Cabot Microelectronics Corporation
870 N. Commons Drive
Aurora, IL 60504
www.cabotcmp.com
Cabot Microelectronics is committed to conducting its business operations in a manner that preserves the
environment, which includes limiting waste, conserving energy and preventing pollution. Our commitment goes
beyond regulatory compliance and ISO certifications. Since initiating our environmental program in fiscal 2008,
we have successfully lessened our impact on the environment in the following ways:
31%
53%
43%
4%
4%
IN C R E A S E IN
PA P E R R E C Y C L IN G
IN C R E A S E IN
S O L ID WA S T E
R E C Y C L IN G
R E D u C T IO N IN
L A N D f I L L WA S T E
R E D u C T IO N IN
C O 2 E m I S S IO N S
R E D u C T IO N IN
E L E C T R I C I T Y u S A GE
We continue to partner with our customers to help them achieve their environmental goals. As we look to the
future, we plan to further reduce the environmental impact of doing business by strongly encouraging our
suppliers to share our commitment to the environment, and we plan to measure the progress of these preferred
suppliers. Through our own environmental initiatives, as well as through joint programs with our customers and
suppliers, we strive to continue to be a trusted business partner and model corporate citizen with respect to
environmental issues.
2 0 1 0 a n n u a l r e p o r T
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T e n Y e a r s s T r o n g
O U R C O M P A N Y
Cabot Microelectronics is the world’s leading supplier of chemical mechanical planarization (CMP) slurries and a
growing CMP pad supplier to the semiconductor industry. Our CMP consumables products are used to level,
smooth and remove excess material from the multiple layers of material that are deposited upon silicon wafers
in the production of most semiconductor devices. This enables our customers to manufacture smaller, faster and
more complex devices. We also produce slurries for the data storage industry that are used to polish certain
600
hard disk drive components, and we are pursuing a number of other demanding surface modification applications
through our Engineered Surface Finishes business.
400
The global semiconductor industry experienced a strong rebound in 2010, driven by solid global consumer
demand for items like smart phones and tablet computers, particularly in the vibrant Asia Pacific region, as well
200
as the return of corporate IT spending. We benefited from this strong industry environment, posting record
revenue and diluted earnings per share in fiscal 2010. The solid execution of our strategies and key initiatives
0
resulted in over 40 percent growth in total revenue, nearly 70 percent growth in our pad business, the introduction
of next generation products in all major application areas and the receipt of customer supplier awards from four
of the world’s top semiconductor manufacturers in 2010.
F I N A N C I A L H I G H L I G H T S
In millions, except per share and percentage amounts
Revenue
Gross profit margin
Operating income
Net income
Diluted earnings per share
Total assets
Stockholders’ equity
Cash and cash equivalents
Cash provided by operations
FY10
FY09
Change
$408.2
$291.4
40.1%
49.9%
44.1%
13.2
74.0
49.5
2.13
571.8
514.3
254.2
88.4
16.0
11.2
0.48
515.1
470.7
200.0
44.7
361.9
342.1
343.8
11.0
9.3
27.1
97.7
After tax return on invested capital
18.8%
4.0%
370.0
2.5
2.0
1.5
1.0
0.5
0.0
100
50
0
T E N Y E A R S S T R O N G
2
.
7
2
2
$
2
.
5
3
2
$
7
.
1
5
2
$
4
.
9
0
3
$
5
.
0
7
2
$
8
.
0
2
3
$
2
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8
3
3
$
1
.
5
7
3
$
4
.
1
9
2
$
2
.
8
0
4
$
R E V E N U E
(in millions)
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
2
7
.
1
$
6
6
.
1
$
3
5
.
1
$
8
8
.
1
$
2
3
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1
$
6
3
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$
2
4
.
1
$
4
6
.
1
$
8
4
.
0
$
3
1
.
2
$
D I L U T E D
E A R N I N G S
P E R S H A R E
(in dollars)
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
Note: Under accounting rules, the company began recording share-based compensation expense beginning in FY06.
Consequently, fiscal years prior to FY06 do not include share-based compensation expense. On average, share-based
compensation expense reduced diluted earnings per share by approximately 35 cents per year from FY06 through FY10.
.
5
2
6
$
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5
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6
7
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$
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6
4
6
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8
0
7
$
.
7
4
4
$
.
4
8
8
$
C A S H
F R O M
O P E R A T I O N S
(in millions)
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
.
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©
Celebration of
10 year anniversary
with NASDAQ market
close ceremony.
(Left)
William P. Noglows,
Chairman, President & CEO
(Right)
William S. Johnson,
Vice President & CFO
t o o u r S t o C k h o l d e r S , C u S t o m e r S , S u p p l i e r S a n d e m p l o y e e S
We are delighted to have achieved record financial
stronger than ever, which is reflected in the number of
performance in fiscal 2010, our tenth year as a public
supplier awards that we have earned from leading
company, attaining $408 million in revenue and $2.13 in
semiconductor manufacturers. And the continued
diluted earnings per share. While we certainly benefited
successful execution of our productivity initiatives has
from the strong recovery of the global semiconductor
driven our highest gross profit margin performance in
industry, I believe our strong results also reflect the
six years. We believe we have strengthened our
successful sustained execution of our core business
competitive position over the past five years by refilling
strategy. This strategy is simple and direct—to
our product portfolio, improving the consistency of our
strengthen and grow our core CMP consumables
products, and increasing the trust and loyalty of our
business, supported by three related key initiatives of
customers. In our view, we are very well positioned to
Technology Leadership, Operations Excellence and
continue to advance our competitive position in CMP
Connecting with Customers. The simplicity and focus
consumables.
of our strategy provide clarity for execution and drive
our solid operational performance. Over our ten year
history as a public company, we have steadily built our
infrastructure and capabilities to be close to our
customers. We now have approximately half of our
workforce and fixed assets located in the Asia Pacific
region, which represents the vibrant heart of the
semiconductor industry. In conjunction, we have located
seasoned technical experts closer to our customers to
facilitate greater collaboration and partnering within the
highly specialized field of CMP.
growth opportunitieS
In particular, I am energized about our growing CMP
polishing pad business, which we believe currently
represents the largest organic growth opportunity for
our company. Over the past three years, we have won
CMP pad business with more than 20 customers and
currently have many more ongoing customer evaluations.
We are also alpha testing our next generation pad
product platform, the Epic® D200, which we expect will
further broaden our addressable market and drive
continued long-term growth in this important business
Strong Competitive poSition
area. From our perspective, as the largest CMP slurry
Reflecting on the past ten years, I have never felt as
supplier, with vast knowledge of the CMP process and
excited about our future as I do today. Our product
the demanding expectations of our semiconductor
pipeline is full of high-quality, value-driven products
customers, we are well positioned to be a strong
and solutions. In general, our customer relationships are
supplier of CMP pads. In addition, we believe the value
that our pads bring to our customers through long pad
world. We accomplished this over the last five years by
life, lower defectivity and high degree of pad consistency
transitioning to a direct sales model, opening a technical
will continue to drive further adoption of our pads
service center and acquiring Taiwan-based Epoch
throughout the industry.
Within our CMP slurry business, our growth is primarily
driven by overall wafer starts. In addition to wafer start
growth, we have opportunities to achieve above market
growth with our barrier and advanced dielectric slurries
as we expand our presence into these areas where we
have historically been under-represented. We also plan
to grow our new aluminum slurry business as our
customers begin to ramp this emerging technology.
Beyond traditional CMP consumables, we are also
commercializing slurries for polishing bare silicon wafers.
We received our first customer order in this area in fiscal
2010 and we hope to capture a meaningful portion of this
estimated $220 million market over the next several years.
profitable growth
In addition to growing our top line, we are also
committed to expanding our bottom line. The growth
opportunities that we are pursuing are either within or
very close to our core business, so the incremental
operating costs to pursue these opportunities are low.
For example, we are able to leverage the existing
Material Co., Ltd., which had a significant market,
manufacturing and research and development presence
in CMP slurries in Taiwan. As a result, Taiwan has grown
from approximately 27% of our revenue in 2006 to about
32% of our revenue in fiscal 2010. In much the same way,
we are now looking to strengthen our business in South
Korea, the second largest CMP consumables market in
the world. We plan to expand upon our already solid
sales presence by establishing manufacturing and
research and development capabilities there, which we
expect will represent a capital investment of approximately
$12 million. By providing enhanced capabilities and
service, we expect to grow our business with the advanced
memory customers in South Korea.
We also intend to continue to pursue potential
acquisitions that we believe are closely related to, and
exhibit a high degree of strategic fit with, our core CMP
consumables business. We are focusing on opportunities
that would allow us to leverage our world-class supply
chain management, quality systems and global
infrastructure. In pursuing these potential opportunities,
we hope to bring more electronic materials products to
development, sales and application support teams that
our existing customer base.
we have built for our slurry business to also service our
CMP pad business. Additionally, in fiscal 2010 we were
able to increase profitability by improving our gross
profit margin with the continued successful execution of
our productivity initiatives, a disciplined pricing strategy
and increasing pad sales. Further, by leveraging our
scale, our long-term goal is to trend our operating
expenses to a level representing approximately 30
percent of revenue.
next StepS
I would like to thank our stockholders, customers,
suppliers and employees for your support and continued
confidence in our company over the past ten years.
Overall, we believe that our competitive position is the
strongest it has been in years, and we are excited about
the opportunities for long-term profitable growth ahead.
Sincerely,
Much of our success today can be attributed to the
focus we have had on strengthening our business in
Taiwan, the largest CMP consumables market in the
WILLIAM P. NOGLOWS
Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2010
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
COMMISSION FILE NUMBER 000-30205
CABOT MICROELECTRONICS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State of Incorporation)
36-4324765
(I.R.S. Employer Identification No.)
870 NORTH COMMONS DRIVE
AURORA, ILLINOIS
(Address of principal executive offices)
60504
(Zip Code)
Registrant’s telephone number, including area code: (630) 375-6631
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, $0.001 par value
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes X No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes No X
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,
if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer X Accelerated filer Non-accelerated filer Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No X
The aggregate market value of the registrant’s Common Stock held beneficially or of record by stockholders who are
not affiliates of the registrant, based upon the closing price of the Common Stock on March 31, 2010, as reported by
the NASDAQ Global Select Market, was approximately $875,948,700. For the purposes hereof, “affiliates” include all
executive officers and directors of the registrant.
As of October 31, 2010, the Company had 22,939,516 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on March 8,
2011, are incorporated by reference in Part III of this Form 10-K to the extent stated herein.
This Form 10-K includes statements that constitute “forward-looking statements” within the meaning of federal
securities regulations. For more detail regarding “forward-looking statements” see Item 7 of Part II of this Form 10-K.
CABOT MICROELECTRONICS CORPORATION
FORM 10-K
For the Fiscal Year Ended September 30, 2010
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Executive Officers of the Registrant
Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors , Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
PART II.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV.
Item 15.
Exhibits and Financial Statement Schedules
Exhibit Index
Signatures
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PART I
Item 1. Business
Our Company
Cabot Microelectronics Corporation (“Cabot Microelec-
tronics”, “the Company”, “us”, “we”, or “our”), which
was incorporated in the state of Delaware in 1999, is the
leading supplier of high-performance polishing slurries
and a growing CMP pad supplier used in the manufac-
ture of advanced integrated circuit (IC) devices within
the semiconductor industry, in a process called chemi-
cal mechanical planarization (CMP). CMP is a polishing
process used by IC device manufacturers to planarize or
flatten many of the multiple layers of material that are
deposited upon silicon wafers in the production of
advanced ICs. Our products play a critical role in the
production of advanced IC devices, thereby enabling
our customers to produce smaller, faster and more com-
plex IC devices with fewer defects.
We currently operate predominantly in one industry
segment—the development, manufacture and sale of
CMP consumables. We develop, produce and sell CMP
slurries for polishing many of the conducting and insu-
lating materials used in IC devices, and also for polish-
ing certain components in hard disk drives, specifically
rigid disk substrates and magnetic heads. In addition,
we develop, manufacture and sell CMP polishing pads,
which are used in conjunction with slurries in the CMP
process. We are also pursuing other demanding surface
modification applications outside of the semiconductor
and hard disk drive industries for which we believe our
capabilities and knowledge may provide value in
improved surface performance or productivity.
In February 2009, we acquired Epoch Material Co., Ltd.
(Epoch), which previously was a consolidated subsid-
iary of Eternal Chemical Co., Ltd. (Eternal). Epoch is a
Taiwan-based company specializing primarily in the
development, manufacture and sale of copper CMP
consumables. We believe the acquisition of Epoch pro-
vides an excellent opportunity to strengthen and grow
our core CMP consumables business, primarily in the
area of copper CMP slurries, and enhances our ability to
innovate, deliver and support high-performing, world-
class products to our customers around the world.
CMP Process Within IC Device Manufacturing
IC devices are components in a wide range of electronic
systems for computing, communications, manufactur-
ing and transportation. Individual consumers most fre-
quently encounter IC devices as microprocessors in
their desktop or laptop computers and as memory chips
in computers, tablet PCs, cell phones and digital cam-
eras. The multi-step manufacturing process for IC
devices typically begins with a circular wafer of pure sili-
con, with the first manufacturing step referred to as a
“wafer start.” A large number of identical IC devices, or
dies, are manufactured on each wafer at the same time.
The first steps in the manufacturing process build tran-
sistors and other electronic components on the silicon
wafer. These are isolated from each other using a layer
of insulating material, most often silicon dioxide, to pre-
vent electrical signals from bridging from one transistor
to another. These components are then wired together
using conducting materials such as aluminum or copper
in a particular sequence to produce a functional IC
device with specific characteristics. When the conduct-
ing wiring on one layer of the IC device is completed,
another layer of insulating material is added. The proc-
ess of alternating insulating and conducting layers is
repeated until the desired wiring within the IC device is
achieved. At the end of the process, the wafer is cut into
the individual dies, which are then packaged to form
individual chips.
Demand for CMP consumable products for IC devices is
primarily based on the number of wafer starts by semi-
conductor manufacturers and the type and complexity
of the IC devices they produce. To enhance the per-
formance of IC devices, IC device manufacturers have
progressively increased the number and density of elec-
tronic components and wiring layers in each IC device.
As a result, the number of wires and the number of dis-
crete wiring layers have increased. As the complexity of
IC devices has increased, the demand for CMP consum-
able products has also increased. As semiconductor
technology has advanced and performance require-
ments of IC devices have increased, the percentage of
IC devices that utilize CMP in the manufacturing process
has increased steadily over time. We believe that CMP is
used in the majority of all IC devices made today, and
we expect that the use of CMP will continue to increase
in the future.
In the CMP polishing process, CMP consumables are
used to remove excess material that is deposited during
the IC manufacturing process, and to level and smooth
the surfaces of the layers of IC devices, via a combina-
tion of chemical reactions and mechanical abrasion,
leaving minimal residue or defects on the surface, and
leaving only the material necessary for circuit integrity.
CMP slurries are liquid solutions generally composed of
high-purity deionized water and a proprietary mix of
chemical additives and engineered abrasives that chem-
ically and mechanically interact at an atomic level with
the surface material of the IC device. CMP pads are
engineered polymeric materials designed to distribute
2
3
and transport the slurry to the surface of the wafer and
distribute it evenly across the wafer. Grooves are cut
into the surface of the pad to facilitate distribution of
the slurry. During the CMP process the wafer is typically
held on a rotating carrier, which is pressed down against
a rotating polishing table and spun in a circular motion.
The portion of the table that comes in contact with the
wafer is covered by a polishing pad. A CMP slurry is con-
tinuously applied to the polishing pad to facilitate and
enhance the polishing process. Hard disk drive manu-
facturers use similar processes to smooth the surface of
substrate disks before depositing magnetic media onto
the disk.
An effective CMP process is achieved through technical
optimization of the CMP consumables in conjunction
with an appropriately designed CMP process. Prior to
introducing new or different CMP slurries or pads into
its manufacturing process, an IC device manufacturer
generally requires the product to be qualified in its
proc esses through an extensive series of tests and eval-
uations. These qualifications are intended to ensure that
the CMP consumable product will function properly
within the customers’ overall manufacturing processes.
These tests and evaluations may require minor changes
to the CMP process or the CMP slurry or pad. While this
qualification process varies depending on numerous
factors, it is generally quite costly and may take six
months or longer to complete. IC device manufacturers
usually take into account the cost, time required and
impact on production when they consider implement-
ing or switching to a new CMP slurry or pad.
CMP enables IC device manufacturers to produce
smaller, faster and more complex IC devices with a
greater density of transistors and other electronic com-
ponents than is possible without CMP. By enabling IC
device manufacturers to make smaller IC devices, CMP
also allows them to increase the number of IC devices
that fit on a wafer. This increase in the number of IC
devices per wafer in turn increases the throughput, or
the number of IC devices that can be manufactured in a
given time period, and thereby reduces the cost per
device. CMP also helps reduce the number of defective
or substandard IC devices produced, which increases
the device yield. Improvements in throughput and yield
reduce an IC device manufacturer’s unit production
costs, and reducing costs is one of the highest priorities
of a semiconductor manufacturer as the return on its
significant investment in manufacturing capacity can be
enhanced by lower unit costs. More broadly, sustained
growth in the semiconductor industry traditionally has
been fueled by enhanced performance and lower unit
costs, making IC devices more affordable in an expand-
ing range of applications.
Precision Polishing
Through our Engineered Surface Finishes (ESF) busi-
ness, we are applying our technical expertise in CMP
consumables and polishing techniques developed for
the semiconductor industry to demanding applications
in other industries where shaping, enabling and enhanc-
ing the performance of surfaces is critical to success.
Many of the production processes currently used in pre-
cision machining and polishing have been based on tra-
ditional, labor-intensive techniques, which are being
replaced by computer-controlled, deterministic proc-
esses. Our wholly-owned subsidiary, QED Technologies
International, Inc. (QED), is a leading provider of deter-
ministic finishing technology for the precision optics
industry. We believe precision optics are pervasive,
serving several existing large markets such as semicon-
ductor equipment, aerospace, defense, security and
telecommunications.
Our Products
CMP Consumables for IC Devices
We develop, produce and sell CMP slurries for a wide
range of polishing applications of materials that con-
duct electrical signals, including tungsten, copper, alu-
minum and tantalum (commonly referred to as “copper
barrier” or “barrier”). Slurries for polishing tungsten are
used heavily in the production of memory devices for a
multitude of end applications such as computers, MP3
players, cellphones, gaming devices, digital photogra-
phy and digital video recorders, as well as in mature
logic applications such as those used in automobiles.
Our most advanced slurries for tungsten polishing are
designed to be customized to provide customers
greater flexibility, improved performance and a reduced
cost of ownership. Our slurries for polishing copper
and barrier materials are used primarily in the produc-
tion of advanced IC logic devices such as microproces-
sors for computers, and devices for graphic systems,
gaming systems and communication devices. These
products include different slurries for polishing the
copper film and the thin barrier layer used to separate
copper from the adjacent insulating material. These
same copper and barrier slurries are now being used in
the CMP process for memory devices as well. We offer
multiple products for each technology node to enable
different integration schemes depending on specific
customer needs.
