|
72,907
|
|
Acquired patents and licenses
|
9,023
|
|
|
|
(102)
|
|
|
—
|
|
|
8,921
|
|
|
8,713
|
|
|
208
|
|
Total other intangible assets subject to amortization
|
817,735
|
|
|
|
(1,864)
|
|
|
5,901
|
|
|
821,772
|
|
|
197,978
|
|
|
623,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other indefinite-lived intangibles*
|
47,170
|
|
|
|
—
|
|
|
—
|
|
|
47,170
|
|
|
—
|
|
|
47,170
|
|
Total other intangible assets not subject to amortization
|
47,170
|
|
|
|
—
|
|
|
—
|
|
|
47,170
|
|
|
—
|
|
|
47,170
|
|
Total other intangible assets
|
$
|
864,905
|
|
|
|
$
|
(1,864)
|
|
|
$
|
5,901
|
|
|
$
|
868,942
|
|
|
$
|
197,978
|
|
|
$
|
670,964
|
|
1 Refer to Note 10 of this Annual Report on Form 10-K for additional information regarding the impairment.
Amortization expense was $85,557, $59,931 and $7,495 for fiscal 2020, 2019 and 2018, respectively. Estimated future amortization expense of intangible assets as of September 30, 2020 for the five succeeding fiscal years is as follows:
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Estimated
Amortization
Expense
|
|
|
|
2021
|
|
$81,985
|
2022
|
|
74,695
|
2023
|
|
62,879
|
2024
|
|
55,664
|
2025
|
|
50,526
|
As of September 30, 2020, the estimated fair value of the PIM reporting unit exceeded the carrying value by approximately 8% and no impairment was recognized. In estimating the fair value, the Company used the average of a discounted cash flows model and a market approach based on earnings before interest, taxes, and depreciation for a group of guideline comparable companies. The most significant estimates and assumptions inherent in the discounted cash flows model are the forecasted revenue growth rate, forecasted gross margin, the discount rate and the terminal growth rate. These assumptions are classified as level 3 inputs. The Company’s projections for revenue and gross margin are based on the Company’s multiyear forecast which reflects a recovery from the COVID-19 pandemic (“Pandemic”) during the forecast period. The discount rate was based on an estimated weighted average cost of capital (“WACC”) for the PIM reporting unit. The components of WACC are the cost of equity and the cost of debt, each of which requires judgment by management to estimate. The company developed its cost of equity estimate based on perceived risks and predictability of future cash flows.
The extent to which the Pandemic or future geopolitical events in the oil and gas industry may further impact our PIM business, operations, results of operations and financial condition is uncertain and difficult to estimate, however the impact could negatively affect future revenue and gross margin. The carrying value of the PIM reporting unit includes $318.2 million of goodwill and $46.0 million of trade-name intangible assets. Potential future impairments could be material to the Company’s Consolidated Balance Sheets and to the Consolidated Statements of Income, but we do not expect them to affect the Company’s reported Net cash provided by operating activities. No impairment charges to goodwill were recognized in any periods presented.
10. LONG-LIVED ASSET IMPAIRMENT - WOOD TREATMENT
As a result of to the previously announced planned closure of the Company's wood treatment business' facilities by approximately the end of calendar year 2021, the Company recognized non-cash pre-tax impairment charges in the Performance Materials segment of $2,314 and $67,372, for the years ending September 30, 2020 and 2019, respectively, for the wood treatment asset group which is also a reporting unit, and adjusted the remaining useful lives such that they do not extend beyond the announced plant closures. The Company recognized a tax benefit of $608 and $17,072, for the years ending September 30, 2020 and 2019, respectively in Provision for income taxes in the Consolidated Statements of Income.
The Company tested the recoverability of its long-lived assets and determined the carrying amount of the assets exceeded the sum of the expected undiscounted future cash flows. The resulting impairment charge of $2,314 was recorded to reduce the carrying values of these assets to fair value and was allocated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2020
|
|
2019
|
Property, plant, and equipment, net
|
$
|
450
|
|
|
$
|
4,063
|
|
Other intangible assets – Product technology
|
343
|
|
|
9,651
|
|
Other intangible assets – Acquired patents and licenses
|
102
|
|
|
1,689
|
|
Other intangible assets – Customer relationships, distribution rights, and other
|
1,419
|
|
|
51,969
|
|
Total
|
$
|
2,314
|
|
|
$
|
67,372
|
|
Testing the assets for recoverability involves developing estimates of future cash flows directly associated with, and that are expected to arise as a direct result of, the use and eventual disposition of the assets. As the inputs for testing recoverability, including estimates of revenue and expenses, not generally observable in active markets, the Company considers such measurements to be Level 3 measurements in the fair value hierarchy. The duration of the revenue and expense estimates are limited to the period through the closure date.
The fair value of the wood treatment asset group was sufficient such that the recognized impairment was limited to long-lived assets and the reporting unit goodwill was not impaired, however, as the Company approaches the closure date of the facilities and there are lower estimated future cash flows, the carrying value of the wood treatment asset group and reporting unit will not be recoverable, resulting in future impairments. The remaining carrying value of the wood treatment business as of September 30, 2020 includes $35.0 million and $3.8 million of goodwill and intangible assets, respectively, which we anticipate will be periodically impaired through the closure date, resulting in no fair value ascribed to the wood treatment business by the date of closure. The amount of the periodic impairments will vary depending on the timing of the remaining future cash flows of the business.