We also develop, manufacture and sell slurry products
used to polish the dielectric insulating materials that
separate conductive layers within logic and memory IC
devices. Our core slurry products for these materials
are primarily used for high volume applications called
4
5
Interlayer Dielectric or ILD. Our advanced dielectrics
products are designed to meet the more stringent and
complex performance requirements of lower-volume,
more specialized dielectric polishing applications at
advanced technology nodes.
We develop, produce and sell CMP polishing pads,
which are consumable materials that work in conjunc-
tion with CMP slurries in the CMP polishing process.
We believe that CMP polishing pads represent a natural
adjacency to our CMP slurry business, since the tech-
nologies are closely related and utilize the same techni-
cal and sales infrastructure. We believe our unique pad
material and our continuous pad manufacturing process
enable us to produce a pad with a longer pad life,
greater consistency from pad to pad, and enhanced
performance, resulting in lower cost of ownership for
our customers. We are producing and selling pads that
can be used on a variety of polishing tools, over a range
of applications including tungsten, copper and dielec-
trics, over a range of technology nodes, and on both
200mm and 300mm wafers.
CMP Consumables for the Data Storage Industry
We develop and produce CMP slurries for polishing the
materials that coat rigid disks and magnetic heads used
in hard disk drives for computer and other data storage
applications, which represent an extension of our core
CMP slurry technology and manufacturing capabilities
established for the semiconductor industry. We believe
CMP significantly improves the surface finish of these
coatings, resulting in greater storage capacity of the
hard disk drive systems, and also improves the produc-
tion efficiency of manufacturers of hard disk drives by
helping increase their throughput and yield.
Precision Optics Products
Through our QED subsidiary, we design and produce
precision polishing and metrology systems for advanced
optic applications that allow customers to attain near-
perfect shape and surface finish on a range of optical
components such as mirrors, lenses and prisms. Histori-
cally, advanced optics have been produced using labor-
intensive artisan processes, and variability has been
common. QED has automated the polishing process for
advanced optics to enable rapid, deterministic and
repeatable surface correction to the most demanding
levels of precision in dramatically less time than with tra-
ditional means. QED’s polishing systems use Magneto-
Rheological Finishing (MRF), a proprietary surface
figuring and finishing technology, which employs mag-
netic fluids and sophisticated computer technology to
polish a variety of shapes and materials. Its metrology
systems use Subaperture Stitching Interferometry (SSI)
technology that captures precise metrology data for
large and/or strongly curved optical parts and an
Aspheric Stitching Inter ferometer (ASI), which is
designed to measure increasingly complex shapes,
including non-spherical surfaces, or aspheres.
Strategy
We collaborate closely with our customers to design
and manufacture products that offer innovative and
reliable solutions to our customers’ challenges and we
strive to consistently and reliably deliver and support
these products around the world. We continue to
focus on the execution of our primary strategy of
strengthening and growing our core CMP consumables
business within the semiconductor and hard disk drive
industries. We are also leveraging our expertise in CMP
process and slurry formulation to expand our ESF busi-
ness in the optics and electronic substrates markets.
Strengthen and Grow Our Core CMP
Consumables Business
As the leader in the CMP slurry industry, we intend to
grow our core CMP consumables business through the
execution of our three strategic initiatives—maintaining
our technological leadership, striving for operations
excellence and connecting with our customers. We
believe our strong financial position allows us to fund
growth opportunities in our core CMP consumables
business through internally developed technologies as
well as through potential acquisitions of technologies
and businesses such as our acquisition of Epoch in
fiscal 2009.
Technology Leadership: We believe that technology and
innovation are vital to success in our CMP consumables
business and we devote significant resources to research
and development. We continue to develop and produce
new CMP products to address existing and new CMP
applications and we have built a strong, worldwide
intellectual property portfolio to protect our investment
in these new products. We believe our new product
pipeline contains a number of high-value products that
will provide our customers with enabling solutions
across a number of CMP application areas at advanced
technology nodes. We need to stay ahead of the rapid
technological advances in the electronics industry in
order to deliver a broad line of CMP consumables prod-
ucts that meet or exceed our customers’ evolving needs.
We have established research and development facili-
ties in the United States, Japan, Taiwan and Singapore
in order to meet our customers’ technology needs on a
global basis.
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Operations Excellence: We believe that product and
supply chain quality is critical to success in our business.
Our customers demand increasing performance of our
products in terms of product quality and consistency.
We strive to drive out variation in our products and
proc esses in order to increase quality, productivity and
efficiency, and improve the uniformity and consistency
of performance of our CMP consumable products. Our
global manufacturing sites are managed to ensure we
have the people, training and systems needed to sup-
port the unique industry demands for product quality.
To support our operations excellence initiative, we have
adopted the concepts of Six Sigma across our Company.
Six Sigma is a systematic, data-driven approach and
methodology for improving quality by reducing variabil-
ity. We believe our Six Sigma initiatives have contributed
to significant, sustained improvement in productivity in
our operations over the past six fiscal years, which we
believe contributed to the improvement in our gross
profit margin in fiscal 2010. We also have extended our
Six Sigma initiative to include joint projects with custom-
ers and vendors. We continue to make improvements to
our supply chain to improve the quality and consistency
of our products, processes and raw materials, as well as
to expand our production capacity.
Connecting With Our Customers: We believe that build-
ing close relationships with our customers is a key to
achieving long-term success in our business. We collab-
orate with our customers on joint projects to identify
and develop new and better CMP consumables, to inte-
grate our products into their manufacturing processes,
and to assist them with supply, warehousing and inven-
tory management. Our customers demand a highly
reliable supply source, and we believe we have a com-
petitive advantage because of our ability to timely
deliver high-quality products and service from the early
stages of product development through the high-
volume commercial use of our products. We strategi-
cally locate our research facilities and clean rooms,
manufacturing operations and the related technical and
customer support teams to be responsive to our cus-
tomers’ needs. We believe our extensive research and
development facilities in close proximity to our custom-
ers provides a competitive advantage as our customers
are able to test our CMP products on their wafers in our
facilities during periods of strong semiconductor indus-
try demand, rather than diverting their production
resources from producing IC devices to testing CMP
products. In addition, we recently announced we have
entered into a non-binding memorandum of under-
standing with the Gyeonggi Province of South Korea to
potentially establish manufacturing and research and
development capabilities there, in close proximity to
some of the largest manufacturers of memory devices in
the world.
The following are some examples of the successful exe-
cution of our strategic initiatives during fiscal 2010.
• Through our Six Sigma initiatives and through other
mechanisms, we have driven sustained improvements
in our supply chain operations.
In fiscal 2010, we improved manufacturing yields for
our CMP slurry products. The improvement in yields
combined with an increase in the utilization of our
manufacturing capacity helped us achieve our high-
est gross profit margin since fiscal 2003.
We achieved a record level of productivity improve-
ment in fiscal 2010 and have reduced product varia-
tion by more than 90 percent over the past six years.
We successfully achieved a sustained period of high
production levels, following a period of great volatil-
ity in fiscal 2009.
• We continued to grow our pad business, increasing
pad revenue nearly 70%, from $17.7 million in fiscal
2009 to $29.9 million in fiscal 2010.
We successfully transitioned a portion of our manu-
facturing activity to the on-site production facility
within one of Taiwan Semiconductor Manufacturing
Company’s (TSMC) fabs. This has enabled us to
reduce logistics and packaging costs as well as
improve our turnaround time to fill TSMC orders.
We continued to make progress in the development
of new pad products. We are alpha testing our next
generation pad platform, the D200, with a small
number of customers and we have a number of cus-
tomers evaluating product extensions within our
existing D100 product portfolio.
• We continued to capture customer feedback through
a variety of avenues, including customer-supplied
scorecards and Company-initiated surveys. We use
the feedback from our customers to drive further
improvements in our business to increase customer
satisfaction.
Our customer satisfaction performance, based on
customer-supplied scorecards and our own surveys,
has continued to improve year after year.
We continued to receive customer awards recog-
nizing the Company as a key supplier, including sup-
plier awards from a number of key customers
including TSMC, Intel, United Microelectronics
Corporation (UMC) and Samsung.
Leverage Our Expertise into New Markets—
Engineered Surface Finishes Business
In addition to strengthening and growing our core CMP
business, we continue to pursue development of our
ESF business. We believe we can leverage our expertise
in CMP consumables for the semiconductor industry to
develop products for demanding polishing applications
in other industries that are synergistic to our CMP con-
sumables business. We are focusing on opportunities in
precision optics and electronic substrates.
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Similar to our core CMP business, our ESF business is
technology driven. For example, we believe our QED
subsidiary is the technology leader in deterministic fin-
ishing for the precision optics industry. In fiscal 2010,
QED commercialized its new ASI technology, which
enables customers to measure complex optical shapes,
including steeply non-spherical surfaces.
Industry Trends
Semiconductor Industry
We believe the semiconductor industry continues to
demonstrate several clear trends: the semiconductor
business demonstrates cyclical growth; there is constant
pressure to reduce costs; and the customer base is
consolidating.
The cyclical nature of the semiconductor industry is
closely tied to the global economy as well as to supply
and demand within the industry. The semiconductor
industry experienced significant growth during our fis-
cal 2010, following its contraction in fiscal 2009 due to
the severe global recession. This strong industry recov-
ery positively affected the demand for our products. We
began to see signs of recovery in the semiconductor
industry during the second half of fiscal 2009 as semi-
conductor manufacturers began to replenish inventories
in response to improvement in the underlying demand.
In response to this increase in underlying demand, semi-
conductor manufacturers have increased their produc-
tion of IC devices to levels which may require additions
to their production capacity, which could positively
affect the future demand for our products. Although the
timing and pace of a broad global economic recovery
remains uncertain, we believe that semiconductor indus-
try demand will grow over the long term based on
increased usage of IC devices and an expanding range
of uses of these devices. We also believe that our
Company is well positioned to operate successfully over
a range of demand environments as we have success-
fully navigated our business through a number of indus-
try cycles in the past.
As the demand for more advanced and lower cost elec-
tronic devices grows, there is continued pressure on IC
device manufacturers to reduce their costs. Many manu-
facturers reduce costs by pursuing ever-increasing scale
in their operations. In addition, manufacturers seek ways
to increase their production yield while reducing their
production costs regardless of the number of units they
produce. They look for CMP consumables products with
improved quality and performance that reduce their
overall cost of ownership, they pursue ways to use less
CMP materials, and they also aggressively pursue price
reductions on the materials they buy. This pressure on
manufacturers to reduce costs has also led a number of
integrated device manufacturers to continually increase
the use of foundries where they can outsource some or
all of their manufacturing to reduce their fixed costs.
This approach also leads to increasing scale and lower
costs for these foundries.
The number of semiconductor manufacturers continues
to decline both through mergers and acquisitions as
well as through alliances among different companies.
Smaller manufacturers do not appear to have the tech-
nology or resources necessary to compete with the
large manufacturers on the global basis needed in
today’s market. Many of our customers are forming con-
sortia and research and development alliances to better
manage the high cost of their development activities.
CMP Consumables Industry
Demand for CMP consumables is primarily driven by
wafer starts, so the CMP consumables industry reflects
the cyclicality of the semiconductor industry as well as
changes in global economic conditions. Our financial
results for fiscal years 2010 and 2009 clearly demon-
strated these effects. We saw the benefits of increased
production levels in the semiconductor industry in fiscal
2010 as our revenues in fiscal 2010 increased over 40%
from fiscal 2009. This was in stark contrast to the first
half of our fiscal 2009 when we saw the adverse effects
of the global economic recession that caused our reve-
nues for the first six months of fiscal 2009 to decrease
over 42% from the comparable period of fiscal 2008.
Over the long term, we anticipate the worldwide market
for CMP consumables used by IC device manufacturers
will grow as a result of expected long-term growth in
wafer starts, growth in the percentage of IC devices pro-
duced that require CMP, an increase in the number of
CMP polishing steps required to produce these devices
and the introduction of new materials in the manufac-
ture of semiconductor devices.
We expect the anticipated growth in demand will be
somewhat mitigated by increased efficiencies in CMP
consumable usage as customers seek to reduce their
costs. Semiconductor manufacturers look for ways to
lower the cost of CMP consumables in their production
operations, including diluting slurry or reducing the
slurry flow rate during production to reduce the total
amount of slurry used, and extending the polishing time
before replacing pads.
As semiconductor technology continues to advance, we
believe that CMP technical solutions are becoming more
complex, and leading-edge technologies generally
require some customization by customer, tool set and
process integration approach. Leading-edge device
designs are introducing more materials and processes
into next generation chips, and these new materials and
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processes must be considered in developing CMP solu-
tions. As a result, customers are selecting suppliers
earlier in their development processes and are maintain-
ing preferred supplier relationships through production.
We believe that close collaboration between customers
and suppliers offers the best opportunity for optimal
CMP solutions. We also believe that research and devel-
opment programs are important as we develop inno-
vative, high-performing and more cost-effective CMP
solutions.
Competition
We compete in the CMP consumables industry, which is
characterized by rapid advances in technology and
demanding product quality and consistency require-
ments. We face competition from other CMP consum-
ables suppliers, and we also may face competition in
the future from significant changes in technology or
emerging technologies. However, we believe we are
well positioned to continue our leadership in the CMP
slurry industry, and to continue to grow our CMP pad
business. We believe we have the experience, scale,
capabilities and infrastructure that are required for suc-
cess, and we work closely with the largest customers
in the semiconductor industry to meet their growing
expectations.
Our CMP slurry competitors range from small compa-
nies that compete with a single product and/or in a sin-
gle geographic region to divisions of global companies
with multiple lines of CMP products for IC manufactur-
ers. However, we believe we have more CMP slurry busi-
ness than any other provider. In our view, we are the only
CMP slurry supplier today that serves a broad range
of customers by offering and supporting a full line of
CMP slurry products for all major applications over a
range of technologies, and that has a proven track
record of supplying these products globally in high vol-
umes with the attendant required high level of technical
support services.
With respect to CMP polishing pads, a single entity has
held the dominant market position for a number of
years. A number of other companies are attempting to
enter this market, providing potentially viable product
alternatives. We believe our pad materials and our con-
tinuous pad manufacturing process have enabled us to
produce a pad with a longer pad life, lower defectivity
and greater consistency for our customers, thus reduc-
ing their total pad cost. We believe this has fueled sig-
nificant growth in sales of our pad products and we are
currently alpha testing with our customers our next gen-
eration of pad products which we believe could offer
our customers an even better solution over a broad
range of applications. We believe we are now the sec-
ond largest seller of polishing pads in the world.
Our QED subsidiary operates in the precision optics
industry. There are few direct competitors of QED
because its technology is relatively new and unique. We
believe QED’s technology provides a competitive advan-
tage to customers in the precision optics industry which
still relies heavily on traditional artisan-based methods
of fabrication.
Customers, Sales and Marketing
Within the semiconductor industry, our customers are
primarily producers of logic IC devices, producers of
memory IC devices and IC foundries. Often, logic and
memory companies outsource some or all of the pro-
duction of their devices to foundries, which provide
contract manufacturing services, in order to avoid the
high cost of process development, constructing and
operating a fab, or in cases where they need additional
capacity.
Based upon our own observations and customer survey
results, we believe the following factors influence our
customers’ CMP buying decisions: overall cost of own-
ership, which represents the cost to purchase, use and
maintain a product; product quality and consistency;
product yield and performance; engineering support;
and delivery/supply assurance. We believe that greater
customer sophistication in the CMP process, more
demanding integration schemes, additional and unique
polishing materials and cost pressures will add further
demands on CMP consumable suppliers. When these
factors are combined with our customers’ desires to
gain purchasing leverage and lower their cost of owner-
ship, we believe that only the most reliable, innovative,
cost effective, service driven CMP consumables suppli-
ers will thrive.
We use an interactive approach to build close relation-
ships with our customers in a variety of areas and we
have customer-focused teams located in each major
geographic region of sales. Our sales process begins
long before the actual sale of our products and occurs
on a number of levels. Due to the long lead times from
research and development to product commercializa-
tion and sales, we have research teams that collaborate
with customers on emerging applications years before
the products are required by the market. We also have
development teams that coordinate with our customers,
using our research and development facilities and capa-
bilities to design CMP products tailored to their precise
needs. Next, our applications engineers work with cus-
tomers to integrate our products into their manufactur-
ing processes. Finally, as part of our sales process, our
logistics and sales personnel provide supply, warehous-
ing and inventory management for our customers.
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We market our products primarily through direct sales
to our customers, although we use distributors in select
areas. We believe this strategy is one way we can
achieve our goal of connecting more closely with our
customers.
Our QED subsidiary supports customers in the semicon-
ductor equipment, aerospace, defense, security and
telecommunications markets. QED counts among its
worldwide customers leading precision optics manu-
facturers, major semiconductor original equipment
manufacturers, the United States government and its
contractors.
In fiscal 2010, our five largest customers accounted for
approximately 48% of our revenue, with TSMC and UMC
accounting for approximately 18% and 11% of our reve-
nue, respectively. For additional information on con-
centration of customers, refer to Note 2 of “Notes to the
Consolidated Financial Statements” included in Item 8
of Part II of this Form 10-K.
Research, Development and Technical Support
We believe that technology is vital to success in our
CMP business and in our ESF business, and we plan to
continue to devote significant resources to research,
development and technical support (R&D), and balance
our efforts between the shorter-term market needs and
the longer-term investments required of us as a tech-
nology leader. We develop and formulate new and
enhanced CMP consumables and new CMP processes
tailored to our customers’ needs. We work closely
with our customers at their facilities to identify their spe-
cific technology and manufacturing challenges and
to translate these challenges into viable CMP process
solutions.
Our technology efforts are currently focused on five
main areas that span the early conceptual stage of prod-
uct development involving new materials, processes
and designs several years in advance of commercializa-
tion, through to continuous improvement of already
commercialized products in daily use in our customers’
manufacturing facilities. These five areas are:
• Research related to fundamental CMP technology;
• Development and formulation of new and enhanced
CMP consumables products, including collaborating
on joint development projects with our customers;
• Process development to support rapid and effective
commercialization of new products;
• Technical support of CMP products in our customers’
manufacturing facilities; and
• Evaluation and development of new polishing and
metrology applications outside of the semiconductor
industry.
Our research in CMP slurries and pads addresses a
breadth of complex and interrelated performance crite-
ria that relate to the functional performance of the chip,
our customers’ manufacturing yields, and their overall
cost of ownership. We design slurries and pads that are
capable of polishing one or more materials of differing
hardness, sometimes at the same time, that make up the
semiconductor circuitry. Additionally, our products must
achieve the desired surface conditions at high polishing
rates, high processing yields and low consumables costs
in order to earn acceptable system economics for our
customers. As dimensions become smaller and as mate-
rials and designs increase in complexity, these chal-
lenges require significant investments in R&D.
We also commit internal R&D resources to our ESF
business. We believe that application areas we are cur-
rently developing, such as precision optics and elec-
tronic substrates, represent natural adjacencies to our
core CMP business and technology. Products under
development include products used to polish silicon
and silicon-carbide wafers to improve the surface qual-
ity of these wafers and reduce the customers’ total cost
of ownership.
We believe that a competitive advantage may be gained
through technology leadership, and that our invest-
ments in R&D provide us with leading-edge polishing
and metrology capabilities to support the most advanced
and challenging customer technology requirements on
a global basis. In fiscal 2010, 2009 and 2008, we incurred
approximately $51.8 million, $48.2 million and $49.2 mil-
lion, respectively, in R&D expenses. We believe our Six
Sigma initiatives in our R&D efforts allow us to conduct
more research at a lower cost. Investments in property,
plant and equipment to support our R&D efforts are
capitalized and depreciated over their useful lives. We
operate a R&D facility in Aurora, Illinois, that is staffed
by a team that includes experts from the semiconductor
industry and scientists from key disciplines required for
the development of high-performance CMP consum-
able products. This facility features a Class 1 clean room
and advanced equipment for product development,
including 300mm polishing and metrology capabilities,
the experimental results from which we believe corre-
late with what our customers experience when using
our products in their factories. In addition, we operate
a technology center in Japan, which includes 300mm
polishing, metrology and slurry development capability,
which we believe enhances our ability to provide opti-
mized CMP solutions to our customers in the Asia Pacific
region. Epoch also has R&D capability, including a clean
room with 200mm polishing capability. All of these facil-
ities underscore our commitment both to continuing to
invest in our technology infrastructure to maintain our
technology leadership, and to becoming even more
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responsive to the needs of our customers. Other exam-
ples of this commitment include our QED research facil-
ity in Rochester, New York, as well as our laboratory in
Singapore that provides additional slurry formulation
capability to support the data storage industry.
Raw Materials Supply
Metal oxides, such as silica and alumina, are significant
raw materials we use in many of our CMP slurries. In the
interest of supply assurance, our strategy is to secure
multiple sources of raw materials and qualify and moni-
tor those sources as necessary to ensure our supply of
raw materials remains uninterrupted. Also, we have
entered into multi-year supply agreements with a num-
ber of suppliers for the purchase of raw materials, includ-
ing agreements with Cabot Corporation, which is not
a related party, for the purchase of certain amounts
and types of fumed silica and fumed alumina. For addi-
tional information regarding these agreements, refer to
“Tabular Disclosure of Contrac tual Obligations,”
included in “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” in
Item 7 of Part II of this Form 10-K.
Intellectual Property
Our intellectual property is important to our success
and ability to compete. As of October 31, 2010, we had
201 active U.S. patents and 82 pending U.S. patent
applications. In most cases we file counterpart foreign
patent applications. Many of these patents are impor-
tant to our continued development of new and innova-
tive products for CMP and related processes, as well as
for new businesses. Our patents have a range of dura-
tion and we do not expect to lose any material patent
through expiration in the next five years. We attempt to
protect our intellectual property rights through a com-
bination of patent, trademark, copyright and trade
secret laws, as well as employee and third party nondis-
closure and assignment agreements. We vigorously and
proactively pursue parties that attempt to compromise
our investments in research and development by infring-
ing our intellectual property. For example, in January
2007, we filed a legal action against DuPont Air Products
NanoMaterials LLC (DA Nano), a competitor of ours,
charging that DA Nano’s manufacture and marketing of
certain CMP slurries infringe certain CMP slurry patents
that we own, as a counterclaim to DA Nano’s filing an
action charging that those patents are invalid. In July
2010, a jury trial was completed in connection with this
ongoing litigation where the validity of all of our patents
at issue in the matter was upheld. We believe this is
important because the testing of these patents through
the U.S. judicial process has increased the strength of
our intellectual property and our ability to enforce it.
However, we were disappointed that the jury did not
find that DA Nano’s products at issue infringe on our
patents. In November 2010, we filed a Notice of Appeal
regarding infringement, and DA Nano filed a cross-
appeal. With respect to the same patents, we have been
successful before the United States International Trade
Commission in prohibiting the importation and sale
within the United States of infringing products by
another competitor.
Most of our intellectual property has been developed
internally, but we also may acquire intellectual property
from others to enhance our intellectual property port-
folio. These enhancements may be via licenses or
assignments or we may acquire certain proprietary tech-
nology and intellectual property when we make acquisi-
tions, such as through our acquisitions of Epoch, QED
and Surface Finishes Co. We believe these technology
rights continue to enhance our competitive advantage
by providing us with future product development
opportunities and expanding our already substantial
intellectual property portfolio.
Environmental Matters
Our facilities are subject to various environmental laws
and regulations, including those relating to air emis-
sions, wastewater discharges, the handling and disposal
of solid and hazardous wastes, and occupational safety
and health. We believe that our facilities are in substan-
tial compliance with applicable environmental laws and
regulations. By utilizing Six Sigma in our environmental
management system process, we believe we have
improved operating efficiencies while protecting the
environment. Our operations in the United States,
Japan, Singapore, Wales and Taiwan are ISO 14001 cer-
tified, which requires that we implement and operate
according to various procedures that demonstrate our
dedication to waste reduction, energy conservation and
other environmental concerns. We are committed to
maintaining these certifications and are actively pursu-
ing ISO 18001 Safety and Health certification for our
existing operations over the next two years. We will also
obtain additional certifications, as applicable, in the
areas in which we do business. We have incurred, and
will continue to incur, capital and operating expendi-
tures and other costs in complying with these laws and
regulations in both the United States and abroad.
However, we currently do not anticipate that the future
costs of environmental compliance will have a material
adverse effect on our business, financial condition or
results of operations.
Employees
We believe we have a world-class team of employees
who make our Company successful. As of October 31,
2010, we employed 933 individuals, including 493 in
operations, 229 in research and development and tech-
nical, 96 in sales and marketing and 115 in administra-
tion. None of our employees are covered by collective
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bargaining agreements. We have not experienced any
work stoppages and in general consider our relations
with our employees to be good.
Financial Information About Geographic Areas
We sell our products worldwide. Our geographic coverage
allows us to utilize our business and technical expertise
from a worldwide workforce, provides stability to our
operations and revenue streams to offset geography-
specific economic trends, and offers us an opportunity
to take advantage of new markets for products.
For more financial information about geographic areas,
see Note 19 of “Notes to the Consolidated Financial
Statements” included in Item 8 of Part II of this Form 10-K.
Available Information
Our annual reports on Form 10-K, quarterly reports on
Form 10-Q, definitive proxy statements on Form 14A,
current reports on Form 8-K, and any amendments to
those reports are made available free of charge on our
Company website, www.cabotcmp.com, as soon as rea-
sonably practicable after such reports are filed with the
Securities and Exchange Commission (SEC). Statements
of changes in beneficial ownership of our securities on
Form 4 by our executive officers and directors are made
available on our Company website by the end of the
business day following the submission to the SEC of
such filings. In addition, the SEC’s website (http://www.
sec.gov) contains reports, proxy statements, and other
information that we file electronically with the SEC.
Item 1A. Risk Factors
We do not believe there have been any material changes
in our risk factors since the filing of our Annual Report
on Form 10-K for the fiscal year ended September 30,
2009. However, we may update our risk factors in our
SEC filings from time to time for clarification purposes
or to include additional information, at management’s
discretion, even when there have been no material
changes.
Risks Relating to Our Business
Demand for Our Products Fluctuates and Our
Business May Be Adversely Affected by Worldwide
Economic and Industry Conditions
Our business is affected by economic and industry con-
ditions and our revenue is dependent upon semicon-
ductor demand. Semiconductor demand, in turn, is
impacted by semiconductor industry cycles, and these
cycles can dramatically affect our business. These cycles
may be characterized by rapid increases or decreases in
product demand, excess or low customer inventories,
and rapid changes in prices of IC devices. In the first half
of fiscal 2009, our business was significantly impacted by
the global economic recession. We first began to see
significant adverse effects of this in our fourth quarter of
fiscal 2008 as the reduction in end user demand for
IC devices caused semiconductor manufacturers to
reduce their production, which reduced the demand for
our CMP consumables products. Weakness in the U.S.
and global economy and stress in the financial markets
caused a significant decrease in demand for our prod-
ucts during the first half of fiscal 2009, and our revenue
decreased dramatically from revenue earned in fiscal
2008. Demand for our products increased significantly
during the second half of fiscal 2009 and this strength in
demand continued throughout fiscal 2010. While we
continue to see positive signs of growth in the semicon-
ductor industry, it is difficult to predict trends due to our
limited visibility to future customer orders. If the global
economy falters and conditions begin to deteriorate
again, we could experience material adverse impacts on
our results of operations and financial condition.
Adverse global economic conditions may have other
negative effects on our Company such as:
• The ability of our customers to pay their obligations to
us may be adversely affected causing a negative
impact on our cash flows and our results of operations
as evidenced by the bankruptcy filings of a small num-
ber of our customers in fiscal 2009.
• The carrying value of our goodwill and other intangi-
ble assets may decline in value, which could harm our
financial position and results of operations.
• Our suppliers may not be able to fulfill their obliga-
tions to us, which could harm our production process
and our business.
Some additional factors that affect demand for our
products include customers’ production of logic versus
memory devices, customers’ specific manufacturing
process integration schemes, share gains and losses
and pricing changes by us and our competitors.
We Have a Narrow Product Range and Our
Products May Become Obsolete, or Technological
Changes May Reduce or Limit Increases in the
Consumption of CMP Slurries and Pads
Our business is substantially dependent on a single
class of products, CMP slurries, which account for the
majority of our revenue. Our business in CMP pads is
also developing and growing. Our business would suffer
if these products became obsolete or if consumption
of these products decreased. Our success depends on
our ability to keep pace with technological changes and
advances in the semiconductor industry and to adapt,
improve and customize our products for advanced IC
applications in response to evolving customer needs
and industry trends. Since its inception, the semicon-
ductor industry has experienced rapid technological
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changes and advances in the design, manufacture, per-
formance and application of IC devices, and our cus-
tomers continually pursue lower cost of ownership of
materials consumed in their manufacturing processes,
including CMP slurries and pads. We expect these tech-
nological changes and advances, and this drive toward
lower costs, will continue in the future. Potential technol-
ogy developments in the semiconductor industry, as
well as our customers’ efforts to reduce consumption of
CMP consumables and to possibly reuse or recycle
these products, could render our products less impor-
tant to the IC device manufacturing process.
A Significant Amount of Our Business Comes from
a Limited Number of Large Customers and Our
Revenue and Profits Could Decrease Significantly
if We Lost One or More of These Customers
Our customer base is concentrated among a limited
number of large customers. One or more of these prin-
cipal customers could stop buying CMP consumables
from us or could substantially reduce the quantity of
CMP consumables purchased from us. Our principal
customers also hold considerable purchasing power,
which can impact the pricing and terms of sale of our
products. Any deferral or significant reduction in CMP
consumables sold to these principal customers, or a sig-
nificant number of smaller customers, could seriously
harm our business, financial condition and results of
operations.
In fiscal 2010, our five largest customers accounted for
approximately 48% of our revenue, with Taiwan Semi-
conductor Manufacturing Company (TSMC) and United
Microelectronics Corporation (UMC) accounting for
approximately 18% and 11%, respectively, of our revenue.
In fiscal 2009, our five largest customers accounted for
approximately 42% of our revenue; with TSMC account-
ing for approximately 17% of our revenue. UMC accounted
for less than 10% of our revenue in fiscal 2009.
Our Business Could Be Seriously Harmed if Our
Competitors Develop Superior Slurry Products,
Offer Better Pricing Terms or Service, or Obtain
Certain Intellectual Property Rights
Competition from other CMP slurry manufacturers could
seriously harm our business and results of operations.
Competition from other providers of CMP slurries could
continue to increase, and opportunities exist for other
companies to emerge as potential competitors by
developing their own CMP slurry products. Increased
competition has and may continue to impact the prices
we are able to charge for our slurry products as well as
our overall business. In addition, our competitors could
have or obtain intellectual property rights which could
restrict our ability to market our existing products and/
or to innovate and develop new products.
Any Problem or Disruption in Our Supply Chain,
Including Supply of Our Most Important Raw
Materials, or in Our Ability to Manufacture and
Deliver Our Products to Our Customers, Could
Adversely Affect Our Results of Operations
We depend on our supply chain to enable us to meet
the demands of our customers. Our supply chain
includes the raw materials we use to manufacture our
products, our production operations, and the means by
which we deliver our products to our customers. Our
business could be adversely affected by any problem or
interruption in our supply of the key raw materials we
use in our CMP slurries and pads, including fumed silica,
which we use for certain of our slurries, or any problem
or interruption that may occur during production or
delivery of our products, such as weather-related prob-
lems or natural disasters.
For instance, Cabot Corporation continues to be our
primary supplier of particular amounts and types of
fumed silica. We believe it would be difficult to promptly
secure alternative sources of key raw materials, includ-
ing fumed silica, in the event one of our suppliers
becomes unable to supply us with sufficient quantities
of raw materials that meet the quality and technical
specifications required by our customers. In addition,
contractual amendments to the existing agreements
with, or non-performance by, our suppliers, including
any significant financial distress our suppliers may suffer,
could adversely affect us. Also, if we change the sup-
plier or type of key raw materials we use to make our
CMP slurries or pads, or are required to purchase them
from a different manufacturer or manufacturing facility
or otherwise modify our products, in certain circum-
stances our customers might have to requalify our CMP
slurries and pads for their manufacturing processes and
products. The requalification process could take a sig-
nificant amount of time and expense to complete and
could motivate our customers to consider purchasing
products from our competitors, possibly interrupting
or reducing our sales of CMP consumables to these
customers.
We Are Subject to Risks Associated With Our
Foreign Operations
We currently have operations and a large customer base
outside of the United States. Approximately 86%, 84%
and 81% of our revenue was generated by sales to cus-
tomers outside of the United States for fiscal 2010, 2009
and 2008, respectively. We encounter risks in doing
business in certain foreign countries, including, but not
limited to, adverse changes in economic and political
conditions, fluctuation in exchange rates, compliance
with a variety of foreign laws and regulations, as well as
difficulty in enforcing business and customer contracts
and agreements, including protection of intellectual
property rights.
12
13
We May Pursue Acquisitions of, Investments in, and
Strategic Alliances with Other Entities, Which Could
Disrupt Our Operations and Harm Our Operating
Results if They Are Unsuccessful
We expect to continue to make investments in compa-
nies, either through acquisitions, investments or alli-
ances, in order to supplement our internal growth and
development efforts. Acquisitions and investments,
including our acquisition of Epoch Material Co., Ltd., a
Taiwan-based company, the first closing of which we
completed in the fiscal quarter ended March 31, 2009
and the final closing of which we completed in the fiscal
quarter ended September 30, 2010, involve numerous
risks, including the following: difficulties in integrating
the operations, technologies, products and personnel
of acquired companies; diversion of management’s
attention from normal daily operations of the business;
increased risk associated with foreign operations; poten-
tial difficulties in entering markets in which we have lim-
ited or no direct prior experience and where competitors
in such markets have stronger market positions; poten-
tial difficulties in operating new businesses with dif-
ferent business models; potential difficulties with
regulatory or contract compliance in areas in which we
have limited experience; initial dependence on unfamil-
iar supply chains or relatively small supply partners;
insufficient revenues to offset increased expenses asso-
ciated with acquisitions; potential loss of key employees
of the acquired companies; or inability to effectively
cooperate and collaborate with our alliance partners.
Further, we may never realize the perceived or antici-
pated benefits of a business combination or invest-
ments in other entities. Acquisitions by us could have
negative effects on our results of operations, in areas
such as contingent liabilities, gross profit margins, amor-
tization charges related to intangible assets and other
effects of accounting for the purchases of other business
entities. Investments in and acquisitions of technology-
related companies are inherently risky because these
businesses may never develop, and we may incur losses
related to these investments. In addition, we may be
required to write down the carrying value of these
acquisitions or investments to reflect other than tempo-
rary declines in their value, which could harm our busi-
ness and results of operations.
Because We Have Limited Experience in Business
Areas Outside of CMP Slurries, Expansion of Our
Business into New Products and Applications May
Not Be Successful
An element of our strategy has been to leverage our
current customer relationships and technological exper-
tise to expand our CMP business from CMP slurries into
other areas, such as CMP polishing pads. Additionally,
pursuant to our Engineered Surface Finishes business,
we are pursuing other surface modification applications.
Expanding our business into new product areas could
involve technologies, production processes and busi-
ness models in which we have limited experience, and
we may not be able to develop and produce products
or provide services that satisfy customers’ needs or we
may be unable to keep pace with technological or other
developments. Also, our competitors may have or
obtain intellectual property rights which could restrict
our ability to market our existing products and/or to
innovate and develop new products.
Because We Rely Heavily on Our Intellectual
Property, Our Failure to Adequately Obtain or
Protect It Could Seriously Harm Our Business
Protection of intellectual property is particularly impor-
tant in our industry because we develop complex tech-
nical formulas for CMP products that are proprietary in
nature and differentiate our products from those of our
competitors. Our intellectual property is important to
our success and ability to compete. We attempt to pro-
tect our intellectual property rights through a combina-
tion of patent, trademark, copyright and trade secret
laws, as well as employee and third-party nondisclosure
and assignment agreements. Due to our international
operations, we pursue protection in different jurisdic-
tions, which may provide varying degrees of protection,
and we cannot provide assurance that we can obtain
adequate protection in each such jurisdiction. Our fail-
ure to obtain or maintain adequate protection of our
intellectual property rights for any reason, including
through the patent prosecution process or in the event
of litigation related to such intellectual property, such
as the current litigation between us and DuPont Air
Products NanoMaterials (DA Nano), in which the validity
of all of our patents at issue in the matter was recently
upheld as further described above in Part I, Item 1 under
the heading “Intellectual Property” and in Part I, Item 3
under the heading “Legal Proceedings,” could seriously
harm our business. In addition, the costs of obtaining or
protecting our intellectual property could negatively
affect our operating results. For example, in fiscal 2010,
costs associated with enforcing our intellectual property
caused our operating expenses to increase.
We May Not Be Able to Monetize Our Investments
in Auction Rate Securities in the Short Term and We
Could Experience a Decline in Their Market Value,
Which Could Adversely Affect Our Financial Results
We owned auction rate securities (ARS) with an esti-
mated fair value of $8.1 million ($8.3 million par value) at
September 30, 2010, which were classified as Other
Long-Term Assets on our Consolidated Balance Sheet. If
current illiquidity in the ARS market does not lessen, if
issuers of our ARS are unable to refinance the underly-
ing securities, or are unable to pay debt obligations and
related bond insurance fails, or if credit ratings decline
or other adverse developments occur in the credit
12
13
markets, then we may not be able to monetize these
securities in the foreseeable future. We may also be
required to further adjust the carrying value of these
instruments through an impairment charge that may be
deemed other-than-temporary which would adversely
affect our financial results.
Our Inability to Attract and Retain Key Personnel
Could Cause Our Business to Suffer
If we fail to attract and retain the necessary managerial,
technical and customer support personnel, our business
and our ability to maintain existing and obtain new cus-
tomers, develop new products and provide acceptable
levels of customer service could suffer. We compete
with other industry participants for qualified personnel,
particularly those with significant experience in the
semiconductor industry. The loss of services of key
employees could harm our business and results of
operations.