11. OTHER LONG-TERM ASSETS
Other long-term assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2020
|
|
2019
|
Long-term right of use assets
|
$
|
30,999
|
|
|
$
|
—
|
|
Long-term vendor contract assets
|
2,889
|
|
|
1,164
|
|
Long-term SERP investments
|
1,214
|
|
|
980
|
|
Prepaid unamortized debt issuance costs - revolver
|
537
|
|
|
709
|
|
Other long-term assets
|
4,368
|
|
|
2,858
|
|
Total
|
$
|
40,007
|
|
|
$
|
5,711
|
|
12. ACCRUED EXPENSES, INCOME TAXES PAYABLE AND OTHER CURRENT LIABILITIES
Accrued expenses, income taxes payable and other current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2020
|
|
2019
|
Accrued compensation
|
$
|
46,465
|
|
|
$
|
33,809
|
|
Income taxes payable
|
16,216
|
|
|
15,725
|
|
Dividends payable
|
13,669
|
|
|
12,953
|
|
Interest rate swap liability
|
11,992
|
|
|
5,351
|
|
Contract liabilities (current)
|
8,501
|
|
|
5,008
|
|
Current portion of operating lease liability
|
6,513
|
|
|
—
|
|
Taxes, other than income taxes
|
5,044
|
|
|
6,281
|
|
Goods and services received, not yet invoiced
|
3,957
|
|
|
3,075
|
|
Accrued interest
|
29
|
|
|
3,739
|
|
KMG - Bernuth warehouse fire-related (See Note 20)
|
—
|
|
|
7,998
|
|
Other
|
9,056
|
|
|
9,679
|
|
Total
|
$
|
121,442
|
|
|
$
|
103,618
|
|
13. DEBT
Total debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2020
|
|
2019
|
Senior Secured Term Loan Facility, one-month LIBOR plus 2.00% and 2.25%, respectively
|
$
|
936,363
|
|
|
$
|
959,676
|
|
|
|
|
|
|
|
|
|
Less: Unamortized debt issuance costs
|
(14,949)
|
|
|
(17,900)
|
|
Total debt
|
921,414
|
|
|
941,776
|
|
Less: Current maturities and short-term debt
|
(10,650)
|
|
|
(13,313)
|
|
Total long-term debt excluding current maturities
|
$
|
910,764
|
|
|
$
|
928,463
|
|
Term Loan Facility
In connection with the Acquisition, we entered into a credit agreement, which provides for senior secured financing of up to $1,265.0 million (“Credit Agreement”), which includes the Senior Secured Term Loan Facility ("Term Loan Facility") in an aggregate principal amount of $1,065.0 million. During the first quarter of fiscal 2020, the Company amended the Credit Agreement ("Amended Credit Agreement") to reduce the interest rate on the Term Loan Facility. Borrowings under the Term Loan Facility 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, 2.00% for LIBOR loans and 1.00% for base rate loans. The borrowings are guaranteed by each of the Company’s wholly-owned domestic subsidiaries and are secured by substantially all assets of the Company and of each subsidiary guarantor, in each case subject to certain exceptions.
The Term Loan Facility matures on November 15, 2025, and amortizes in equal quarterly installments of 0.25% of the initial principal amount beginning January 1, 2019. 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 Amended Credit Agreement, and 100% of the net cash proceeds of certain recovery events and non-ordinary course asset sales. We made total prepayments on the Term Loan Facility of $10.0 million and $100.0 million during the fiscal years ended September 30, 2020 and 2019, respectively.
At September 30, 2020, the fair value of the Term Loan Facility, using level 2 inputs, approximated its carrying value of $936,363 as the loan bears a floating market rate of interest.
In the second quarter of fiscal 2019, we entered into a floating-to-fixed interest rate swap contract to hedge the variability in our LIBOR-based interest payments on our Term Loan Facility balance. See Note 15 of this Annual Report on Form 10-K for additional information.
The Amended Credit Agreement contains certain affirmative and negative covenants that limit the ability of the Company, among other things and subject to certain significant exceptions, to incur debt or liens, make investments, enter into certain mergers, consolidations, asset sales and acquisitions, pay dividends and make other restricted payments and enter into transactions with affiliates. We believe we are in compliance with these covenants.
The Amended 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.
As of September 30, 2020, scheduled principal repayments of the Term Loan Facility were:
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Principal Repayments
|
2021
|
|
$
|
10,650
|
|
2022
|
|
10,650
|
|
2023
|
|
10,650
|
|
2024
|
|
10,650
|
|
2025
|
|
10,650
|
|
Thereafter
|
|
883,113
|
|
|
|
$
|
936,363
|
|
Revolving Credit Facility
The Company has a revolving credit facility under the Amended Credit Agreement ("Revolving Credit Facility") with an aggregate principal amount of up to $200.0 million, including a letter of credit sub-facility of up to $50.0 million. Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to a base rate in each case, plus an applicable margin of 1.50% for LIBOR loans and 0.50% for base rate loans. The applicable margin for borrowings under the Revolving Credit Facility varies depending on the Company’s first lien secured net leverage ratio. The Revolving Facility matures on November 15, 2023, the five-year anniversary of the Acquisition Date.
During the second quarter of fiscal 2020, the Company drew $150.0 million under the Revolving Credit Facility as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of uncertain global economic conditions resulting from the Pandemic. The entire amount, which was unused in full, was repaid in the fourth quarter of fiscal 2020 and no amount remains outstanding as of September 30, 2020.
14. LEASES
We lease certain vehicles, warehouse facilities, office space, machinery, and equipment under cancellable and noncancellable leases, most of which expire in five years and may be renewed at our option.
The components of lease expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
Lease Components
|
|
|
|
Year Ended September 30, 2020
|
Operating lease cost
|
|
|
|
$
|
7,871
|
|
Variable and short-term costs
|
|
|
|
1,637
|
|
Total lease cost
|
|
|
|
$
|
9,508
|
|
Lease expense for the years ended September 30, 2019 and 2018 totaled $7,975 and $4,307, respectively.
Supplemental balance sheet information related to leases is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Components
|
|
Consolidated Balance Sheet Location
|
|
September 30, 2020
|
Lease right-of-use assets
|
|
Other long-term assets
|
|
$
|
30,999
|
|
|
|
|
|
|
Lease liabilities - current
|
|
Accrued expenses, income taxes payable and other current liabilities
|
|
$
|
6,513
|
|
Lease liabilities - non-current
|
|
Other long-term liabilities
|
|
25,967
|
|
Total lease liabilities
|
|
|
|
$
|
32,480
|
|
|
|
|
|
|
Weighted-average remaining lease term (in years)
|
|
|
|
7 years
|
Weighted-average discount rate
|
|
|
|
3.06
|
%
|
Future maturities of operating lease liabilities for the years ended September 30 are as follows:
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Amount
|
2021
|
|
$
|
7,196
|
|
2022
|
|
6,672
|
|
2023
|
|
5,645
|
|
2024
|
|
4,242
|
|
2025
|
|
3,499
|
|
2026 and future years
|
|
8,261
|
|
Total future lease payments
|
|
35,515
|
|
Less: Imputed interest
|
|
3,035
|
|
Operating lease liability
|
|
32,480
|
|
Less: Current portion of operating lease liability
|
|
6,513
|
|
Long-term portion of operating lease liability
|
|
$
|
25,967
|
|
As of September 30, 2019, minimum lease payments under non-cancellable operating leases in excess of one year are as follows:
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Amount
|
2020
|
|
$
|
6,984
|
|
2021
|
|
4,941
|
|
2022
|
|
4,291
|
|
2023
|
|
4,122
|
|
2024
|
|
3,710
|
|
Thereafter
|
|
12,010
|
|
Total future minimum lease payments
|
|
$
|
36,058
|
|
15. 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.