Risks Relating to the Market for Our
Common Stock
The Market Price May Fluctuate Significantly
and Rapidly
The market price of our common stock has fluctuated
and could continue to fluctuate significantly as a result
of factors such as: economic and stock market con-
ditions generally and specifically as they may impact
participants in the semiconductor and related indus-
tries; changes in financial estimates and recommen-
dations by securities analysts who follow our stock;
earnings and other announcements by, and changes in
market evaluations of, us or participants in the semicon-
ductor and related industries; changes in business or
regulatory conditions affecting us or participants in the
semiconductor and related industries; announcements
or implementation by us, our competitors, or our cus-
tomers of technological innovations, new products or
different business strategies; and trading volume of our
common stock.
Anti-Takeover Provisions Under Our Certificate
of Incorporation and Bylaws May Discourage
Third Parties from Making an Unsolicited Bid
for Our Company
Our certificate of incorporation, our bylaws, and various
provisions of the Delaware General Corporation Law
may make it more difficult or expensive to effect a
change in control of our Company. For instance, our
amended and restated certificate of incorporation pro-
vides for the division of our Board of Directors into three
classes as nearly equal in size as possible with staggered
three-year terms. Until April 2010, we had a rights plan
which expired according to the terms of the plan.
We have adopted change in control arrangements cov-
ering our executive officers and other key employees.
These arrangements provide for a cash severance pay-
ment, continued medical benefits and other ancillary
payments and benefits upon termination of service of a
covered employee’s employment following a change in
control, which may make it more expensive to acquire
our Company.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our principal U.S. facilities that we own consist of:
• A global headquarters and research and development
facility in Aurora, Illinois, comprising approximately
200,000 square feet;
• A commercial dispersion plant and distribution center
in Aurora, Illinois, comprising approximately 175,000
square feet;
• A commercial polishing pad manufacturing plant and
offices in Aurora, Illinois, comprising approximately
48,000 square feet;
• An additional 13.2 acres of vacant land in Aurora, Illinois;
and
• A facility in Addison, Illinois, comprising approximately
15,000 square feet.
In addition, we lease a facility in Rochester, New York,
comprising approximately 21,000 square feet.
Our principal foreign facilities that we or our subsidiaries
own consist of:
• A commercial dispersion plant, automated ware-
house, research and development facility and offices
in Kaohsiung County, Taiwan, comprising approxi-
mately 170,000 square feet;
• A commercial dispersion plant and distribution center
in Geino, Japan, comprising approximately 113,000
square feet;
• A development and technical support facility in Geino,
Japan, comprising approximately 20,000 square feet.
Our principal foreign facilities that we lease consist of:
• An office, research and development laboratory and
polishing pad manufac turing plant in Hsin-Chu,
Taiwan, comprising approximately 31,000 square feet;
• A commercial manufacturing plant, research and
development facility and business office in Singapore,
comprising approximately 24,000 square feet.
14
15
We believe that our facilities are suitable and adequate
for their intended purpose and provide us with sufficient
capacity and capacity expansion opportunities and
technological capability to meet our current and
expected demand in the foreseeable future. In fiscal
2011, we plan to increase our manufacturing capacity
and add new capabilities in the Asia Pacific region. For
example, we recently announced we have entered into a
non-binding memorandum of understanding (MOU)
with the Gyeonggi Province of South Korea to poten-
tially establish manufacturing and research and devel-
opment capabilities there. The MOU reflects a potential
aggregate investment of approximately $10 million in
Gyeonggi Province. In addition, we plan to expand our
Geino, Japan dispersions plant to increase our manufac-
turing production capacity there.
Item 3. Legal Proceedings
While we are not involved in any legal proceedings that
we believe will have a material impact on our consoli-
dated financial position, results of operations or cash
flows, we periodically become a party to legal proceed-
ings in the ordinary course of business. For example, in
January 2007, we filed a legal action against DuPont Air
Products NanoMaterials LLC (DA Nano), a CMP slurry
competitor, in the United States District Court for the
District of Arizona, charging that DA Nano’s manufactur-
ing and marketing of CMP slurries infringe certain CMP
slurry patents that we own. The affected DA Nano prod-
ucts include certain products used for tungsten CMP.
We filed our infringement complaint as a counterclaim
in response to an action filed by DA Nano in the same
court in December 2006 that sought declaratory relief
and alleged non-infringement, invalidity and unenforce-
ability regarding some of the patents at issue in our
complaint against DA Nano. DA Nano filed its complaint
following our refusal of its request that we license to it
our patents raised in its complaint. DA Nano’s complaint
did not allege any infringement by our products of intel-
lectual property owned by DA Nano. From June 14
through July 8, 2010, a jury trial for the case was held.
All of Cabot Microelectronics’ patents at issue in the
case were found valid. However, the jury found that DA
Nano’s products at issue do not infringe the asserted
claims of these patents. In November 2010, we filed a
Notice of Appeal regarding infringement, and DA Nano
filed a cross-appeal. While the outcome of this and any
legal matter cannot be predicted with certainty, we con-
tinue to believe that our claims and defenses in the
pending action are meritorious, and we intend to con-
tinue to pursue and defend them.
Executive Officers of the Registrant
Set forth below is information concerning our executive officers and their ages as of October 31, 2010.
Name
Age
Position
William P. Noglows
H. Carol Bernstein
Yumiko Damashek
William S. Johnson
David H. Li
Daniel J. Pike
Stephen R. Smith
Clifford L. Spiro
Adam F. Weisman
Daniel S. Wobby
Thomas S. Roman
52
50
54
53
37
47
51
56
48
47
49
Chairman of the Board, President and Chief Executive Officer
Vice President, Secretary and General Counsel
Vice President, Japan and Operations in Asia
Vice President and Chief Financial Officer
Vice President, Asia Pacific Region
Vice President, Corporate Development
Vice President, Marketing
Vice President, Research and Development
Vice President, Business Operations
Vice President, Global Sales
Principal Accounting Officer and Corporate Controller
WILLIAM P. NOGLOWS has served as our Chairman,
President and Chief Executive Officer since November
2003. Mr. Noglows had previously served as a director
of our Company from January 2000 until April 2002.
Prior to joining us, Mr. Noglows served as an Executive
Vice President of Cabot Corporation from 1998 to June
2003. Prior to that, Mr. Noglows held various manage-
ment positions at Cabot Corporation including General
Manager of Cabot Corporation’s Cab-O-Sil Division,
where he was one of the primary founders of our
Company when our business was a division of Cabot
Corporation, and was responsible for identifying and
encouraging the development of the CMP application.
Mr. Noglows received his B.S. in Chemical Engineering
from the Georgia Institute of Technology. Mr. Noglows
is also a director of Littelfuse, Inc.
H. CAROL BERNSTEIN has served as our Vice President,
Secretary and General Counsel since August 2000. From
January 1998 until joining us, Ms. Bernstein served as
the General Counsel and Director of Industrial Tech-
nology Development of Argonne National Laboratory,
which is operated by the University of Chicago for the
United States Department of Energy. From May 1985
until December 1997, she served in various positions
with the IBM Corporation, culminating in serving as an
Associate General Counsel, and was the Vice President,
Secretary and General Counsel of Advantis Corporation,
14
15
an IBM joint venture. Ms. Bernstein received her B.A.
from Colgate University and her J.D. from Northwestern
University; she is a member of the Bar of the States of
Illinois and New York.
YUMIKO DAMASHEK has served as our Vice President,
Japan and Operations in Asia since June 2008. Pre-
viously, Ms. Damashek served as Managing Director of
Japan since November 2005. Prior to joining us, Ms.
Damashek served as President for Celerity Japan, Inc.
Prior to that, she held various leadership positions at
Global Partnership Creation, Inc. and Millipore Cor-
poration. Ms. Damashek received her B.A. from the
University of Arizona and her M.B.A. from San Diego
State University.
WILLIAM S. JOHNSON has served as our Vice President
and Chief Financial Officer since April 2003. Prior to
joining us, Mr. Johnson served as Executive Vice Pres-
ident and Chief Financial Officer for Budget Group, Inc.
from August 2000 to March 2003. Before that, Mr.
Johnson spent 16 years at BP Amoco in various senior
finance and management positions, the most recent of
which was President of Amoco Fabrics and Fibers
Company. Mr. Johnson received his B.S. in Mechanical
Engineering from the University of Oklahoma and his
M.B.A. from the Harvard Business School.
DAVID H. LI has served as our Vice President, Asia Pacific
Region since June 2008. Prior to that, Mr. Li served as
Managing Director of Korea and China since February
2007. Previously, Mr. Li served as our Global Business
Director for Tungsten and Advanced Dielectrics from
2005 to February 2007. Mr. Li held a variety of leadership
positions for us in operations, sourcing and investor
relations between 1998 and 2005. Prior to joining us, Mr.
Li worked for UOP in marketing and process engineer-
ing. Mr. Li received a B.S. in Chemical Engineering from
Purdue University and an M.B.A. from Northwestern
University—Kellogg School of Management.
DANIEL J. PIKE has served as our Vice President of
Corporate Development since January 2004 and prior
to that was our Vice President of Operations from
December 1999. Mr. Pike served as Director of Global
Operations for a division of Cabot Corporation from
1996 to 1999. Prior to that, Mr. Pike worked for FMC
Corporation in various marketing and finance positions.
Mr. Pike received his B.S. in Chemical Engineering
from the University of Buffalo and his M.B.A. from
the Wharton School of Business of the University of
Pennsylvania.
STEPHEN R. SMITH has served as our Vice President of
Marketing since September 2006, and previously was
our Vice President of Marketing and Business Manage-
ment since April 2005 and our Vice President of Sales
and Marketing from October 2001. Prior to joining us,
Mr. Smith served as Vice President, Sales & Business
Development for Buildpoint Corporation from 2000 to
October 2001. Prior to that, Mr. Smith spent 17 years
at Tyco Electronics Group, formerly known as AMP
Incorporated, in various management positions. Mr.
Smith earned a B.S. in Industrial Engineering from Grove
City College and an M.B.A. from Wake Forest University.
CLIFFORD L. SPIRO has served as Vice President of
Research and Development since December 2003. Prior
to joining us, Dr. Spiro served as Vice President of
Research and Development at Ondeo-Nalco from 2001
through November 2003. Prior to that, Dr. Spiro held
research and development management and senior
technology positions at the General Electric Company
from 1980 through 2001, the most recent of which was
Global Manager—Technology for Business Develop-
ment. Dr. Spiro received his B.S. in Chemistry from
Stanford University and his Ph.D. in Chemistry from the
California Institute of Technology.
ADAM F. WEISMAN has served as our Vice President of
Business Operations since September 2006, and prior
to that was our Vice President of Operations. Before
joining us, Mr. Weisman held various engineering and
senior operations management positions with the
General Electric Company from 1988 through 2004,
including having served as the General Manager of
Manufacturing for GE Plastics—Superabrasives, and
culminating in serving as the Executive Vice President
of Operations for GE Railcar Services. Prior to joining
GE, he worked as an engineering team leader and pilot
plant manager for E.I. Du Pont de Nemours & Company.
Mr. Weisman holds a B.S. in Ceramic Engineering from
Alfred University.
DANIEL S. WOBBY has served as our Vice President of
Global Sales since June 2008. Prior to that, Mr. Wobby
served as Vice President, Asia Pacific Region since
September 2005. Previously, Mr. Wobby served as Vice
President, Greater China and Southeast Asia starting in
February 2004 and as Corporate Controller and Principal
Accounting Officer from 2000 to 2004. From 1989 to
2000, Mr. Wobby held various accounting and opera-
tions positions with Cabot Corporation culminating in
serving as Director of Finance. Mr. Wobby earned a B.S.
in Accounting from St. Michael’s College and an M.B.A.
from the University of Chicago.
THOMAS S. ROMAN has served as our Corporate
Controller and Principal Accounting Officer since
February 2004 and previously served as our North
American Controller. Prior to joining us in April 2000, Mr.
Roman was employed by FMC Corporation in various
financial reporting, tax and audit positions. Before that,
Mr. Roman worked for Gould Electronics and Arthur
Andersen LLP. Mr. Roman is a C.P.A. and earned a B.S.
in Accounting from the University of Illinois and an
M.B.A. from DePaul University’s Kellstadt Graduate
School of Business.
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17
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Our common stock has traded publicly under the symbol “CCMP” since our initial public offering in April 2000,
currently on the NASDAQ Global Select Market, and formerly the NASDAQ National Market. The following table sets
forth the range of quarterly high and low closing sales prices for our common stock.
Fiscal 2009
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2010
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2011
First Quarter (through October 31, 2010)
High
Low
$32.39
26.96
31.50
36.04
$35.47
37.83
42.69
36.65
$20.23
19.01
24.52
26.94
$30.59
31.99
34.18
29.81
$38.63
$32.22
As of October 31, 2010, there were approximately 988 holders of record of our common stock. No dividends were
declared or paid in either fiscal 2010 or fiscal 2009 and we have no current plans to pay cash dividends in the future.
Issuer Purchases of Equity Securities
Period
Jul. 1 through Jul. 31, 2010
Aug. 1 through Aug. 31, 2010
Sep. 1 through Sep. 30, 2010
Total
Total
Number
of Shares
Purchased
92,035
367,599
—
459,634
Average
Price Paid
Per Share
$33.50
$32.42
—
$32.63
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Approximate Dollar Value
of Shares that May Yet Be
Purchased Under the Plans
or Programs (in thousands)
92,035
367,599
—
459,634
$36,921
$25,005
$25,005
$25,005
In January 2008, we announced that our Board of
Directors had authorized a share repurchase program
for up to $75.0 million of our outstanding common stock.
Shares are repurchased from time to time, depending
on market conditions, in open market transactions, at
management’s discretion. We fund share repurchases
from our existing cash balance. The program, which
became effective on the authorization date, may be
suspended or terminated at any time, at the Company’s
discretion. During the fiscal year ended September
30, 2010, we repurchased a total of 723,184 shares for
$25.0 million.
Separate from this share repurchase program, a total of
24,651 shares were purchased during fiscal 2010 pursu-
ant to the terms of our Second Amended and Restated
Cabot Microelectronics Corporation 2000 Equity Incen-
tive Plan (EIP) as shares withheld from award recipients
to cover payroll taxes on the vesting of shares of
restricted stock granted under the EIP. No shares were
purchased under the EIP during the fiscal quarter ended
September 30, 2010.
Equity Compensation Plan Information
See Part II, Item 12 of this Form 10-K for information
regarding shares of common stock that may be issued
under the Company’s existing equity compensation plans.
16
17
Stock Performance Graph
The following graph illustrates the cumulative total stockholder return on our common stock during the period from
September 30, 2005 through September 30, 2010 and compares it with the cumulative total return on the NASDAQ
Composite Index and the Philadelphia Semiconductor Index. The comparison assumes $100 was invested on
September 30, 2005 in our common stock and in each of the foregoing indices and assumes reinvestment of
dividends, if any. The performance shown is not necessarily indicative of future performance. See “Risk Factors” in
Part I, Item 1A above.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Cabot Microelectronics Corporation, the NASDAQ Composite Index
and the PHLX Semiconductor Index
$160
$140
$120
$100
$80
$60
$40
$20
$0
9/05 12/05 3/06
6/06
9/06 12/06 3/07
6/07
9/07 12/07 3/08
6/08
9/08 12/08 3/09
6/09
9/09 12/09 3/10
6/10
9/10
Cabot Microelectronics Corporation
NASDAQ Composite
PHLX Semiconductor
*$100 invested on 9/30/05 in stock or index, including reinvestment of dividends.
Fiscal year ending September 30.
Cabot Microelectronics Corporation
NASDAQ Composite
Philadelphia Semiconductor
100.00 99.69 126.28 103.17 98.09 115.52 114.06 120.80 145.51 122.23 109.43
100.00 102.19 108.39 101.64 106.39 114.79 115.26 124.53 127.37 125.28 107.34
100.00 104.16 100.59 92.41 98.02 98.40 96.83 111.06 113.86 107.28 91.18
9/05
12/05
3/06
6/06
9/06
12/06
3/07
6/07
9/07
12/07
3/08
Cabot Microelectronics Corporation
NASDAQ Composite
Philadelphia Semiconductor
112.83 109.19 88.73 81.79 96.29 118.65 112.19 128.76 117.73 109.53
108.37 96.70 74.34 71.91 86.29 100.00 107.24 113.44 100.06 112.86
94.16 77.69 58.49 63.36 71.73 87.52 95.48 97.73 88.04 91.53
6/08
9/08
12/08
3/09
6/09
9/09
12/09
3/10
6/10
9/10
18
19
Item 6. Selected Financial Data
The following selected financial data for each year of the five-year period ended September 30, 2010, has been
derived from the audited consolidated financial statements.
The information set forth below is not necessarily indicative of results of future operations and should be read in
conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the
consolidated financial statements and notes to those statements included in Items 7 and 8 of Part II of this Form
10-K, as well as Risk Factors included in Item 1A of Part I of this Form 10-K.
CABOT MICROELECTRONICS CORPORATION
SELECTED FINANCIAL DATA—FIVE YEAR SUMMARY
(Amounts in thousands, except per share amounts)
Consolidated Statement of Income Data:
Revenue
Cost of goods sold
Gross profit
Operating expenses:
Year Ended September 30,
2010
2009
2008
2007
2006
$ 408,201
204,704
$ 291,372
162,918
$ 375,069
200,596
$ 338,205
178,224
$ 320,795
171,758
203,497
128,454
174,473
159,981
149,037
Research, development and technical
Selling and marketing
General and administrative
Purchased in-process research and development
51,818
26,885
50,783
—
48,150
22,239
40,632
1,410
49,155
28,281
47,595
—
49,970
24,310
39,933
—
48,070
21,115
34,319
1,120
Total operating expenses
129,486
112,431
125,031
114,213
104,624
Operating income
Other income (expense), net
Income before income taxes
Provision for income taxes
Net income
Basic earnings per share
74,011
(734)
73,277
23,819
16,023
599
16,622
5,435
49,442
5,448
54,890
16,552
45,768
3,606
49,374
15,538
44,413
4,111
48,524
15,576
$ 49,458
$ 11,187
$ 38,338
$ 33,836
$ 32,948
$
2.14
$
0.48
$
1.64
$
1.42
$
1.36
Weighted-average basic shares outstanding
23,084
23,079
23,315
23,748
24,228
Diluted earnings per share
$
2.13
$
0.48
$
1.64
$
1.42
$
1.36
Weighted-average diluted shares outstanding
23,273
23,096
23,348
23,754
24,228
Cash dividends per share
$
— $
— $
— $
— $
—
Consolidated Balance Sheet Data:
Current assets
Property, plant and equipment, net
Other assets
Total assets
Current liabilities
Other long-term liabilities
Total liabilities
Stockholders’ equity
As of September 30,
2010
2009
2008
2007
2006
$ 381,029
115,811
74,916
$ 316,852
122,782
75,510
$ 330,592
115,843
31,002
$ 310,754
118,454
25,921
$ 261,505
130,176
20,452
$ 571,756
$ 515,144
$ 477,437
$ 455,129
$ 412,133
$ 53,330
4,083
$ 39,536
4,879
$ 37,801
5,403
$ 36,563
5,362
$ 38,833
5,529
57,413
514,343
44,415
470,729
43,204
434,233
41,925
413,204
44,362
367,771
Total liabilities and stockholders’ equity
$ 571,756
$ 515,144
$ 477,437
$ 455,129
$ 412,133
18
19
Item 7. Management’s Discussion and
Analysis of Financial Condition and
Results of Operations
The following “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” as
well as disclosures included elsewhere in this Form 10-K,
include “forward-looking statements” within the mean-
ing of the Private Securities Litigation Reform Act of
1995. This Act provides a safe harbor for forward-looking
statements to encourage companies to provide pro-
spective information about themselves so long as
they identify these statements as forward-looking and
provide meaningful cautionary statements identifying
important factors that could cause actual results to dif-
fer from the projected results. All statements other than
statements of historical fact we make in this Form 10-K
are forward-looking. In particular, the statements herein
regarding future sales and operating results; Company
and industry growth, contraction or trends; growth or
contraction of the markets in which the Company par-
ticipates; international events or various economic fac-
tors; product performance; the generation, protection
and acquisition of intellectual property, and litigation
related to such intellectual property; new product intro-
ductions; development of new products, technologies
and markets; the acquisition of or investment in other
entities; uses and investment of the Company’s cash
balance; the construction of facilities by the Company;
and statements preceded by, followed by or that include
the words “intends,” “estimates,” “plans,” “believes,”
“expects,” “anticipates,” “should,” “could” or similar
expressions, are forward-looking statements. Forward-
looking statements reflect our current expectations and
are inherently uncertain. Our actual results may differ
significantly from our expectations. We assume no obli-
gation to update this forward-looking information. The
section entitled “Risk Factors” describes some, but not
all, of the factors that could cause these differences.
The following discussion and analysis should be read in
conjunction with our historical financial statements and
the notes to those financial statements which are
included in Item 8 of Part II of this Form 10-K.
Overview
Cabot Microelectronics Corporation (“Cabot Microelec-
tronics”, “the Company”, “us”, “we”, or “our”) is the
leading supplier of high-performance polishing slurries
and a growing pad supplier used in the manufacture
of advanced integrated circuit (IC) devices within the
semiconductor industry, in a process called chemical
mechanical planarization (CMP). CMP is a polishing
proc ess used by IC device manufacturers to planarize or
flatten many of the multiple layers of material that are
deposited upon silicon wafers in the production of
advanced ICs. Our products play a critical role in the
production of advanced IC devices, thereby enabling
our customers to produce smaller, faster and more
complex IC devices with fewer defects. Demand for our
CMP products is primarily driven by the number of
wafers processed by semiconductor manufacturers, the
first manufacturing step of which is referred to as a
“wafer start.”
We operate predominantly in one industry segment—
the development, manufacture and sale of CMP con-
sumables. We develop, produce and sell CMP slurries
for polishing many of the conducting and insulating
materials used in IC devices, and also for polishing cer-
tain components in hard disk drives, specifically rigid
disk substrates and magnetic heads. In addition, we
develop, manufacture and sell CMP polishing pads,
which are used in conjunction with slurries in the CMP
process. We also pursue a number of other demanding
surface modification applications outside of the semi-
conductor and hard disk drive industries through our
Engineered Surface Finishes (ESF) business, for which
we believe our capabilities and knowledge may provide
value in improved surface performance or productivity.
The improvement in economic and industry conditions
that we began to see in our business during the second
half of fiscal 2009, following the severe global recession,
continued through our fiscal 2010 and positively
impacted demand for our products. We continue to see
positive signs of growth in the semiconductor industry:
reports from customers indicate utilization of fab capac-
ity is currently at an all-time high; inventory levels of IC
devices appear to be within an appropriate range; and
significant capacity expansion activity by a number of
semiconductor device manufacturers is underway.
However, we remain cautious regarding future demand
trends over the near term as the first quarter of the cal-
endar year typically demonstrates softer demand due to
seasonal variations within the semiconductor industry.
There are many factors, that make it difficult for us to
predict future revenue trends for our business, includ-
ing: the pace, timing and sustainability of the ongoing
economic recovery; the cyclical nature of the semicon-
ductor industry; the short order to delivery time for our
products and the associated lack of visibility to future
customer orders; quarter to quarter changes in our rev-
enue regardless of industry strength; and potential
future acquisitions by us.
Revenue for fiscal 2010 was $408.2 million, which repre-
sented an increase of 40.1% from the $291.4 million
reported for fiscal 2009. The increase in revenue from
fiscal 2009 reflects increased sales volume due to
improved economic and semiconductor industry condi-
tions. We experienced significant revenue growth across
all of our product lines, including a 68.9% increase in
revenue from our polishing pad products and a 53.9%
20
21
increase in revenue from copper slurries, which bene-
fited from a full year impact in fiscal 2010 of our February
2009 acquisition of Epoch Material Co., Ltd. (Epoch) ver-
sus only a partial year benefit in the prior fiscal year.
Gross profit expressed as a percentage of revenue for
fiscal 2010 was 49.9%, which represents an increase from
the 44.1% reported for fiscal 2009. The increase in gross
profit percentage from fiscal 2009 was primarily due to
the significant increase in sales volume due to contin-
ued improvement in economic and industry conditions,
and the related benefits of increased utilization of our
manufacturing capacity, partially offset by higher fixed
manufacturing costs and unfavorable foreign exchange
effects. We expect our gross profit percentage for full
year fiscal 2011 to be in the range of 48% to 50%.
However, we may experience fluctuations in our gross
profit due to a number of factors, including the extent
to which we utilize our manufacturing capacity and fluc-
tuations in our product mix, which may cause our quar-
terly gross profit to be above or below this range.
Operating expenses of $129.5 million, which include
research, development and technical, selling and mar-
keting, and general and administrative expenses,
increased 15.2%, or $17.1 million, from the $112.4 million
reported for fiscal 2009. The increase was primarily due
to higher staffing-related costs, including costs associ-
ated with our annual incentive bonus program, and the
reinstatement of certain employee benefits that were
suspended during the economic downturn in fiscal
2009, higher professional fees, including costs to enforce
our intellectual property as discussed in the following
paragraph, higher travel-related expenses, and a full
year of Epoch operating expenses included in fiscal
2010 versus only a partial year in fiscal 2009. In fiscal
2011, we expect our full year operating expenses to be
in the range of $125 million to $130 million.
In July 2010, a jury trial was completed in connection
with our ongoing patent enforcement litigation against
DuPont Air Products NanoMaterials LLC (DA Nano). We
were pleased that the validity of our patents at issue was
upheld with the jury’s verdict; however, we were disap-
pointed that the jury did not find DA Nano’s products
at issue infringed the asserted claims of our patents.
In November 2010, we filed a Notice of Appeal regard-
ing infringement, and DA Nano filed a cross-appeal.
Expenses related to this trial caused our operating
expenses to increase in fiscal 2010. Now that the jury
trial phase has been completed, we expect our litigation
costs related to this matter to decrease significantly in
fiscal 2011, as they did in the fourth quarter of fiscal
2010. See Part I, Item 3 entitled “Legal Proceedings”
and Note 17 of the Notes to the Consolidated Financial
Statements for more information on the enforcement of
our intellectual property.
Diluted earnings per share of $2.13 in fiscal 2010
increased 343.8%, or $1.65, from $0.48 reported in fiscal
2009 as a result of the factors discussed above. Diluted
earnings per share were positively impacted by our
election in fiscal 2010 to permanently reinvest the earn-
ings of certain of our foreign subsidiaries outside
the U.S. rather than repatriating the earnings to the U.S.
This election, which was made in the fourth quarter of
fiscal 2010, reduced our effective income tax rate for
the year from 35.2% to 32.5% and increased diluted
earnings per share by $0.09. In fiscal 2011, we expect our
full year effective income tax rate to be in the range
of 31% to 33%. See Note 16 of the Notes to the
Consolidated Financial Statements for further discus-
sion on income taxes.
Critical Accounting Policies and Estimates
This “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” (MD&A), as well
as disclosures included elsewhere in this Form 10-K, are
based upon our audited consolidated financial state-
ments, which have been prepared in accordance with
accounting principles generally accepted in the United
States. The preparation of these financial statements
requires us to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingencies. On
an ongoing basis, we evaluate the estimates used,
including those related to bad debt expense, warranty
obligations, inventory valuation, valuation and classifica-
tion of auction rate securities, impairment of long-lived
assets and investments, business combinations, good-
will, other intangible assets, share-based compensation,
income taxes and contingencies. We base our estimates
on historical experience, current conditions and on vari-
ous other assumptions that we believe to be reasonable
under the circumstances, the results of which form the
basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from
other sources, as well as for identifying and assessing
our accounting treatment with respect to commitments
and contingencies. Actual results may differ from these
estimates under different assumptions or conditions.
We believe the following critical accounting policies
involve significant judgments and estimates used in the
preparation of our consolidated financial statements.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts for esti-
mated losses resulting from the potential inability of
our customers to make required payments. Our allow-
ance for doubtful accounts is based on historical col-
lection experience, adjusted for any specific known
conditions or circumstances. While historical experience
20
21
may provide a reasonable estimate of uncollectible
accounts, actual results may differ from what was
recorded. The global economic recession adversely
affected our ability to collect accounts receivable from
some of our customers in fiscal 2009. The recession also
caused a small number of our customers to file for bank-
ruptcy or insolvency. We recorded a $0.9 million increase
in our allowance for doubtful accounts during fiscal
2009 to account for these bankruptcies and the
increased risk regarding customer collections due to the
continued uncertainty in the global economy. We will
continue to monitor the financial solvency of our cus-
tomers and, if global economic conditions worsen, we
may have to record additional increases to our allow-
ances for doubtful accounts. As of September 30, 2010,
our allowance for doubtful accounts represented 1.9%
of gross accounts receivable. If we had increased our
estimate of bad debts to 2.9% of gross accounts receiv-
able, our general and administrative expenses would
have increased by $0.6 million.
Warranty Reserve
We maintain a warranty reserve that reflects manage-
ment’s best estimate of the cost to replace product
that does not meet customers’ specifications and per-
formance requirements, and costs related to such
replacement. The warranty reserve is based upon a
historical product replacement rate, adjusted for any
specific known conditions or circumstances. Should
actual warranty costs differ substantially from our esti-
mates, revisions to the estimated warranty liability may
be required. As of September 30, 2010, our warranty
reserve represented 0.3% of the current quarter reve-
nue. If we had increased our warranty reserve estimate
to 1.3% of the current quarter revenue, our cost of goods
sold would have increased by $1.1 million.
Inventory Valuation
We value inventory at the lower of cost or market and
write down the value of inventory for estimated obsoles-
cence or if inventory is deemed unmarketable. An inven-
tory reserve is maintained based upon a historical
percentage of actual inventories written off applied
against the inventory value at the end of the period,
adjusted for known conditions and circumstances. We
exercise judgment in estimating the amount of inven-
tory that is obsolete. Should actual product market-
ability and fitness for use be affected by conditions that
are different from those projected by management,
revisions to the estimated inventory reserve may be
required. If we had increased our reserve for obsolete
inventory at September 30, 2010 by 10%, our cost of
goods sold would have increased by $0.2 million.
Valuation and Classification of
Auction Rate Securities
As of September 30, 2010, we owned two auction rate
securities (ARS) with an estimated fair value of $8.1 mil-
lion ($8.3 million par value) which are classified as other
long-term assets on our Consolidated Balance Sheet.
In general, ARS investments are securities with long-
term nominal maturities for which interest rates are reset
through a Dutch auction every seven to 35 days. Histor-
ically, these periodic auctions provided a liquid market
for these securities. General uncertainties in the global
credit markets during 2008 caused widespread ARS
auction failures as the number of securities submitted
for sale exceeded the number of securities buyers were
willing to purchase, and these auction failures have con-
tinued. As a result, the short-term liquidity of the ARS
market has been adversely affected since then.
As discussed in Notes 4 and 8 of the Notes to the
Consolidated Financial Statements, we have recorded a
temporary impairment of $0.2 million, net of tax, in the
value of one of our ARS in other comprehensive income.
The calculation of fair value and the balance sheet clas-
sification for our ARS requires critical judgments and
estimates by management including an appropriate
discount rate and the probabilities that a security may
be monetized through a future successful auction, of a
refinancing of the underlying debt, of a default in pay-
ment by the issuer, and of payments not being made
by the bond insurance carrier in the event of default by
the issuer. In fiscal 2009, we adopted new accounting
pronouncements regarding the classification and valua-
tion of financial instruments. These pronouncements
discuss the recognition and presentation of other-than-
temporary impairments and the determination of fair
value of financial instruments when the volume of trad-
ing activity significantly drops. An other-than-temporary
impairment must be recorded when a credit loss exists;
that is when the present value of the expected cash
flows from a debt security is less than the amortized
cost basis of the security. We performed two discounted
cash flow analyses, one using a discount rate based on a
market index comprised of tax exempt variable rate
demand obligations and one using a discount rate
based on the LIBOR swap curve, and we applied a risk
factor to reflect current liquidity issues in the ARS mar-
ket. We then assigned probabilities of holding each
security for less than or equal to one year, five years, and
to maturity to calculate a fair value for each security. We
also considered the probability of default in payment by
the issuer of the securities, the strength of the insurance
backing and the probability of failure by the insurance
22
23
carrier in the case of default by the issuer of the securi-
ties. The impairment we have maintained is considered
temporary as it relates to the loss of liquidity in the ARS
market and does not represent a credit loss. We do not
intend to sell the securities at a loss and we believe we
will not be required to sell the securities at a loss in the
future. If auctions involving our remaining ARS continue
to fail, if issuers of our ARS are unable to refinance the
underlying securities, if the issuing municipalities are
unable to pay their debt obligations and the bond insur-
ance fails, or if credit ratings decline or other adverse
developments occur in the credit markets, we may not
be able to monetize our remaining securities in the near
term and may be required to further adjust the carrying
value of these instruments through an impairment
charge that may be deemed other-than-temporary.
Impairment of Long-Lived Assets and Investments
We assess the recoverability of the carrying value of
long-lived assets, including finite lived intangible assets,
whenever events or changes in circumstances indicate
that the assets may be impaired. We must exercise judg-
ment in assessing whether an event of impairment has
occurred. For purposes of recognition and measure-
ment of an impairment loss, long-lived assets are
grouped with other assets and liabilities at the lowest
level for which identifiable cash flows are largely inde-
pendent of the cash flows of other assets and liabilities.
We must exercise judgment in this grouping. If the sum
of the undiscounted future cash flows expected to result
from the identified asset group is less than the carrying
value of the asset group, an impairment provision may
be required. The amount of the impairment to be rec-
ognized is calculated by subtracting the fair value of the
asset group from the net book value of the asset group.
Determining future cash flows and estimating fair values
require significant judgment and are highly susceptible
to change from period to period because they require
management to make assumptions about future sales
and cost of sales generally over a long-term period. As a
result of assessments performed during fiscal 2010, we
recorded $0.2 million in impairment expense. In fiscal
2009, we recorded $1.2 million in impairment expense,
primarily related to the write-off of certain research and
development equipment. See Note 6 of the Notes to
the Consolidated Financial Statements for more infor-
mation on this write-off.
We evaluate the estimated fair value of investments
annually or more frequently if indicators of potential
impairment exist, to determine if an other-than-
temporary impairment in the value of the investment
has taken place.
Business Combinations
We have accounted for all business combinations under
the purchase method of accounting. As discussed in
more detail in Note 2 of the Notes to the Consolidated
Financial Statements, we were required to adopt new
accounting standards for business combinations com-
mencing after October 1, 2009. However, we have not
made any acquisitions to which we were required to
apply these new standards. We have allocated the
purchase price of acquired entities to the tangible
and intangible assets acquired, liabilities assumed, and
in-process research and development (IPR&D) based
on their estimated fair values. We engage independent
third-party appraisal firms to assist us in determining
the fair values of assets and liabilities acquired. This
valuation requires management to make significant esti-
mates and assumptions, especially with respect to long-
lived and intangible assets. Contingent consideration
was recorded as a liability when the outcome of the con-
tingency became determinable. Goodwill represents
the excess of the purchase price over the fair value of
net assets and amounts assigned to identifiable intan-
gible assets. Purchased IPR&D, for which technological
feasibility has not yet been established and no future
alternative uses exist, has been expensed immediately.
Critical estimates in valuing certain of the intangible
assets include but are not limited to: future expected
cash flows related to acquired developed technologies
and patents and assumptions about the period of time
the technologies will continue to be used in the Com-
pany’s product portfolio; expected costs to develop the
IPR&D into commercially viable products and estimated
cash flows from the products when completed; and dis-
count rates. Management’s estimates of value are based
upon assumptions believed to be reasonable, but which
are inherently uncertain and unpredictable. Assumptions
may be incomplete or inaccurate, and unanticipated
events and circumstances may occur which may cause
actual realized values to be different from manage-
ment’s estimates.
Goodwill and Intangible Assets
Purchased intangible assets with finite lives are amor-
tized over their estimated useful lives and are evaluated
for impairment using a process similar to that used to
evaluate other long-lived assets. Goodwill and indefinite
lived intangible assets are not amortized and are tested
annually in the fourth fiscal quarter or more frequently
if indicators of potential impairment exist, using a fair-
value-based approach.
The recoverability of goodwill is measured at the report-
ing unit level, which is defined as either an operating
segment or one level below an operating segment. A
component is a reporting unit when the component
constitutes a business for which discreet financial infor-
mation is available and segment management regularly
reviews the operating results of the component. Com-
ponents may be combined into one reporting unit when
22
23
they have similar economic characteristics. We had three
reporting units to which we allocated goodwill and
intangible assets as of September 30, 2010, the date of
our annual impairment test. Initially, our Company had
only one reporting unit as we were created from a divi-
sion of our former parent company, Cabot Corporation,
and we identified associated goodwill and intangible
assets under one reporting unit at that time. Other
amounts of goodwill and intangible assets have been
attributed to acquired businesses at the time of acquisi-
tion through the use of independent appraisal firms.
We have consistently determined the fair value of our
reporting units using a discounted cash flow analysis of
our projected future results. The recoverability of indefi-
nite lived intangible assets is measured using the royalty
savings method. Factors requiring significant judgment
include assumptions related to future growth rates, dis-
count factors, royalty rates and tax rates, among others.
Changes in economic and operating conditions that
occur after the annual impairment analysis or an interim
impairment analysis that impact these assumptions may
result in future impairment charges.
As a result of the review performed in the fourth quarter
of fiscal 2010, we determined that there was no impair-
ment of our goodwill and intangible assets as of
September 30, 2010.
Share-Based Compensation
We record share-based compensation expense for all
share-based awards, including stock option grants,
restricted stock and restricted stock unit awards and
employee stock purchases. We calculate share-based
compensation expense using the straight-line approach
based on awards expected to ultimately vest, which
requires the use of an estimated forfeiture rate. Our
estimated forfeiture rate is primarily based on historical
experience, but may be revised in future periods if
actual forfeitures differ from the estimate. We use the
Black-Scholes option-pricing model to estimate the
grant date fair value of our stock options and employee
stock purchases. This model requires the input of highly
subjective assumptions, including the price volatility of
the underlying stock, the expected term of our stock
options and the risk-free interest rate. A small change in
the underlying assumptions can have a relatively large
effect on the estimated valuation. We estimate the
expected volatility of our stock based on a combination
of our stock’s historical volatility and the implied volatili-
ties from actively-traded options on our stock. We cal-
culate the expected term of our stock options using the
simplified method, due to our limited amount of histori-
cal option exercise data, and we add a slight premium
to this expected term for employees who meet the defi-
nition of retirement eligible pursuant to terms of their
award agreements during the contractual term. The
simplified method uses an average of the vesting term
and the contractual term of the option to calculate the
expected term. The risk-free rate is derived from the
U.S. Treasury yield curve in effect at the time of grant.