Cash Flow Hedges – Interest Rate Swap Contract
We have a floating-to-fixed interest rate swap contract to hedge the variability in LIBOR-based interest payments on a portion of our outstanding variable rate debt. The notional amount is scheduled to decrease bi-annually and will expire on January 31, 2024. 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
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.
The notional amount of our derivative instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
2020
|
|
2019
|
Derivatives designated as hedging instruments
|
|
|
|
|
Interest rate swap contract
|
|
$
|
571,000
|
|
|
$
|
699,000
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
Foreign exchange contracts to purchase U.S. dollars
|
|
8,054
|
|
|
6,239
|
|
Foreign exchange contracts to sell U.S. dollars
|
|
25,105
|
|
|
24,270
|
|
The fair value of our derivative instruments included in the Consolidated Balance Sheets was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
Derivative Liabilities
|
|
|
|
September 30,
|
|
September 30,
|
|
Consolidated Balance Sheets Location
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
Interest rate swap contract
|
Accrued expenses, income taxes payable and other current liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,992
|
|
|
$
|
5,351
|
|
|
Other long-term liabilities
|
|
—
|
|
|
—
|
|
|
26,000
|
|
|
18,841
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Prepaid expenses and other current assets
|
|
27
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Accrued expenses, income taxes payable and other current liabilities
|
|
—
|
|
|
—
|
|
|
165
|
|
|
52
|
|
The following table summarizes the effect of our derivative instrument on our Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in Consolidated Statements of Income
|
|
|
|
Fiscal Year Ended September 30,
|
|
Consolidated Statements of Income Location
|
|
2020
|
|
2019
|
|
2018
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
Interest rate swap contract
|
Interest expense
|
|
$
|
(9,360)
|
|
|
$
|
524
|
|
|
$
|
515
|
|
Derivatives not designated as hedging instruments
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
Other income (expense), net
|
|
(222)
|
|
|
28
|
|
|
(1,569)
|
|
The following table summarizes the effect of our derivative instrument on Accumulated other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in Other Comprehensive Income
|
|
|
Fiscal Year Ended September 30,
|
|
|
2020
|
|
2019
|
|
2018
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
Interest rate swap contract
|
|
$
|
(23,161)
|
|
|
$
|
(23,667)
|
|
|
$
|
430
|
|
We expect approximately $11,992 to be reclassified from Accumulated other comprehensive (loss) income into Interest expense during the next twelve months related to our interest rate swap based on projected rates of the LIBOR forward curve as of September 30, 2020.
16. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The table below summarizes the components of Accumulated other comprehensive income (loss), net of income tax expense (benefit).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2020
|
|
2019
|
|
2018
|
Beginning Balance
|
$
|
(23,238)
|
|
|
$
|
4,539
|
|
|
$
|
3,949
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
19,642
|
|
|
(7,957)
|
|
|
(1,730)
|
|
Income tax expense (benefit)
|
(356)
|
|
|
(591)
|
|
|
2,409
|
|
Foreign currency translation adjustment, net of tax
|
19,286
|
|
|
(8,548)
|
|
|
679
|
|
|
|
|
|
|
|
Pension and other postretirement
|
891
|
|
|
(479)
|
|
|
(25)
|
|
Income tax expense (benefit)
|
156
|
|
|
30
|
|
|
(1)
|
|
Pension and other postretirement, net of tax
|
1,047
|
|
|
(449)
|
|
|
(26)
|
|
|
|
|
|
|
|
Unrealized gain (loss) on cash flow hedges:
|
|
|
|
|
|
Change in fair value
|
(23,161)
|
|
|
(23,667)
|
|
|
430
|
|
Reclassification adjustment into earnings
|
9,360
|
|
|
(524)
|
|
|
(515)
|
|
Income tax expense
|
3,090
|
|
|
5,411
|
|
|
22
|
|
Unrealized loss on cash flow hedges, net of tax
|
(10,711)
|
|
|
(18,780)
|
|
|
(63)
|
|
|
|
|
|
|
|
Effect of the adoption of the stranded tax effect accounting standard
|
(497)
|
|
|
—
|
|
|
—
|
|
Income tax expense
|
9
|
|
|
—
|
|
|
—
|
|
Effect of the adoption of the stranded tax effect accounting standard, net of tax
|
(488)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Net Change
|
9,134
|
|
|
(27,777)
|
|
|
590
|
|
|
|
|
|
|
|
Ending Balance
|
$
|
(14,104)
|
|
|
$
|
(23,238)
|
|
|
$
|
4,539
|
|
During the first quarter of fiscal 2020, the Company adopted ASU No. 2018-02 regarding the reclassification of stranded tax effects resulting from the change in the U.S. federal corporate income tax rate under the Tax Act and as a result, we reclassified $488 of stranded tax effects from Accumulated other comprehensive income to Retained earnings.
17. SHARE-BASED COMPENSATION PLANS
We grant share-based compensation to eligible participants under our 2012 Omnibus Incentive Plan (the "OIP"), which was amended as of March 2017, and prior to that under our 2000 Equity Incentive Plan (the “EIP”). The OIP allows for the granting of six types of equity incentive awards: stock options, restricted stock, restricted stock units, stock appreciation rights (“SARs”), performance-based awards, and substitute awards in connection with an acquisition (in the case of the Acquisition, “Replacement Awards”). The OIP authorizes up to 4,978 shares of stock to be granted thereunder, including up to 2,074 shares of stock in the aggregate of awards other than options or SARs and up to 2,539 incentive stock options. In addition, shares that become available from awards under the EIP and the OIP because of events such as forfeitures, cancellations or expirations will also be available for issuance under the OIP. Shares issued under our share-based compensation plans are issued from new shares rather than from treasury shares.
In fiscal 2019, in connection with the Acquisition, we awarded a total of 43,443 restricted stock unit awards to certain KMG employees in substitution for certain unvested restricted stock unit awards that KMG had awarded subsequent to the entry into the definitive agreement for the Acquisition, but prior to the Acquisition Date. The Replacement Awards vest in three equal installments on the first three anniversaries of the original award date. If the recipient was terminated without cause or resigned with good reason during the 18 months following the Acquisition Date, the Replacement Awards will have vested as of such termination date in a number of shares equal to 150% of the Replacement Award.
STOCK OPTIONS
Non-qualified stock options issued under the OIP are generally time-based and provide for a ten-year term, with options generally vesting equally over a four-year period. Non-qualified stock options granted to non-employee directors on an annual basis vest 100% on the first anniversary of the award date. Under the OIP employees may also be granted incentive stock options to purchase common stock at not less than the fair value on the date of the grant, but to date we have not granted incentive stock options.
The fair value of our share-based awards, as shown below, was estimated using the Black-Scholes model with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2020
|
|
2019
|
|
2018
|
Weighted-average grant date fair value
|
$
|
39.68
|
|
|
$
|
27.34
|
|
|
$
|
26.59
|
|
Expected term (in years)
|
6.96
|
|
6.86
|
|
6.68
|
Expected volatility
|
32
|
%
|
|
26
|
%
|
|
26
|
%
|
Risk-free rate of return
|
1.6
|
%
|
|
2.8
|
%
|
|
2.4
|
%
|
Dividend yield
|
1.3
|
%
|
|
1.6
|
%
|
|
1.0
|
%
|
A summary of stock option activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
Outstanding at September 30, 2019
|
879
|
|
|
$
|
63.44
|
|
|
|
|
|
Granted
|
121
|
|
|
129.60
|
|
|
|
|
|
Exercised
|
(182)
|
|
|
51.50
|
|
|
|
|
|
Forfeited or canceled
|
(11)
|
|
|
75.59
|
|
|
|
|
|
Outstanding at September 30, 2020
|
807
|
|
|
$
|
75.87
|
|
|
6.2
|
|
$
|
54,078
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2020
|
499
|
|
|
$
|
58.27
|
|
|
5.1
|
|
$
|
42,184
|
|
|
|
|
|
|
|
|
|
Expected to vest at September 30, 2020
|
308
|
|
|
$
|
104.39
|
|
|
8.1
|
|
$
|
11,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2020
|
|
2019
|
|
2018
|
Intrinsic value of options exercised
|
$
|
19,077
|
|
|
$
|
20,711
|
|
|
$
|
30,345
|
|
Cash received from exercise of options
|
9,350
|
|
|
13,193
|
|
|
19,247
|
|
Tax benefit from exercise of options
|
3,629
|
|
|
4,449
|
|
|
7,503
|
|
Fair value of options vested
|
3,765
|
|
|
4,506
|
|
|
5,008
|
|
As of September 30, 2020, there was $5,267 of total unrecognized share-based compensation expense related to unvested stock options. That cost is expected to be recognized over a weighted-average period of 2.3 years.
EMPLOYEE STOCK PURCHASE PLAN
The ESPP allows all full-time, and certain part-time, employees of our Company and its designated subsidiaries to purchase shares of our common stock through payroll deductions, subject to a maximum number of shares that a participant may purchase and a maximum dollar expenditure in any six-month offering period, and certain other criteria. The provisions of the ESPP allow shares to be purchased at a price no less than the lower of 85% of the closing price at the beginning or end of each semi-annual stock purchase period. As of September 30, 2020, a total of 291 shares are available for purchase under the ESPP.
The Black-Scholes model is primarily used in estimating the fair value of short-lived exchange traded options that have no vesting restrictions and are fully transferable. Because employee stock options and ESPP purchases have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, our use of the Black-Scholes model for estimating the fair value of stock options and ESPP purchases may not provide an accurate measure. Although the value of our stock options and ESPP purchases are determined in accordance with applicable accounting standards using an option-pricing model, those values may not be indicative of the fair values observed in a willing buyer/willing seller market transaction.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2020
|
|
2019
|
|
2018
|
Weighted-average grant date fair value
|
$
|
39.17
|
|
|
$
|
25.16
|
|
|
$
|
20.94
|
|
Shares issued
|
46
|
|
|
49
|
|
|
50
|
|
Expected term (in years)
|
0.5
|
|
0.5
|
|
0.5
|
Expected volatility
|
52
|
%
|
|
34
|
%
|
|
26
|
%
|
Risk-free rate of return
|
1.7
|
%
|
|
2.3
|
%
|
|
1.5
|
%
|
Dividend yield
|
1.3
|
%
|
|
1.6
|
%
|
|
1.1
|
%
|
RESTRICTED STOCK, RESTRICTED STOCK UNITS, AND PERFORMANCE SHARE UNITS
Under the OIP, employees and non-employees may be awarded shares of restricted stock or RSUs, which generally vest over a four-year period. Restricted shares under the OIP may be purchased and placed "on deposit" by executive officers pursuant to the 2001 Deposit Share Program. Shares purchased under this Deposit Share Program receive a 50% match in restricted shares that vest at the end of a three-year period, and are subject to forfeiture upon early withdrawal of the deposit shares. The fair value of our restricted stock and restricted stock unit awards represents the closing price of our common stock on the date of award. Share-based compensation expense related to restricted stock and RSU awards is recorded net of expected forfeitures.
In December 2017, we began awarding PSU awards to certain employees on an annual basis. These PSUs fully vest upon certification of performance achieved with respect to the PSU following the third anniversary of the performance period tied to the PSU, according to the terms and conditions of the relevant PSU award agreement. Stock-based compensation for the awards is recognized over the requisite service period (three years) beginning on the date of award through the end of the performance period based on the number of PSUs expected to vest under the awards at the end of the performance period. The expected amount of vesting is determined using certain performance measures and is re-evaluated at the end of each fiscal year through the end of the performance period. In addition, the PSUs 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 the S&P SmallCap 600 Index or the S&P MidCap 400 Index, as specified in the respective PSU award agreement. We estimate fair value of the PSUs at award date by using a Monte Carlo simulation model. This model simulates the stock price movements of the Company and relevant Index constituents using certain assumptions, including the stock price of our company and relevant Index constituents, the risk-free interest rate and stock price volatility.