The fair value of our restricted stock and restricted stock
unit awards represents the closing price of our common
stock on the date of grant.
Accounting for Income Taxes
Current income taxes are determined based on esti-
mated 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 dif-
ferences between the book and tax bases of recorded
assets and liabilities. The effect on deferred tax assets
and liabilities of a change 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 recognize
the tax benefit of an uncertain tax position only if it is
more likely than not that the tax position will be sus-
tained by the taxing authorities, based on the technical
merits of the position. In fiscal 2010, we elected to per-
manently reinvest the earnings of certain of our foreign
subsidiaries outside the U.S. rather than repatriating
the earnings to the U.S. See Note 16 for additional infor-
mation on income taxes.
Commitments and Contingencies
We have entered into certain unconditional purchase
obligations, which include noncancelable purchase
commitments and take-or-pay arrangements with sup-
pliers. We review our agreements on a quarterly basis
and make an assessment of the likelihood of a shortfall
in purchases and determine if it is necessary to record a
liability. In addition, we are subject to the possibility of
various loss contingencies arising in the ordinary course
of business such as a legal proceeding or claim. An esti-
mated loss contingency is accrued when it is probable
that an asset has been impaired or a liability has been
incurred and the amount of the loss can be reasonably
estimated. We regularly evaluate current information
available to us to determine whether such accruals
should be adjusted and whether new accruals are
required.
Effects of Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements
for a description of recent accounting pronouncements
including the expected dates of adoption and effects
on our results of operations, financial position and
cash flows.
24
25
Results of Operations
The following table sets forth, for the periods indicated,
the percentage of revenue of certain line items included
in our historical statements of income:
Year Ended September 30,
2010
2009
2008
Revenue
Cost of goods sold
Gross profit
Research, development
and technical
Selling and marketing
General and administrative
Purchased in-process research
and development
Operating income
Other income (expense), net
Income before income taxes
Provision for income taxes
100.0% 100.0% 100.0%
55.9
53.5
50.1
49.9
12.7
6.6
12.5
—
18.1
(0.2)
17.9
5.8
44.1
46.5
16.5
7.6
14.0
0.5
5.5
0.2
5.7
1.9
13.1
7.5
12.7
—
13.2
1.4
14.6
4.4
Net income
12.1%
3.8%
10.2%
Year Ended September 30, 2010, Versus Year
Ended September 30, 2009
Revenue
Revenue was $408.2 million in fiscal 2010, which repre-
sented an increase of 40.1%, or $116.8 million, from fiscal
2009. The increase in revenue was driven by a $118.3 mil-
lion increase in sales volume, a $4.8 million increase due
to the effect of foreign exchange rate changes, and $2.6
million due to a slightly higher-priced product mix, par-
tially offset by a decrease in revenue of $8.9 million due
to a lower weighted-average selling price for our CMP
consumable products. We began to see improvement in
economic and industry conditions during the second
half of our fiscal 2009. These improvements, particularly
in the semiconductor industry, continued through our
fiscal 2010 and positively impacted the demand for our
products. We noted some positive signs of growth in
the semiconductor industry in the Overview section of
this MD&A including: reports from customers indicate
that capacity utilization in fabs is currently at an all-time
high; semiconductor device inventories appear to be
at an appropriate level; and capacity expansions by a
number of semiconductor manufacturers are underway.
How ever, we remain cautious regarding future demand
trends over the near term as we are entering a calendar
period of typically lower seasonal demand within the
semiconductor industry and we cannot predict the
exact timing and magnitude of a continued economic
recovery.
24
25
Cost of Goods Sold
Total cost of goods sold was $204.7 million in fiscal 2010,
which represented an increase of 25.6%, or $41.8 million,
from fiscal 2009. The increase in cost of goods sold was
primarily due to $59.4 million from increased sales vol-
ume due to the increased demand for our products
associated with the economic and industry recovery,
and an $8.4 million increase due to higher fixed costs.
These costs were partially offset by a $16.2 million
decrease due to higher utilization of our manufacturing
capacity on the increased sales volume, and a $10.7 mil-
lion benefit of a lower-cost product mix.
Metal oxides, such as silica and alumina, are significant
raw materials that we use in many of our CMP slurries. In
an effort to mitigate our risk to rising raw material costs
and to increase supply assurance and quality perfor-
mance requirements, we have entered into multi-year
supply agreements with a number of suppliers. For
more financial information about our supply contracts,
see “Tabular Disclosure of Contractual Obligations”
included in Item 7 of Part II of this Form 10-K.
Our need for additional quantities or different kinds of
key raw materials in the future has required, and will
continue to require, that we enter into new supply
arrangements with third parties. Future arrangements
may result in costs which are different from those in the
existing agreements. In addition, energy costs may also
impact the cost of raw materials, packaging, freight and
labor costs. We also expect to continue to invest in our
operations excellence initiative to improve product
quality, reduce variability and improve product yields in
our manufacturing process.
Gross Profit
Our gross profit as a percentage of revenue was 49.9%
in fiscal 2010 as compared to 44.1% for fiscal 2009. The
increase in gross profit as a percentage of revenue was
primarily due to the significant increase in sales volume
and the related increased utilization of our manufactur-
ing capacity, as well as a higher-valued product mix,
partially offset by a decrease in the weighted-average
selling price of our CMP slurries and increased fixed
manufacturing costs. We expect our gross profit
percentage for full fiscal year 2011 to be in the range
of 48% to 50%. However, we may experience fluctua-
tions in our gross profit due to a number of factors,
including the extent to which we utilize our manufactur-
ing capacity and fluctuations in our product mix, which
may cause our quarterly gross profit to be above or
below this range.
Research, Development and Technical
Total research, development and technical expenses
were $51.8 million in fiscal 2010, which represented
an increase of 7.6%, or $3.7 million, from fiscal 2009.
The increase was mainly due to $3.6 million in higher
staffing-related costs, primarily related to our annual
incentive bonus program, $0.6 million in higher travel-
related costs, and $0.2 million in higher office equip-
ment expenses, partially offset by the absence of $1.1
million in pre-tax impairment charges recorded on
certain research and development equipment during
fiscal 2009.
Our research, development and technical efforts are
focused on the following main areas:
• Research related to fundamental CMP technology;
• Development and formulation of new and enhanced
CMP consumable products, including collaborating
on joint development projects with our customers;
• Process development to support rapid and effective
commercialization of new products;
• Technical support of CMP products in our customers’
manufacturing facilities; and
• Evaluation and development of new polishing and
metrology applications outside of the semiconductor
industry.
Selling and Marketing
Selling and marketing expenses were $26.9 million in fis-
cal 2010, which represented an increase of 20.9%, or
$4.6 million, from fiscal 2009. The increase was primarily
due to $2.6 million in higher staffing related costs,
including costs associated with our annual incentive
bonus program, $1.0 million in higher travel-related
costs, $0.4 million in higher depreciation expense, and
$0.3 million in higher professional fees.
General and Administrative
General and administrative expenses were $50.8 million
in fiscal 2010, which represented an increase of 25.0%,
or $10.2 million, from fiscal 2009. The increase was
mainly due to $6.0 million in higher staffing-related
costs, primarily related to our annual incentive bonus
program, $4.2 million in higher professional fees, includ-
ing costs to enforce our intellectual property, and $0.5
million in higher travel-related expenses, partially offset
by $0.9 million due to lower bad debt expense. See Part
I, Item 3 entitled “Legal Proceedings” and Note 17 of
the Notes to the Consolidated Financial Statements
for more information on the enforcement of our intel-
lectual property.
Purchased In-Process Research
and Development
Purchased in-process research and development
(IPR&D) expense was $1.4 million in fiscal 2009, related
to the acquisition of Epoch in the second quarter of fis-
cal 2009. We did not make any acquisitions in fiscal 2010.
Other Income (Expense), Net
Other expense was $0.7 million in fiscal 2010, compared
to other income of $0.6 million during fiscal 2009. The
decrease in other income was primarily due to $0.8 mil-
lion in lower interest income resulting from lower inter-
est rates on our cash balances and investments, and
$0.7 million due to net unfavorable foreign exchange
effects on revenues and expenses, primarily related to
changes in the exchange rate of the Japanese yen to the
U.S. dollar, net of the gains and losses incurred on for-
ward foreign exchange contracts discussed in Note 10
of the Notes to the Consolidated Financial Statements.
Provision for Income Taxes
Our effective income tax rate was 32.5% in fiscal 2010
compared to 32.7% in fiscal 2009. The decreases in the
effective tax rate in fiscal 2010 was primarily due to our
election to permanently reinvest earnings from certain
of our foreign subsidiaries outside of the U.S., as well as
decreased tax expense related to share-based com-
pensation. Increases in the effective tax rate in fiscal
2010 that partially offset these decreases included
decreases in tax-exempt interest income and the pres-
ent expiration of the research and experimentation tax
credit effective December 31, 2009. As discussed above
in the Overview section of this MD&A, our election to
permanently reinvest earnings of certain of our foreign
subsidiaries outside the U.S. reduced our effective tax
rate in fiscal 2010 by 2.7 percentage points.
Net Income
Net income was $49.5 million in fiscal 2010, which repre-
sented an increase of 342.1%, or $38.3 million, from fiscal
2009 as a result of the factors discussed above. The
election to permanently reinvest the earnings of certain
of our foreign subsidiaries outside the U.S. increased
net income by $2.0 million in fiscal 2010.
Year Ended September 30, 2009, Versus Year
Ended September 30, 2008
Revenue
Revenue was $291.4 million in fiscal 2009, which repre-
sented a decrease of 22.3%, or $83.7 million, from fis-
cal 2008. Of this decrease, $97.7 million was due to
26
27
decreased sales volume driven by the significant weak-
ening of demand for our products due to the global
economic recession that we experienced during the first
half of fiscal 2009, and $8.5 million due to product mix.
These decreases in revenue were partially offset by
$13.0 million in revenue from Epoch products, a $5.7 mil-
lion revenue increase due to the effect of foreign
exchange rate changes and $3.8 million due to a higher
weighted-average selling price for our CMP consumable
products. Despite the negative effects of the global
economic recession on our slurry products for semicon-
ductor applications and on our ESF business, our reve-
nue from CMP polishing pads and slurries for data
storage applications increased from the prior year. We
believe a combination of improved underlying demand
and inventory replenishment within the semiconductor
industry positively impacted demand for our products
during the second half of fiscal 2009 as our revenues
improved significantly from the revenues recorded in
the first half of the fiscal year.
Cost of Goods Sold
Total cost of goods sold was $162.9 million in fiscal 2009,
which represented a decrease of 18.8%, or $37.7 million,
from fiscal 2008. The decrease in cost of goods sold was
primarily due to $53.2 million from decreased sales vol-
ume due to the global economic recession, $9.8 million
from lower fixed manufacturing costs and $5.9 million
due to higher manufacturing yields in our CMP slurry
and pad production. These decreases were partially off-
set by a $16.0 million increase due to a higher-cost prod-
uct mix, a $9.2 million increase due to lower utilization of
our manufacturing capacity on the decreased level of
sales, a $4.6 million increase due to the effect of foreign
exchange rate changes and a $2.0 million increase in
certain other manufacturing variances. We implemented
a number of cost saving initiatives during the first half of
fiscal 2009. For example, we shortened work schedules
in our manufacturing operations on a global basis to
more closely match production with demand, but we
maintained the flexibility to increase our production lev-
els to meet the increased customer demand for our
products that we experienced during the second half of
fiscal 2009.
Gross Profit
Our gross profit as a percentage of revenue was 44.1%
in fiscal 2009 as compared to 46.5% for fiscal 2008. The
decrease in gross profit expressed as a percentage of
revenue was primarily due to the underutilization of our
manufacturing capacity on the significantly lower level
of sales and a higher-cost product mix, partially offset
by lower fixed manufacturing costs and favorable pro-
duction yields.
Research, Development and Technical
Total research, development and technical expenses
were $48.2 million in fiscal 2009, which represented a
decrease of 2.0%, or $1.0 million, from fiscal 2008. The
decrease was primarily related to $1.7 million in lower
staffing-related costs, $0.7 million in lower depreciation
expense and $0.4 million in lower travel-related costs.
These cost decreases were partially offset by $1.2 mil-
lion in pre-tax impairments recorded in fiscal 2009 on
certain research and development equipment and $0.4
million in higher expenses for laboratory supplies.
Selling and Marketing
Selling and marketing expenses were $22.2 million in
fiscal 2009, which represented a decrease of 21.4%, or
$6.0 million, from fiscal 2008. The decrease was primar-
ily due to $3.9 million in lower staffing related costs, $1.0
million in lower travel-related costs, $0.3 million in lower
advertising and trade show costs and $0.3 million in
lower professional fees.
General and Administrative
General and administrative expenses were $40.6 million
in fiscal 2009, which represented a decrease of 14.6%,
or $7.0 million, from fiscal 2008. The decrease resulted
primarily from $4.0 million in lower staffing-related costs,
primarily related to our annual incentive bonus program
and lower share-based compensation expense, and
$3.7 million in lower professional fees, including costs
to enforce our intellectual property. These cost savings
were partially offset by a $0.9 million increase in our
allowance for doubtful accounts due to customer
bankruptcies and increased risks relating to customer
collections due to the continued uncertainty in the
global economy.
Purchased In-Process Research
and Development
Purchased in-process research and development (IPR&D)
expense was $1.4 million in fiscal 2009, related to the
acquisition of Epoch in the second quarter of fiscal 2009.
We did not make any acquisitions in fiscal 2008.
Other Income, Net
Other income was $0.6 million in fiscal 2009, which rep-
resented a decrease of 89.0%, or $4.9 million, from fiscal
2008. The decrease in other income was primarily due
to $4.5 million in lower interest income resulting from
lower interest rates on our lower average balances of
cash and short-term investments. We monetized the
majority of our short-term investments in ARS during fis-
cal 2008 and reinvested these funds into money market
investments which earn interest at lower rates.
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27
Provision for Income Taxes
Our effective income tax rate was 32.7% in fiscal 2009
compared to 30.2% in fiscal 2008. The increase in the
effective tax rate in fiscal 2009 was primarily due to
increased tax expense related to share-based compen-
sation and a decrease in tax-exempt interest income,
partially offset by increased research and experimenta-
tion tax credits.
Net Income
Net income was $11.2 million in fiscal 2009, which repre-
sented a decrease of 70.8%, or $27.2 million, from fiscal
2008 as a result of the factors discussed above. The acqui-
sition of Epoch was accretive to earnings in fiscal 2009.
Liquidity and Capital Resources
We had cash flows from operating activities of $88.4 mil-
lion in fiscal 2010, $44.7 million in fiscal 2009 and $70.8
million in fiscal 2008. Our cash provided by operating
activities in fiscal 2010 originated from $49.5 million in
net income, $34.2 million in non-cash items, and a $4.7
million increase in cash flow due to a net decrease in
working capital. The increase in cash from operations
in fiscal 2010 from fiscal 2009 was primarily due to
increased net income in fiscal 2010 due to the improved
economic and industry conditions and the timing
of accounts payable and accrued liability payments,
including the accrual of our annual incentive bonus pro-
gram expenses related to fiscal 2010. These were par-
tially offset by increases in fiscal 2010 in our other current
assets, primarily due to income taxes receivable, and
our inventory levels based on the increased demand for
our products.
We used $11.9 million in investing activities in fiscal 2010
representing $11.7 million in purchases of property,
plant and equipment and $0.2 million in other investing
cash outflows. We used $69.0 million in investing activi-
ties in fiscal 2009, representing $60.5 million used for
our acquisition of Epoch, net of $6.2 million in cash
acquired, and $8.5 million in purchases of property,
plant and equipment. Cash flows provided by investing
activities in fiscal 2008 were $130.3 million. Net sales of
short-term investments were $149.5 million as we mone-
tized the majority of our ARS during fiscal 2008 (as dis-
cussed below). This cash inflow was partially offset by
$19.2 million in cash used for purchases of property,
plant and equipment primarily for the purchase and
installation of a 300-millimeter polishing tool and related
metrology equipment for our Asia Pacific technology
center and building improvements and equipment to
increase our pad production capabilities. See Note 3
and Note 7 of the Notes to the Consolidated Financial
Statements for more information on business combina-
tions and intangible assets. We estimate that our total
capital expenditures in fiscal 2011 will be approximately
$25.0 million.
In fiscal 2010, cash flows used in financing activities were
$23.5 million. We used $25.0 million to repurchase com-
mon stock under our share repurchase plan, $0.8 million
to repurchase common stock pursuant to the terms of
our Second Amended and Restated Cabot Microelec-
tronics Corporation 2000 Equity Incentive Plan (EIP) for
shares withheld from employees and purchased by
the Company to cover payroll taxes on the vesting of
restricted stock granted under the EIP, and we made
$1.2 million in principal payments under capital lease
obligations. These cash outflows were partially offset
by $3.4 million received from the issuance of common
stock related to the exercise of stock options granted
under our EIP and our 2007 Employee Stock Purchase
Plan, as amended and restated January 1, 2010 (2007
Employee Stock Purchase Plan). In fiscal 2009, cash flows
provided by financing activities were $0.7 million. We
received $2.2 million from the issuance of common stock
related to the exercise of stock options granted under
our EIP and our 2007 Employee Stock Purchase Plan.
These cash inflows were partially offset by $1.1 million in
principal payments on capital leases and $0.3 million in
repurchases of common stock pursuant to the terms of
our EIP for shares withheld to cover payroll taxes on
the vesting of restricted stock granted under the EIP.
In fiscal 2008, cash flows used in financing activities
were $35.2 million. We used $39.0 million to repurchase
common stock under our share repurchase programs
and we made $1.1 million in principal payments under
capital lease obligations. These cash outflows were par-
tially offset by $4.9 million received from the issuance of
common stock related to the exercise of stock options
and shares issued under our 2007 Employee Stock
Purchase Plan.
In January 2008, the Board of Directors authorized a
share repurchase program for up to $75.0 million of our
outstanding common stock. Shares are repurchased
from time to time, depending on market conditions, in
open market transactions, at management’s discretion.
We fund share repurchases from our existing cash bal-
ance. The program became effective on the authori-
zation date and may be suspended or terminated at
any time, at the Company’s discretion. There was $25.0
million remaining on this authorization as of September
30, 2010.
We have an unsecured revolving credit facility of $50.0
million with an option to increase the facility to $80.0
million. Pursuant to an amendment we entered into in
October 2008, the agreement extends to November
2011, with an option to renew for two additional one-
year terms. In November 2010, the scheduled termina-
tion date was extended by one year through October
2012. The amendment did not include any other mate-
rial changes to the terms of the credit agreement. Under
this agreement, interest accrues on any outstanding
28
29
balance at either the lending institution’s base rate or
the Eurodollar rate plus an applicable margin. We also
pay a non-use fee. Loans under this facility are intended
primarily for general corporate purposes, including
financing working capital, capital expenditures and
acquisitions. The credit agreement also contains various
covenants. No amounts are currently outstanding under
this credit facility and we believe we are currently in
compliance with the covenants.
As discussed in Note 3 of the Notes to the Consolidated
Financial Statements, we completed the acquisition of
Epoch during our second quarter of fiscal 2009. The
total cash outlay was $60.5 million representing $59.4
million in cash paid to Epoch’s shareholders on the first
closing date of February 27, 2009, $0.7 million in cash
paid for transaction costs and $6.6 million paid to Eternal
on the second closing date in August 2010, which had
been in escrow in Taiwan, partially offset by $6.2 million
in cash acquired with Epoch.
At September 30, 2010, we owned two ARS with an esti-
mated fair value of $8.1 million ($8.3 million par value).
We successfully monetized at par value the majority of
ARS we owned in fiscal 2008 and reinvested these funds
in money market accounts. We believe that we will be
able to monetize the remaining two ARS at par, either
through successful auctions, refinancing of the underly-
ing debt by the issuers, payment by the bond insurance
carrier, or holding the securities to maturity. However,
we believe it is not likely that our ARS will be monetized
within the next operating cycle, which for us is generally
one year, so we have classified these securities as long-
term assets.
We believe that our current balance of cash and long-
term investments, cash generated by our operations
and available borrowings under our revolving credit
facility will be sufficient to fund our operations, expected
capital expenditures, merger and acquisition activities,
and share repurchases for the foreseeable future.
However, we plan to further expand our business; there-
fore, we may need to raise additional funds in the future
through equity or debt financing, strategic relationships
or other arrangements. Depending upon future condi-
tions in the capital and credit markets, we could encoun-
ter difficulty securing additional financing in the type or
amount necessary to pursue these objectives.
Off-Balance Sheet Arrangements
At September 30, 2010 and 2009, we did not have any
unconsolidated entities or financial partnerships, such
as entities often referred to as structured finance or
special purpose entities, which might have been estab-
lished for the purpose of facilitating off-balance sheet
arrangements.
Tabular Disclosure of Contractual Obligations
The following summarizes our contractual obligations at
September 30, 2010, and the effect such obligations
are expected to have on our liquidity and cash flow in
future periods.
Contractual
Obligations
(In millions)
Less
Than
1 Year
Total
1–3
Years
3–5
Years
After
5 Years
Capital lease
obligations
Operating leases
Purchase obligations
Other long-term
$ 1.3
8.8
29.4
$ 1.3
2.9
27.9
$ — $ —
1.6
0.3
3.0
0.5
$ —
1.3
0.7
liabilities
4.1
—
—
—
4.1
Total contractual
obligations
$ 43.6
$32.1
$3.5
$1.9
$6.1
Capital Lease Obligations
In December 2001, we entered into a fumed alumina
supply agreement with Cabot Corporation, our former
parent company which is not a related party, under
which we agreed to pay Cabot Corporation for the
expansion of a fumed alumina manufacturing facility in
Tuscola, Illinois. The arrangement for the facility has been
treated as a capital lease for accounting purposes and
the present value of the minimum quarterly payments
resulted in an initial $9.8 million lease obligation and
related leased asset. The initial term of the agreement
expired in December 2006, but it was renewed for
another five-year term ending in December 2011.
Operating Leases
We lease certain vehicles, warehouse facilities, office
space, machinery and equipment under cancelable and
noncancelable operating leases, most of which expire
within ten years of their respective commencement
dates and may be renewed by us. Operating lease obli-
gations also include certain costs associated with our
pad finishing operation located at Taiwan Semiconductor
Manufacturing Company, which are accounted for as
operating lease payments.
Purchase Obligations
We have entered into multi-year supply agreements with
Cabot Corporation for the purchase of certain fumed
metal oxides. We purchase fumed silica primarily under
a fumed silica supply agreement with Cabot Corporation
that became effective in January 2004, and was
amended in September 2006 and in April 2008, the lat-
ter of which extended the termination date of the agree-
ment from December 2009 to December 2012 and also
changed the pricing and some other non-material terms
of the agreement to the benefit of both parties. The
agreement will automatically renew unless either party
gives certain notice of non-renewal. We are generally
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29
obligated to purchase fumed silica for at least 90% of
our six-month volume forecast for certain of our slurry
products, to purchase certain non-material minimum
quantities every six months, and to pay for the shortfall
if we purchase less than these amounts. We currently
anticipate meeting all minimum forecasted purchase
volume requirements. Since December 2001, we have
purchased fumed alumina primarily under a fumed alu-
mina supply agreement with Cabot Corporation that
has an original term ending in December 2006 and was
renewed for another five-year term ending in December
2011. Prices charged for fumed alumina from Cabot
Corporation are pursuant to the terms of the supply
agreement and may fluctuate based upon the actual
costs incurred by Cabot Corporation in the manufacture
of fumed alumina. Under these agreements, Cabot
Corporation continues to be the exclusive supplier of
certain quantities and types of fumed silica and fumed
alumina for certain products we produced as of the
effective dates of these agreements. Subject to certain
terms, Cabot Corporation is prohibited from selling cer-
tain types of fumed alumina to third parties for use in
CMP applications, as well as engaging itself in CMP
applications. If Cabot Corporation fails to supply us with
our requirements for any reason, including if we require
product specification changes that Cabot Corporation
cannot meet, we have the right to purchase products
meeting those specifications from other suppliers. We
also may purchase fumed alumina and fumed silica from
other suppliers for certain products, including those
commercialized after certain dates related to these
agreements and their amendments. Purchase obliga-
tions include an aggregate amount of $7.4 million of
contractual commitments related to our Cabot Corpo-
ration agreements for fumed silica and fumed alumina.
Other Long-Term Liabilities
Other long-term liabilities at September 30, 2010 consist
of liabilities related to our Japan retirement allowance
and our liability for uncertain tax positions.
Item 7A. Quantitative and Qualitative
Disclosures About Market Risk
Effect of Currency Exchange Rates and
Exchange Rate Risk Management
We conduct business operations outside of the United
States through our foreign operations. Some of our for-
eign operations maintain their accounting records in
their local currencies. Consequently, period to period
comparability of results of operations is affected by
fluctuations in exchange rates. The primary currencies
to which we have exposure are the Japanese yen and
the New Taiwan dollar and, to a lesser extent, the British
pound and the euro. From time to time we enter into
forward contracts in an effort to manage foreign currency
exchange exposure. However, we may be unable to
hedge these exposures completely. During fiscal 2010,
we recorded $4.6 million in foreign currency translation
gains that are included in other comprehensive income
on our Consolidated Balance Sheet. These gains primar-
ily relate to general fluctuations of the U.S. dollar rela-
tive to the Japanese yen. Approximately 18% of our
revenue is transacted in currencies other than the U.S.
dollar. However, we also incur expenses in foreign coun-
tries that are transacted in currencies other than the U.S.
dollar, so the net exposure on the Consolidated
Statement of Income is limited. We do not currently
enter into forward exchange contracts or other deriva-
tive instruments for speculative or trading purposes.
Market Risk and Sensitivity Analysis Related to
Foreign Exchange Rate Risk
We have performed a sensitivity analysis assuming a
hypothetical 10% adverse movement in foreign
exchange rates. As of September 30, 2010, the analysis
demonstrated that such market movements would
not have a material adverse effect on our consolidated
financial position, results of operations or cash flows
over a one-year period. Actual gains and losses in the
future may differ materially from this analysis based on
changes in the timing and amount of foreign currency
rate movements and our actual exposures.
Market Risk Related to Investments in Auction
Rate Securities
At September 30, 2010, we owned two auction rate
securities (ARS) with a total estimated fair value of $8.1
million ($8.3 million par value) which were classified as
other long-term assets on our Consolidated Balance
Sheet. Beginning in 2008, general uncertainties in the
global credit markets caused widespread ARS auction
failures as the number of securities submitted for sale
exceeded the number of securities buyers were willing
to purchase. As a result, the short-term liquidity of the
ARS market has been adversely affected. For more
information on our ARS, see “Risk Factors” set forth in
Part I, Item 1A, “Critical Accounting Policies and
Estimates” in Management’s Discussion and Analysis of
Financial Condition and Results of Operations in Part II,
Item 7, and Notes 4 and 8 of the Notes to the
Consolidated Financial Statements in Part II, Item 8 of
this Annual Report on Form 10-K.
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31
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements and Financial Statement Schedule
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income for the years ended September 30, 2010, 2009 and 2008
Consolidated Balance Sheets at September 30, 2010 and 2009
Consolidated Statements of Cash Flows for the years ended September 30, 2010, 2009 and 2008
Consolidated Statements of Changes in Stockholders’ Equity for the years ended September 30, 2010,
2009 and 2008
Notes to the Consolidated Financial Statements
Selected Quarterly Operating Results
Financial Statement Schedule:
Schedule II—Valuation and Qualifying Accounts
Page
32
33
34
35
36
37
56
57
All other schedules are omitted, because they are not required, are not applicable, or the information is included in
the consolidated financial statements and notes thereto.
30
31
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Cabot Microelectronics Corporation:
In our opinion, the consolidated financial statements
listed in the accompanying index present fairly, in
all material respects, the financial position of Cabot
Microelectronics Corporation and its subsidiaries at
September 30, 2010 and 2009, and the results of their
operations and their cash flows for each of the three
years in the period ended September 30, 2010 in confor-
mity with accounting principles generally accepted in
the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompa-
nying index presents fairly, in all material respects, the
information set forth therein when read in conjunction
with the related consolidated financial statements. Also
in our opinion, the Company maintained, in all material
respects, effective internal control over financial report-
ing as of September 30, 2010, based on criteria estab-
lished in Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company’s man-
agement is responsible for these financial statements
and financial statement schedule, for maintaining effec-
tive internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in Management’s Report
on Internal Control Over Financial Reporting appearing
under Item 9A. Our responsibility is to express opinions
on these financial statements, on the financial statement
schedule, and on the Company’s internal control over
financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards
of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance
about whether the financial statements are free of mate-
rial misstatement and whether effective internal control
over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements,
assessing the accounting principles used and significant
estimates made by management, and evaluating the
overall financial statement presentation. Our audit of
internal control over financial reporting included obtain-
ing an understanding of internal control over financial
reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and oper-
ating effectiveness of internal control based on the
assessed risk. Our audits also included performing such
other procedures as we considered necessary in the cir-
cumstances. We believe that our audits provide a rea-
sonable basis for our opinions.
A company’s internal control over financial reporting is
a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external pur-
poses in accordance with generally accepted account-
ing principles. A company’s internal control over financial
reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reason-
able detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (ii) pro-
vide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial state-
ments in accordance with generally accepted account-
ing principles, and that receipts and expenditures of
the company are being made only in accordance with
authorizations of management and directors of the
company; and (iii) provide reasonable assurance regard-
ing prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets
that could have a material ef fec t on the financial
statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstate-
ments. Also, projections of any evaluation of effective-
ness to future periods are subject to the risk that controls
may become inadequate because of changes in condi-
tions, or that the degree of compliance with the policies
or procedures may deteriorate.
Chicago, IL
November 23, 2010
32
33
CABOT MICROELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Revenue
Cost of goods sold
Gross profit
Operating expenses:
Research, development and technical
Selling and marketing
General and administrative
Purchased in-process research and development
Total operating expenses
Operating income
Other income (expense), net
Income before income taxes
Provision for income taxes
Net income
Basic earnings per share
Weighted-average basic shares outstanding
Diluted earnings per share
Weighted-average diluted shares outstanding
The accompanying notes are an integral part of these consolidated financial statements.
Year Ended September 30,
2010
2009
2008
$ 408,201
204,704
$ 291,372
162,918
$ 375,069
200,596
203,497
128,454
174,473
51,818
26,885
50,783
—
48,150
22,239
40,632
1,410
49,155
28,281
47,595
—
129,486
112,431
125,031
74,011
(734)
73,277
23,819
16,023
599
16,622
5,435
49,442
5,448
54,890
16,552
$ 49,458
$ 11,187
$ 38,338
$
2.14
$
0.48
$
1.64
23,084
23,079
23,315
$
2.13
$
0.48
$
1.64
23,273
23,096
23,348
32
33
CABOT MICROELECTRONICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of $1,121 at
September 30, 2010, and $1,277 at September 30, 2009
Inventories
Prepaid expenses and other current assets
Deferred income taxes
Total current assets
Property, plant and equipment, net
Goodwill
Other intangible assets, net
Deferred income taxes
Other long-term assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Capital lease obligations
Accrued expenses and other current liabilities
Total current liabilities
Capital lease obligations, net of current portion
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 17)
Stockholders’ equity:
Common stock:
Authorized: 200,000,000 shares, $0.001 par value; Issued: 26,384,715 shares at
September 30, 2010, and 26,143,116 shares at September 30, 2009
Capital in excess of par value of common stock
Retained earnings
Accumulated other comprehensive income
Treasury stock at cost, 3,446,069 shares at September 30, 2010, and 2,698,234 shares
at September 30, 2009
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these consolidated financial statements.
September 30,
2010
2009
$ 254,164
$ 199,952
57,456
51,896
13,973
3,540
53,538
44,940
14,428
3,994
381,029
316,852
115,811
40,436
17,089
8,044
9,347
122,782
39,732
18,741
7,953
9,084
$ 571,756
$ 515,144
$ 17,521
1,296
34,513
$ 15,182
1,210
23,144
53,330
12
4,071
57,413
39,536
1,308
3,571
44,415
26
228,103
383,767
18,538
26
213,031
334,309
13,690
(116,091)
(90,327)
514,343
470,729
$ 571,756
$ 515,144
34
35
CABOT MICROELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
Purchased in-process research and development
Provision for doubtful accounts
Share-based compensation expense
Deferred income tax benefit
Non-cash foreign exchange gain
Loss on disposal of property, plant and equipment
Impairment of property, plant and equipment
Other
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued expenses, income taxes payable and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Additions to property, plant and equipment
Proceeds from the sale of property, plant and equipment
Acquisition of business, net of cash acquired
Purchase of intangible assets
Purchases of investments
Proceeds from the sale of investments
Year Ended September 30,
2010
2009
2008
$ 49,458
$ 11,187
$ 38,338
24,994
—
(113)
11,643
(2,150)
(498)
107
158
92
(1,985)
(5,715)
(6,021)
1,555
16,860
88,385
(11,657)
2
—
(315)
—
50
24,832
1,410
856
12,802
(2,064)
(2,731)
235
1,245
938
(8,519)
8,084
4,889
(464)
(8,003)
44,697
25,951
—
(97)
15,067
(6,753)
(2,592)
598
4
1,738
11,849
(9,268)
(4,921)
(2,472)
3,397
70,839
(19,232)
(8,493)
42
1
—
(60,520)
—
—
— (233,775)
383,290
50
Net cash provided by (used in) investing activities
(11,920)
(68,962)
130,325
Cash flows from financing activities:
Repurchases of common stock
Net proceeds from issuance of stock
Principal payments under capital lease obligations
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash
Increase (decrease) in cash
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information:
Cash paid for income taxes
Cash paid for interest
Supplemental disclosure of non-cash investing and financing activities:
Purchases of property, plant and equipment in accrued liabilities and
accounts payable at the end of period
Issuance of restricted stock
Assets acquired under capital lease
The accompanying notes are an integral part of these consolidated financial statements.
34
35
(25,764)
3,429
(1,210)
(23,545)
(336)
2,206
(1,129)
(39,001)
4,889
(1,072)
741
(35,184)
1,292
2,009
930
54,212
199,952
(21,515)
221,467
166,910
54,557
$ 254,164
$ 199,952
$ 221,467
$ 29,174
257
$
$ 4,283
338
$
$ 26,459
420
$
974
$
$ 4,985
$
— $
429
$
$ 4,209
$
$
— $
391
4,850
44
CABOT MICROELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)
Balance at September 30, 2007
Issuance of Cabot Microelectronics
restricted stock under deposit share plan
Issuance of Cabot Microelectronics stock
under Employee Stock Purchase Plan
Share-based compensation expense
Exercise of stock options
Repurchases of common stock under
share repurchase plans, at cost
Net income
Foreign currency translation adjustment
Unrealized loss on investments
Minimum pension liability adjustment
Total comprehensive income
Cumulative effect adjustment related
to accounting for unrecognized
tax positions
Balance at September 30, 2008
Share-based compensation expense
Repurchases of common stock—other,
at cost
Exercise of stock options
Issuance of Cabot Microelectronics
restricted stock under deposit share plan
Issuance of Cabot Microelectronics stock
under Employee Stock Purchase Plan
Net income
Foreign currency translation adjustment
Minimum pension liability adjustment
Total comprehensive income
Common
Stock
Capital in
Excess of
Par
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Comprehensive
Income
(Net of tax)
Treasury
Stock
Total
$24
$ 178,068 $ 284,843
$ 1,259
$
(50,990) $ 413,204
165
1,596
15,067
3,126
2
165
1,596
15,067
3,128
(39,001)
(39,001)
40,133
(59)
2,341
(151)
(395)
$38,338
2,341
(151)
(395)
$40,133
38,338
(59)
$26
$ 198,022 $ 323,122
$ 3,054
$
(89,991) $ 434,233
12,802
680
170
1,357
11,187
10,275
361
$11,187
10,275
361
$21,823
(336)
12,802
(336)
680
170
1,357
21,823
Balance at September 30, 2009
$26
$ 213,031 $ 334,309
$ 13,690
$
(90,327) $ 470,729
Share-based compensation expense
Repurchases of common stock under
share repurchase plans, at cost
Repurchases of common stock—other,
at cost
Exercise of stock options
Issuance of Cabot Microelectronics
restricted stock under deposit share plan
Issuance of Cabot Microelectronics stock
under Employee Stock Purchase Plan
Net income
Foreign currency translation adjustment
Minimum pension liability adjustment
Total comprehensive income
11,643
2,283
45
1,101
49,458
4,580
268
$49,458
4,580
268
$54,306
11,643
(24,998)
(24,998)
(766)
(766)
2,283
45
1,101
54,306
Balance at September 30, 2010
$26
$ 228,103 $ 383,767
$18,538
$(116,091) $514,343
The accompanying notes are an integral part of these consolidated financial statements.
36
37
CABOT MICROELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
1. Background and Basis of Presentation
Cabot Microelectronics Corporation (“Cabot Microelec-
tronics”, “the Company”, “us”, “we”, or “our”) supplies
high-performance polishing slurries used in the manu-
facture of advanced integrated circuit (IC) devices within
the semiconductor industry, in a process called chemi-
cal mechanical planarization (CMP). CMP polishes sur-
faces at an atomic level, thereby enabling IC device
manufacturers to produce smaller, faster and more com-
plex IC devices with fewer defects. We believe we are
the world’s leading supplier of CMP slurries for IC
devices. We also develop, manufacture and sell CMP
slurries for polishing certain components in hard disk
drives, specifically rigid disk substrates and magnetic
heads, and we believe we are one of the leading suppli-
ers in this area. In addition, we develop, produce and
sell CMP polishing pads, which are used in conjunction
with slurries in the CMP process. We also continue to
pursue other demanding surface modification applica-
tions through our Engineered Surface Finishes (ESF)
business for which we believe we can leverage our
expertise in CMP consumables for the semiconductor
industry to develop products for demanding polishing
applications in other industries.