A summary of the activity of the restricted stock awards, RSU awards, and PSU awards is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
Awards and Units
|
|
Weighted Average
Grant Date Fair
Value
|
Nonvested at September 30, 2019
|
275
|
|
|
$
|
87.36
|
|
Granted 1
|
88
|
|
|
125.14
|
|
Vested
|
(100)
|
|
|
74.65
|
|
Forfeited
|
(6)
|
|
|
83.65
|
|
Nonvested at September 30, 2020
|
257
|
|
|
$
|
104.83
|
|
1 Includes PSUs awarded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2020
|
|
2019
|
|
2018
|
Weighted average grant date fair value
|
$
|
104.83
|
|
|
$
|
87.36
|
|
|
$
|
70.42
|
|
The total fair value of restricted stock awards and RSUs vested during fiscal years 2020, 2019 and 2018 was $7,481, $11,060 and $6,669, respectively. As of September 30, 2020, there was $14,256 of total unrecognized share-based compensation expense related to unvested restricted stock awards and RSUs, including PSUs, under the OIP. That cost is expected to be recognized over a weighted-average period of 2.09 years.
SHARE-BASED COMPENSATION EXPENSE
Total share-based compensation expense and the classification of that expense in the Consolidated Statements of Income for the years ended September 30, 2020, 2019 and 2018, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2020
|
|
2019
|
|
2018
|
Cost of sales
|
$
|
2,863
|
|
|
$
|
2,727
|
|
|
$
|
2,450
|
|
Research, development and technical
|
2,090
|
|
|
2,150
|
|
|
1,940
|
|
Selling, general and administrative
|
11,443
|
|
|
13,350
|
|
|
14,128
|
|
Tax benefit
|
(3,162)
|
|
|
(3,767)
|
|
|
(4,306)
|
|
Total share-based compensation expense, net of tax
|
$
|
13,234
|
|
|
$
|
14,460
|
|
|
$
|
14,212
|
|
Total gross share-based compensation expense is attributable to the following awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2020
|
|
2019
|
|
2018
|
Stock Options
|
$
|
4,406
|
|
|
$
|
4,267
|
|
|
$
|
6,392
|
|
Restricted stock, restricted stock units, and replacement awards
|
8,259
|
|
|
11,400
|
|
|
9,186
|
|
Performance share units
|
1,957
|
|
|
1,279
|
|
|
2,056
|
|
ESPP
|
1,774
|
|
|
1,281
|
|
|
885
|
|
18. EMPLOYEE RETIREMENT PLANS
Defined Contribution Plans
The Company has 401(k) defined contribution plans covering employees in the U.S., and the expense for the plans totaled $7,658, $6,698 and $5,562 for the fiscal years ended September 30, 2020, 2019 and 2018, respectively.
The Company’s United Kingdom and Singapore subsidiaries make contributions to retirement plans that function as defined contribution retirement plans. The contributions to those plans were approximately $1,766 and $1,356 for the fiscal years ended September 30, 2020 and 2019, respectively.
Pension Obligations in Foreign Jurisdictions
The Company has defined benefit plans covering employees in Japan, South Korea, and France as required by local law. These plans are unfunded. A summary of these combined plans are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
2020
|
|
2019
|
Projected benefit obligation
|
|
$
|
11,627
|
|
|
$
|
11,121
|
|
Accumulated benefit obligation
|
|
8,680
|
|
|
8,314
|
|
Pension cost included in Accumulated other comprehensive income (loss)
|
|
(764)
|
|
|
(1,811)
|
|
Weighted average discount rate
|
|
1.32
|
%
|
|
0.73
|
%
|
Weighted average rate of increases in future compensation levels
|
|
3.01
|
%
|
|
2.89
|
%
|
Benefit costs for the combined plans were $1,403, $1,345 and $1,236 in fiscal years 2020, 2019 and 2018, respectively, consisting primarily of service costs. Net service costs are included in Cost of sales and Operating expenses, and all other costs are recorded in the Other income (expense), net in our Consolidated Statements of Income. Estimated future benefit payments are as follows:
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Amount
|
2021
|
|
$
|
519
|
|
2022
|
|
542
|
|
2023
|
|
641
|
|
2024
|
|
661
|
|
2025
|
|
1,209
|
|
2026 to 2030
|
|
5,172
|
|
19. INCOME TAXES
Income before income taxes was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2020
|
|
2019
|
|
2018
|
Domestic
|
$
|
94,002
|
|
|
$
|
(45,364)
|
|
|
$
|
46,254
|
|
Foreign
|
79,345
|
|
|
108,470
|
|
|
115,457
|
|
Total
|
$
|
173,347
|
|
|
$
|
63,106
|
|
|
$
|
161,711
|
|
Taxes on income consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2020
|
|
2019
|
|
2018
|
U.S. federal and state:
|
|
|
|
|
|
Current
|
$
|
20,733
|
|
|
$
|
23,461
|
|
|
$
|
14,698
|
|
Deferred
|
(7,048)
|
|
|
(23,182)
|
|
|
10,347
|
|
Total
|
13,685
|
|
|
279
|
|
|
25,045
|
|
|
|
|
|
|
|
Foreign:
|
|
|
|
|
|
Current
|
21,053
|
|
|
27,580
|
|
|
26,135
|
|
Deferred
|
(4,219)
|
|
|
(3,968)
|
|
|
488
|
|
Total
|
16,834
|
|
|
23,612
|
|
|
26,623
|
|
Total U.S. and foreign
|
$
|
30,519
|
|
|
$
|
23,891
|
|
|
$
|
51,668
|
|
The Provision for income taxes at our effective tax rate differed from the statutory rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2020
|
|
2019
|
|
2018
|
Federal statutory rate
|
21.0
|
%
|
|
21.0
|
%
|
|
24.5
|
%
|
U.S. benefits from research and experimentation activities
|
(1.5)
|
|
|
(2.9)
|
|
|
(0.8)
|
|
State taxes, net of federal effect
|
1.1
|
|
|
(4.7)
|
|
|
0.1
|
|
Foreign income at other than U.S. rates
|
1.7
|
|
|
10.3
|
|
|
1.2
|
|
Excess compensation
|
0.4
|
|
|
6.4
|
|
|
0.4
|
|
Share-based compensation
|
(2.2)
|
|
|
(7.2)
|
|
|
(4.3)
|
|
U.S. tax reform
|
—
|
|
|
14.1
|
|
|
11.2
|
|
Global Intangible Low Taxed Income ("GILTI")
|
—
|
|
|
3.1
|
|
|
—
|
|
Foreign derived intangible income
|
(3.4)
|
|
|
(3.9)
|
|
|
—
|
|
Change in reserve positions
|
1.9
|
|
|
0.3
|
|
|
(0.5)
|
|
Other, net
|
(1.4)
|
|
|
1.4
|
|
|
0.2
|
|
Provision for income taxes
|
17.6
|
%
|
|
37.9
|
%
|
|
32.0
|
%
|
The decrease in the effective tax rate during fiscal 2020 was primarily attributable to the absence of a discrete charge recorded in fiscal 2019 related to the final regulations issued under the Tax Act and the absence of unfavorable tax treatment of certain non-deductible costs related to the Acquisition. Additionally, the tax rate was favorably impacted by the final tax regulations issued in July 2020, which provided for a high-tax exception for those jurisdictions subject to the GILTI tax, for which the Company qualified.
The increase in the effective tax rate during fiscal 2019 was primarily due to increased tax expense related to the final regulations related to the Tax Act, which impacted our reserves for uncertain tax positions, and the unfavorable tax treatment of certain Acquisition-related costs. 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.
The accounting guidance regarding uncertainty in income taxes prescribes a threshold for the financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return. Under these standards, we may recognize the tax benefit of an uncertain tax position only if it is more likely than not that the tax position will be sustained by the taxing authorities, based on the technical merits of the position.
The following table presents the changes in the balance of gross unrecognized tax benefits during the last three fiscal years:
|
|
|
|
|
|
Balance September 30, 2017
|
$
|
2,270
|
|
Additions for tax positions relating to the current fiscal year
|
263
|
|
Additions for tax positions relating to prior fiscal years
|
116
|
|
Lapse of statute of limitations
|
(1,215)
|
|
Balance September 30, 2018
|
1,434
|
|
Additions for tax positions relating to the current fiscal year
|
271
|
|
Additions for tax positions relating to prior fiscal years
|
9,839
|
|
|
|
Balance September 30, 2019
|
11,544
|
|
Additions for tax positions relating to the current fiscal year
|
4,691
|
|
Additions for tax positions relating to prior fiscal years
|
140
|
|
Reduction for tax positions relating to prior fiscal years
|
(1,337)
|
|
Balance September 30, 2020
|
$
|
15,038
|
|
The entire balance of unrecognized tax benefits shown above as of September 30, 2020 and 2019, would affect our effective tax rate if recognized. Additions for tax positions of $4,691 recorded in the current fiscal year are mainly due to liabilities related to mix of jurisdictional earnings from intercompany transactions. Interest accrued on our Consolidated Balance Sheets was $233 and $281 at September 30, 2020 and 2019, respectively, and any interest and penalties charged to expense in fiscal years 2020, 2019 and 2018 was immaterial.
At September 30, 2020, the tax periods open to examination by the U.S. federal, state and local governments include fiscal years 2013 through 2020, and the tax periods open to examination by foreign jurisdictions include fiscal years 2015 through 2020. We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.
Significant components of net deferred tax assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2020
|
|
2019
|
Deferred tax assets:
|
|
|
|
Employee benefits
|
$
|
8,920
|
|
|
$
|
5,719
|
|
Inventory
|
4,657
|
|
|
3,811
|
|
Accrued expenses
|
2,615
|
|
|
4,202
|
|
Share-based compensation expense
|
5,709
|
|
|
5,215
|
|
Credit and other carryforwards
|
5,803
|
|
|
9,743
|
|
Interest rate swap
|
8,506
|
|
|
5,412
|
|
Other
|
1,238
|
|
|
1,088
|
|
Valuation allowance
|
(2,948)
|
|
|
(2,574)
|
|
Total deferred tax assets
|
$
|
34,500
|
|
|
$
|
32,616
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
Depreciation and amortization
|
$
|
131,237
|
|
|
$
|
140,092
|
|
Withholding on transition taxes
|
4,156
|
|
|
6,026
|
|
Other
|
3,606
|
|
|
1,926
|
|
Total deferred tax liabilities
|
$
|
138,999
|
|
|
$
|
148,044
|
|
As of September 30, 2020, the Company had foreign and domestic net operating loss carryforwards (“NOLs”) of $11,025, which will expire over the period between fiscal year 2021 and fiscal year 2040. We have recorded a tax-effected valuation allowance of $2,948 against the deferred tax assets related to certain foreign and U.S. federal and state NOLs, as well as on certain federal tax credit carryforwards. As of September 30, 2020, the Company had a U.S. federal and state tax credit carryforward of $1,131, which will expire beginning in fiscal years 2021 through 2030.
Prior to enactment of the Tax Act, the Company did not record income tax expense for the undistributed earnings of its international subsidiaries. As a result of the Tax Act, the Company no longer intends to maintain the indefinite reinvestment assertion.
20. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS AND OTHER CONTINGENCIES
We periodically become a party to legal proceedings, arbitrations, regulatory proceedings, inquiries and investigations (“contingencies”) arising in the ordinary course of our business operations. The ultimate resolution of these contingencies is subject to significant uncertainty, and should we fail to prevail in any of them or should several of them be resolved against us in the same reporting period, these matters could, individually or in the aggregate, be material to our consolidated financial statements. One of these contingencies, related to Star Lake Canal, which we assumed in connection with the Acquisition, is discussed 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.
On May 31, 2019, a fire occurred at the warehouse of the wood treatment facility of KMG’s subsidiary, KMG-Bernuth, Inc.’s (“KMG-Bernuth”), in Tuscaloosa, Alabama, which processes pentachlorophenol (“penta”) for sale to customers in the U.S. and Canada. The warehouse fire, which we believe originated from non-hazardous waste materials temporarily stored in the warehouse for recycling purposes, caused no injuries 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 had 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 recorded expense of $1,551 and $9,494 for the years ending September 30, 2020 and 2019, respectively. These disposal costs were charged to Cost of sales. Although we believe we have completed cleanup efforts related to the fire incident and the assessment of materials in the warehouse that had been impacted by the incident, there are potential other costs that cannot be reasonably estimated as of this time related to the fire incident due to the nature of federally-regulated penta-related requirements. We incurred significant fire waste cleanup and disposal costs and certain other costs related to the assessment of the impacted warehouse material due to these requirements, and we may incur additional costs related to the fire incident. We intend to continue to update the estimated losses as new information becomes available.
In addition, we are working with our insurance carriers on possible recovery of losses and costs related to the fire incident. We received $468 of insurance recovery during the twelve months ended September 30, 2020 which was recorded in Cost of sales. At this point we cannot reasonably estimate whether we will receive any additional insurance recoveries, or if so, the amount of such recoveries. As such, no additional insurance recoveries have been recognized as of September 30, 2020.
Separately, in 2014, prior to the Acquisition, the United States Environmental Protection Agency (“EPA”) had notified KMG-Bernuth, that the EPA considered it to be a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by virtue of its relationship with certain alleged predecessor companies, including Idacon, Inc (f/k/a Sonford Chemical Company) in connection with the Star Lake Canal Superfund Site near Beaumont, Texas. 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 was established, and as of September 30, 2020, the reserve remaining was $553.
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 can enforce compliance with their regulations, and violators may be subject to fines, injunctions or both. The Company devotes significant financial resources to compliance, including costs for ongoing compliance.
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 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 cannot be determined at this time, nor can the amount of any potential loss be reasonably estimated, and as a result except where indicated no amounts have been recorded in our consolidated financial statements.
INDEMNIFICATION
In the normal course of business, we are a party to a variety of agreements pursuant to which we may be obligated to indemnify the other party with respect to certain matters. Generally, these obligations arise in the context of agreements entered into by us, under which we customarily agree to hold the other party harmless against losses arising from items such as a breach of certain representations and covenants including title to assets sold, certain intellectual property rights and certain environmental matters. These terms are common in the industries in which we conduct business. In each of these circumstances, payment by us is subject to certain monetary and other limitations and is conditioned on the other party making an adverse claim pursuant to the procedures specified in the particular agreement, which typically allow us to challenge the other party's claims.
We evaluate estimated losses for such indemnifications under the accounting standards related to contingencies and guarantees. We consider such factors as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. To date, we have not experienced material costs as a result of such obligations and, as of September 30, 2020, have not recorded any liabilities related to such indemnifications in our financial statements as we do not believe the likelihood of such obligations is probable.
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 an abrasive particle supply agreement, the current term of which now runs through December 2022. As of September 30, 2020, purchase obligations include $22,932 of contractual commitments related to this agreement. In addition, we have a purchase commitment of $5,631 to purchase non-water based carrier fluid.
21. EARNINGS PER SHARE
Basic and diluted earnings per share were calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2020
|
|
2019
|
|
2018
|
Numerator:
|
|
|
|
|
|
Net income available to common shares
|
$
|
142,828
|
|
|
$
|
39,215
|
|
|
$
|
110,043
|
|
Less: income attributable to participating securities1
|
—
|
|
|
—
|
|
|
(123)
|
|
Net income available to common stockholders
|
$
|
142,828
|
|
|
$
|
39,215
|
|
|
$
|
109,920
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
Weighted average common shares
|
29,136
|
|
|
28,571
|
|
|
25,518
|
|
Weighted average effect of dilutive securities
|
444
|
|
|
523
|
|
|
725
|
|
Diluted weighted average common shares
|
29,580
|
|
|
29,094
|
|
|
26,243
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
Basic
|
$
|
4.90
|
|
|
$
|
1.37
|
|
|
$
|
4.31
|
|
Diluted
|
$
|
4.83
|
|
|
$
|
1.35
|
|
|
$
|
4.19
|
|
1 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 earnings per share in fiscal 2020 and 2019.
Shares excluded from the calculation of Diluted earnings per share as their inclusion would have been anti-dilutive were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2020
|
|
2019
|
|
2018
|
Outstanding stock options
|
102
|
|
|
196
|
|
|
100
|
|
22. 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. Historically, we operated in one industry segment – the development, manufacture and sale of 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 and consists of our CMP slurries business, CMP pads business, and electronic chemicals business.
Performance Materials
Performance Materials consists of our PIM business, wood treatment business, and QED business.
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 Acquisition and integration-related expenses, the impact of fair value adjustments to inventory acquired from KMG, certain costs related to the KMG-Bernuth warehouse fire, net of insurance recovery, asset impairment charges and net restructuring charges related to the wood treatment business and costs related to the Pandemic, net of grants received. We exclude these items from earnings when presenting our adjusted EBITDA measure because we believe they are not indicative of a segment's regular, ongoing operating performance. Adjusted EBITDA is also the basis of a performance metric for our fiscal 2020 Short-Term Incentive Program. In addition, our chief operating decision maker does not use assets by segment to evaluate performance or allocate resources, and therefore, we do not disclose assets by segment.
Since the two segments operate independently and serve different markets and customers, as a result there are no sales between segments. Revenue from external customers and segment adjusted EBITDA shown for Performance Materials for the year ended September 30, 2018 include the precision optics business. Revenue from external customers by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2020
|
|
2019
|
|
2018
|
Segment Revenue:
|
|
|
|
|
|
Electronic Materials:
|
|
|
|
|
|
CMP Slurries
|
$
|
480,617
|
|
|
$
|
460,053
|
|
|
$
|
476,828
|
|
Electronic Chemicals
|
316,253
|
|
|
278,413
|
|
|
—
|
|
CMP Pads
|
85,954
|
|
|
94,585
|
|
|
83,117
|
|
Total Electronic Materials
|
882,824
|
|
|
833,051
|
|
|
559,945
|
|
|
|
|
|
|
|
Performance Materials:
|
|
|
|
|
|
PIM
|
141,503
|
|
|
140,553
|
|
|
—
|
|
Wood Treatment
|
62,655
|
|
|
31,898
|
|
|
—
|
|
QED
|
29,288
|
|
|
32,194
|
|
|
30,178
|
|
Total Performance Materials
|
233,446
|
|
|
204,645
|
|
|
30,178
|
|
|
|
|
|
|
|
Total
|
$
|
1,116,270
|
|
|
$
|
1,037,696
|
|
|
$
|
590,123
|
|
Capital expenditures by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2020
|
|
2019
|
|
2018
|
Capital Expenditures:
|
|
|
|
|
|
Electronic Materials
|
$
|
26,536
|
|
|
$
|
40,166
|
|
|
$
|
18,668
|
|
Performance Materials
|
84,634
|
|
|
16,367
|
|
|
409
|
|
Corporate
|
11,344
|
|
|
5,663
|
|
|
3,918
|
|
Total
|
$
|
122,514
|
|
|
$
|
62,196
|
|
|
$
|
22,995
|
|
Adjusted EBITDA by segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2020
|
|
2019
|
|
2018
|
Net income
|
$
|
142,828
|
|
|
$
|
39,215
|
|
|
$
|
110,043
|
|
Interest expense
|
42,510
|
|
|
45,681
|
|
|
2,905
|
|
Interest income
|
(670)
|
|
|
(2,346)
|
|
|
(4,409)
|
|
Income taxes
|
30,519
|
|
|
23,891
|
|
|
51,668
|
|
Depreciation and amortization
|
127,737
|
|
|
98,592
|
|
|
25,876
|
|
EBITDA
|
342,924
|
|
|
205,033
|
|
|
186,083
|
|
Acquisition and integration-related expense
|
10,852
|
|
|
34,709
|
|
|
3,861
|
|
Charges related to asset impairment of wood treatment business
|
2,314
|
|
|
67,372
|
|
|
—
|
|
Costs related to KMG-Bernuth warehouse fire, net of insurance recovery
|
1,083
|
|
|
9,905
|
|
|
—
|
|
Costs related to the Pandemic, net of grants received
|
849
|
|
|
—
|
|
|
—
|
|
Charge for fair value write-up of acquired inventory sold
|
—
|
|
|
14,869
|
|
|
—
|
|
Net costs related to restructuring of the wood treatment business
|
(221)
|
|
|
1,530
|
|
|
—
|
|
Consolidated adjusted EBITDA
|
$
|
357,801
|
|
|
$
|
333,418
|
|
|
$
|
189,944
|
|
|
|
|
|
|
|
Segment adjusted EBITDA:
|
|
|
|
|
|
Electronic Materials
|
$
|
299,037
|
|
|
$
|
294,902
|
|
|
$
|
222,019
|
|
Performance Materials
|
106,797
|
|
|
91,372
|
|
|
7,191
|
|
Unallocated corporate expenses
|
(48,033)
|
|
|
(52,856)
|
|
|
(39,266)
|
|
Consolidated adjusted EBITDA
|
$
|
357,801
|
|
|
$
|
333,418
|
|
|
$
|
189,944
|
|
The unallocated portions of corporate functions, including finance, legal, human resources, information technology, and corporate development, are not directly attributable to a reportable segment.
23. FINANCIAL INFORMATION BY GEOGRAPHIC AREA
Revenues are attributed to the U.S. and foreign regions based upon the customer location and not the geographic location from which our products were shipped. Financial information by geographic area was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2020
|
|
2019
|
|
2018
|
Revenue:
|
|
|
|
|
|
North America
|
$
|
399,993
|
|
|
$
|
372,247
|
|
|
$
|
79,019
|
|
Asia
|
546,866
|
|
|
515,833
|
|
|
471,215
|
|
Europe, Middle East, and Africa
|
169,099
|
|
|
149,305
|
|
|
39,889
|
|
South America
|
312
|
|
|
311
|
|
|
—
|
|
Total
|
$
|
1,116,270
|
|
|
$
|
1,037,696
|
|
|
$
|
590,123
|
|
Property, plant and equipment, net1:
|
|
|
|
|
|
North America
|
$
|
250,895
|
|
|
$
|
133,682
|
|
|
$
|
60,818
|
|
Asia
|
66,872
|
|
|
68,823
|
|
|
50,573
|
|
Europe
|
44,300
|
|
|
74,313
|
|
|
12
|
|
Total
|
$
|
362,067
|
|
|
$
|
276,818
|
|
|
$
|
111,403
|
|
1 No individual countries other than the U.S. have material Property, plant and equipment
The following table shows revenue from sales to customers in foreign countries that accounted for more than ten percent of our total revenue in fiscal 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2020
|
|
2019
|
|
2018
|
Revenue:
|
|
|
|
|
|
South Korea
|
$
|
127,972
|
|
|
$
|
135,844
|
|
|
$
|
136,403
|
|
Taiwan
|
133,059
|
|
|
125,895
|
|
|
130,500
|
|
China
|
113,570
|
|
|
*
|
|
97,254
|
|
* Not a country with more than 10% revenue.
SELECTED QUARTERLY OPERATING RESULTS
The following table presents our unaudited financial information for the eight quarterly periods ended September 30, 2020. This unaudited financial information has been prepared in accordance with accounting principles generally accepted in the United States of America, applied on a basis consistent with the annual audited financial statements and in the opinion of management, include all necessary adjustments, which consist only of normal recurring adjustments necessary to present fairly the financial results for the periods. The results for any quarter are not necessarily indicative of results for any future period.
SELECTED QUARTERLY OPERATING RESULTS
(Unaudited and in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
June 30,
2020
|
|
March 31,
2020
|
|
Dec. 31,
2019
|
|
September 30, 2019
|
|
June 30,
2019
|
|
March 31,
2019
|
|
Dec. 31,
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
274,207
|
|
|
$
|
274,727
|
|
|
$
|
284,193
|
|
|
$
|
283,143
|
|
|
$
|
278,645
|
|
|
$
|
271,882
|
|
|
$
|
265,391
|
|
|
$
|
221,778
|
|
Cost of sales
|
157,144
|
|
|
152,973
|
|
|
163,091
|
|
|
154,461
|
|
|
165,535
|
|
|
156,492
|
|
|
150,571
|
|
|
122,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
117,063
|
|
|
121,754
|
|
|
121,102
|
|
|
128,682
|
|
|
113,110
|
|
|
115,390
|
|
|
114,820
|
|
|
99,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
46,068
|
|
|
57,742
|
|
|
51,663
|
|
|
61,432
|
|
|
(17,623)
|
|
|
52,240
|
|
|
51,714
|
|
|
24,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
36,855
|
|
|
$
|
34,525
|
|
|
$
|
32,899
|
|
|
$
|
38,549
|
|
|
$
|
(20,243)
|
|
|
$
|
18,878
|
|
|
$
|
27,137
|
|
|
$
|
13,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share1
|
$
|
1.27
|
|
|
$
|
1.19
|
|
|
$
|
1.12
|
|
|
$
|
1.32
|
|
|
$
|
(0.70)
|
|
|
$
|
0.65
|
|
|
$
|
0.94
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share1
|
$
|
1.25
|
|
|
$
|
1.17
|
|
|
$
|
1.11
|
|
|
$
|
1.30
|
|
|
$
|
(0.70)
|
|
|
$
|
0.64
|
|
|
$
|
0.92
|
|
|
$
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 The total of the individual quarters may not equal full year results as quarterly per share information is calculated using the quarterly weighted average shares.