The audited consolidated financial statements have
been prepared by us pursuant to the rules of the Secu-
rities and Exchange Commission (SEC) and accounting
principles generally accepted in the United States of
America. We operate predominantly in one industry
segment—the development, manufacture, and sale of
CMP consumables.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the
accounts of Cabot Microelectronics and its subsidiaries.
All intercompany transactions and balances between
the companies have been eliminated as of September
30, 2010.
Use of Estimates
The preparation of financial statements and related
disclosures in conformity with accounting principles
generally accepted in the United States of America
requires management to make judgments, assumptions
and estimates that affect the amounts reported in the
consolidated financial statements and accompanying
notes. The accounting estimates that require manage-
ment’s most difficult and subjective judgments include,
but are not limited to, those estimates related to bad
debt expense, warranty obligations, inventory valuation,
valuation and classification of auction rate securities,
impairment of long-lived assets and investments, busi-
ness combinations, goodwill, other intangible assets, share-
based compensation, income taxes and contingencies.
We base our estimates on historical experience, current
conditions and on various other assumptions that we
believe are reasonable under the circumstances. How-
ever, 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 as of September 30, 2010 or
2009. See Note 4 for a more detailed discussion of other
financial instruments.
Accounts Receivable and Allowance for
Doubtful Accounts
Trade accounts receivable are recorded at the invoiced
amount and do not bear interest. We maintain an allow-
ance for doubtful accounts for estimated losses result-
ing 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 eco-
nomic conditions. Uncollectible account balances are
charged against the allowance when we believe that it is
probable that the receivable will not be recovered. See
Schedule II under Part IV, Item 15 of this Form 10-K for
more information on our allowance for doubtful accounts.
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 custom-
ers’ 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 semi-
conductor industry and global economy. We historically
have not experienced material losses relating to
accounts receivable from individual customers or groups
of customers.
36
37
Customers who represented more than 10% of revenue
were as follows:
Taiwan Semiconductor
Manufacturing Co. (TSMC)
United Microelectronics
Corporation (UMC)
*Denotes less than ten percent of total
Year Ended
September 30,
2010
2009
2008
18% 17%
17%
11%
*
*
TSMC accounted for 13.6% and 14.0% of net accounts
receivable at September 30, 2010 and 2009, respec-
tively. UMC accounted for 9.2% of net accounts receiv-
able at September 30, 2010.
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. The fair
value of our long-term auction rate securities (ARS) is
determined through discounted cash flow analyses. See
Note 4 for a more detailed discussion of the fair value of
financial instruments.
Inventories
Inventories are stated at the lower of cost, determined
on the first-in, first-out (FIFO) basis, or market. 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 unmarketability. An inven-
tory reserve is maintained based upon a historical per-
centage of actual inventories written off applied against
inventory value at the end of the period, adjusted for
known conditions and circumstances.
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:
Buildings
Machinery and equipment
Furniture and fixtures
Information systems
Assets under capital leases
15–25 years
3–10 years
5–10 years
3–5 years
Term of lease or
estimated useful life
Expenditures for repairs and maintenance are charged
to expense as incurred. Expenditures for major renewals
and betterments are capitalized and depreciated over
the remaining useful lives. As assets are retired or sold,
the related cost and accumulated depreciation are
removed from the accounts and any resulting gain or
loss is included in the results of operations. Costs
related to the design and development of internal use
software are capitalized.
Impairment of Long-Lived Assets
Reviews are regularly performed to determine whether
facts and circumstances exist that indicate the carrying
amount of assets may not be recoverable or the useful
life is shorter than originally estimated. Asset recover-
ability assessment begins by comparing the projected
undiscounted cash flows associated with the related
asset or group of assets over their remaining lives
against their respective carrying amounts. Impairment,
if any, is based on the excess of the carrying amount
over the fair value of those assets. If assets are deter-
mined to be recoverable, but their useful lives are
shorter than originally estimated, the net book value of
the asset is depreciated over the newly determined
remaining useful life.
Goodwill and Intangible Assets
We amortize intangible assets with finite lives over their
estimated useful lives, which range from two to ten and
one-half years. Intangible assets with finite lives are
reviewed for impairment using a process similar to that
used to evaluate other long-lived assets. Goodwill and
indefinite lived intangible assets are not amortized and
are tested annually in the fourth fiscal quarter or more
frequently if indicators of potential impairment exist,
using a fair-value-based approach. The recoverability of
goodwill is measured at the reporting unit level, which is
defined as either an operating segment or one level
below an operating segment, referred to as a compo-
nent. A component is a reporting unit when the compo-
nent constitutes a business for which discreet financial
information is available and segment management reg-
ularly reviews the operating results of the component.
Components may be combined into one reporting unit
when they have similar economic characteristics. We
had three reporting units to which we allocated good-
will and intangible assets as of September 30, 2010.
Goodwill impairment testing requires a comparison of
the fair value of each reporting unit to the carrying value.
If the carrying value exceeds fair value, goodwill is con-
sidered impaired. The amount of the impairment is the
difference between the carrying value of goodwill and
the “implied” fair value. The fair value of the reporting
unit is determined using a discounted cash flow analysis
of our projected future results. The recoverability of
indefinite lived intangible assets is measured using the
royalty savings method, which requires a comparison
between the fair value of the discounted royalty savings
and the carrying value of the assets. We determined
that goodwill and other intangible assets were not
impaired as of September 30, 2010.
38
39
Warranty Reserve
We maintain a warranty reserve that reflects manage-
ment’s best estimate of the cost to replace product that
does not meet customers’ specifications and perfor-
mance requirements. The warranty reserve is based
upon a historical product return rate, adjusted for any
specific known conditions or circumstances. Adjust-
ments to the warranty reserve are recorded in cost of
goods sold.
Foreign Currency Translation
Certain operating activities in Asia and Europe are
denominated in local currency, considered to be the
functional currency. Assets and liabilities of these oper-
ations are translated using exchange rates in effect at
the end of the year, and revenue and costs are trans-
lated using weighted-average exchange rates for the
year. The related translation adjustments are reported in
comprehensive income in stockholders’ equity.
Foreign Exchange Management
We transact business in various foreign currencies, pri-
marily the Japanese yen, New Taiwan dollar, British
pound and the euro. Our exposure to foreign currency
exchange risks has not been significant because a large
portion of our business is denominated in U.S. dollars.
Periodically 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. Our foreign exchange con-
tracts do not qualify for hedge accounting under the
accounting rules for derivative instruments. See Note 10
for more a more detailed discussion of derivative finan-
cial instruments.
Intercompany Loan Accounting
We maintain intercompany loan agreements with our
wholly-owned subsidiary, Nihon Cabot Microelectronics
K.K. (“the K.K.”), under which we provided funds to the
K.K. to finance the purchase of certain assets from our
former Japanese branch at the time of the establishment
of this subsidiary, for the purchase of land adjacent to
our Geino, Japan, facility, for the construction of our
Asia Pacific technology center, and for the purchase of a
300 millimeter polishing tool and related metrology
equipment, all of which are part of the K.K., as well as
for general business purposes. Since settlement of
the notes is expected in the foreseeable future, and
our subsidiary has been consistently making timely
payments on the loans, the loans are considered
foreign-currency transactions. Therefore the associated
foreign exchange gains and losses are recognized as
other income or expense rather than being deferred in
the cumulative translation account in other comprehen-
sive income.
Purchase Commitments
We have entered into unconditional purchase obliga-
tions, which include noncancelable purchase commit-
ments and take-or-pay arrangements with suppliers. We
review our agreements and make an assessment of the
likelihood of a shortfall in purchases and determine if it
is necessary to record a liability.
Revenue Recognition
Revenue from CMP consumable products is recognized
when title is transferred to the customer, provided
acceptance and collectibility are reasonably assured.
Title transfer generally occurs upon shipment to the
customer or when inventory held on consignment is
consumed by the customer, subject to the terms and
conditions of the particular customer arrangement. We
have consignment agreements with a number of our
customers that require, at a minimum, monthly con-
sumption reports that enable us to record revenue and
inventory usage in the appropriate period.
We market our products through distributors in a few
areas of the world. We recognize revenue upon ship-
ment and when title is transferred to the distributor. We
do not have any arrangements with distributors that
include payment terms, rights of return, or rights of
exchange outside the normal course of business, or any
other significant matters that would impact the timing of
revenue recognition.
Within our Engineered Surface Finishes (ESF) business,
sales of equipment are recorded as revenue upon deliv-
ery. Amounts allocated to installation and training are
deferred until those services are provided and are not
material.
Revenues are reported net of any value-added tax or
other such tax assessed by a governmental authority on
our revenue-producing activities.
Shipping and Handling
Costs related to shipping and handling are included in
cost of goods sold.
Research, Development and Technical
Research, development and technical costs are expensed
as incurred and consist primarily of staffing costs, mate-
rials and supplies, depreciation, utilities and other facili-
ties costs.
Income Taxes
Current income taxes are determined based on esti-
mated 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 dif-
ferences between the book and tax bases of recorded
assets and liabilities. The effect on deferred tax assets
38
39
and liabilities of a change 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 recognize
the tax benefit of an uncertain tax position only if it is
more likely than not that the tax position will be sus-
tained by the taxing authorities, based on the technical
merits of the position. In fiscal 2010, we elected to per-
manently reinvest the earnings of certain of our foreign
subsidiaries outside the U.S. rather than repatriating the
earnings to the U.S. See Note 16 for additional informa-
tion on income taxes.
Share-Based Compensation
We record share-based compensation expense for all
share-based awards, including stock option grants,
restricted stock and restricted stock unit awards and
employee stock purchases. We calculate share-based
compensation expense using the straight-line approach
based on awards ultimately expected to vest, which
requires the use of an estimated forfeiture rate. Our
estimated forfeiture rate is primarily based on historical
experience, but may be revised in future periods if
actual forfeitures differ from the estimate. We use the
Black-Scholes option-pricing model to estimate the
grant date fair value of our stock options and employee
stock purchases. This model requires the input of highly
subjective assumptions, including the option’s expected
term, the price volatility of the underlying stock, the risk-
free interest rate and the expected dividend rate, if any.
A small change in the underlying assumptions can have
a relatively large effect on the estimated valuation. We
estimate the expected volatility of our stock based on a
combination of our stock’s historical volatility and the
implied volatilities from actively-traded options on our
stock. We calculate the expected term of our stock
options using the simplified method, due to our limited
amount of historical option exercise data, and we add a
slight premium to this expected term for employees
who would meet the definition of retirement eligible
pursuant to the terms of their grant agreements during
the contractual term of the grant. The simplified method
uses an average of the vesting term and the contractual
term of the option to calculate the expected term. The
risk-free rate is derived from the U.S. Treasury yield
curve in effect at the time of grant.
For additional information regarding our share-based
compensation plans, refer to Note 12.
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 outstand-
ing during the period. Diluted EPS is calculated by using
the weighted-average number of common shares out-
standing during the period increased to include the
weighted-average dilutive effect of “in-the-money”
stock options and unvested restricted stock shares using
the treasury stock method.
Comprehensive Income
Comprehensive income primarily differs from net income
due to foreign currency translation adjustments.
Effects of Recent Accounting Pronouncements
On October 1, 2009, we adopted new accounting stan-
dards for the accounting and reporting of minority
equity interests in subsidiaries. Minority interests are
charac terized as noncontrolling interests and are
reported as a component of equity separate from the
parent’s equity, and purchases or sales of equity inter-
ests that do not result in a change of control are
accounted for as equity transactions. In addition, net
income attributable to the noncontrolling interest is
included in consolidated net income on the face of the
statement of income and, upon loss of control, the inter-
est sold, as well as any interest retained, is recorded at
fair value with any gain or loss recognized in earnings.
The new standards apply prospectively, except for the
presentation and disclosure requirements, which apply
retrospectively. The adoption of these standards had no
effect on our results of operations, financial position or
cash flows as we currently have no minority interests in
any of our subsidiaries.
In June 2009, the Financial Accounting Standards Board
(FASB) issued new standards prescribing the informa-
tion that a reporting entity must provide in its financial
reports about the transfer of financial assets. The new
standards amend previous guidance by removing the
concept of a qualifying special-purpose entity and
removing the exception from applying the provisions of
accounting for variable interest entities that are qualify-
ing special-purpose entities. The new standards are
effective for transfers of financial assets occurring on or
after January 1, 2010. The adoption of these new stan-
dards did not have any impact on our results of opera-
tions, financial position or cash flows.
In June 2009, the FASB issued new standards regarding
the recognition of a controlling financial interest in a
variable interest entity (VIE). The primary beneficiary of
a VIE is defined as the enterprise that has both: 1) the
power to direct the activities of a VIE that most signifi-
cantly impact the entity’s economic performance; and 2)
the obligation to absorb losses of the entity that could
potentially be significant to the VIE or the right to
receive benefits from the entity that could potentially be
significant to the VIE. The new standards also require
ongoing reassessments of whether an enterprise is the
40
41
primary beneficiary of a VIE. The new standards are
effective for annual reporting periods beginning after
November 15, 2009 and for interim reporting periods
within the first annual reporting period. We do not
believe the adoption of these new standards will have a
material impact on our results of operations, financial
position or cash flows. We do not currently have any
interest or arrangements that are considered variable
interest entities.
In October 2009, the FASB issued ASU No. 2009-13,
“Revenue Recognition (Topic 605)—Multiple-Deliverable
Revenue Arrangements” (ASU 2009-13), a consensus of
the FASB Emerging Issues Task Force. The guidance in
ASU 2009-13 modifies the fair value requirements
regarding the recognition of revenue under multiple
element arrangements by allowing the use of the best
estimate of selling price in addition to vendor-specific
objective evidence (VSOE) and third-party evidence
(TPE) for determining the selling price of a deliverable.
A vendor is now required to use its best estimate of the
selling price when VSOE or TPE of the selling price can-
not be determined. In addition, the residual method of
allocating arrangement consideration is no longer per-
mitted. ASU 2009-13 is effective prospectively for reve-
nue arrangements entered into or modified in fiscal
years beginning on or after June 15, 2010. We do not
believe the adoption of ASU 2009-13 will have a material
effect on our results of operations, financial position or
cash flows.
In October 2009, the FASB issued Accounting Standards
Update (ASU) No. 2009-14, “Software (Topic 985)—
Certain Revenue Arrangements that Include Software
Elements” (ASU 2009-14), a consensus of the FASB
Emerging Issues Task Force. The guidance in ASU 2009-
14 modifies the existing accounting rules regarding the
recognition of revenue from the sale of software to
exclude: (a) non-software components of tangible prod-
ucts; and (b) software components of tangible products
that are sold, licensed, or leased with tangible products
when the software components and non-software
components of the tangible product function together
to deliver the tangible product’s essential functionality.
ASU 2009-14 is effective prospectively for revenue
arrangements entered into or modified in fiscal
years beginning on or after June 15, 2010. We do not
believe the adoption of ASU 2009-14 will have a material
effect on our results of operations, financial position or
cash flows.
In January 2010, the FASB issued ASU No. 2010-06, “Fair
Value Measurements and Disclosures (Topic 820)—
Improving Disclosures about Fair Value Measurements”
(ASU 2010-06). ASU 2010-06 provides amendments to
the rules regarding the disclosure of fair value measure-
ments and clarifies the language in certain existing dis-
closures. New disclosures include a discussion of the
transfers in and out of Level 1 and 2 measurements as
well as a reconciliation of gross activity for Level 3 mea-
surements. ASU 2010-06 clarifies the disclosures an
entity must make regarding inputs and valuation tech-
niques used in fair value measurements. The ASU also
clarifies that an entity should provide fair value disclo-
sures for each class of assets and liabilities. ASU 2010-06
is effective for interim and annual reporting periods
beginning after December 15, 2009, except for the dis-
closures about the reconciliation of Level 3 measure-
ments which are effective for fiscal years beginning after
December 15, 2010. The adoption of the provisions
relating to Level 1 and Level 2 measurements did not
have a material impact on our results of operations,
financial position or cash flows. We are currently assess-
ing the potential impact that the adoption of the provi-
sions related to Level 3 measurements will have on the
disclosures in our financial statements.
3. Business Combinations
All business combinations have been accounted for
under the purchase method of accounting. Accordingly,
the assets and liabilities of the acquired entities are
recorded at their estimated fair values at the date of
acquisition. Goodwill represents the excess of the pur-
chase price over the fair value of net assets and amounts
assigned to identifiable intangible assets. Purchased in-
process research and development (IPR&D), for which
technological feasibility has not yet been established
and no future alternative uses exist, has been expensed
immediately. In December 2007, the FASB issued new
standards for the accounting for business combinations.
The new standards retain the purchase method of
accounting for acquisitions, but require a number of
changes, including changes in the way assets and liabili-
ties are recognized in purchase accounting. They also
change the recognition of assets acquired and liabilities
assumed arising from contingencies, require the capital-
ization of IPR&D at fair value, and require acquisition-
related costs to be charged to expense as incurred. The
new standards were effective for us October 1, 2009 and
will apply prospectively to business combinations com-
pleted on or after that date.
On February 27, 2009, we completed the acquisition of
Epoch Material Co., Ltd. (Epoch), which previously was a
consolidated subsidiary of Eternal Chemical Co., Ltd.
(Eternal). Epoch is a Taiwan-based company specializing
primarily in the development, manufacture and sale of
copper CMP consumables. We paid $59,391 to obtain
90% of Epoch’s stock, plus $728 of transaction costs,
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41
from our available cash balance. We paid an additional
$6,600 from an escrow account which was held in Taiwan
to Eternal in August 2010 to acquire the remaining 10%
of Epoch’s stock. During this interim period, Eternal
held the remaining 10% ownership interest in Epoch.
However, Eternal waived rights to any interest in the
earnings of Epoch during the interim period, including
any associated dividends. Consequently, we have
recorded 100% of Epoch’s results of operations from
February 27, 2009 through the end of our fiscal 2010 in
our Consolidated Statement of Income, rather than
recording any noncontrolling interest in Epoch.
The purchase price for Epoch was allocated to tangible
assets, liabilities assumed, identified intangible assets
acquired, as well as IPR&D, based on our estimation of
their fair values. The excess of the purchase price over the
aggregate fair values was recorded as goodwill and is
generally fully deductible for tax purposes. The follow-
ing table summarizes the final purchase price allocation.
Current assets
Long-term assets
In-process research and development
Identified intangible assets
Goodwill
Total assets acquired
Total liabilities assumed
Net assets acquired
$11,453
13,965
1,410
11,510
29,877
68,215
1,496
$66,719
The following unaudited pro forma consolidated results
of operations have been prepared as if the acquisition
of Epoch had occurred on October 1, 2008 and 2007:
Revenues
Net income
Net income per share:
Basic
Diluted
Fiscal Year Ended
September 30,
2009
2008
$ 296,120
$ 10,205
$ 410,309
$ 47,327
$
$
0.44
0.44
$
$
2.03
2.03
The unaudited pro forma consolidated results of opera-
tions do not purport to be indicative of the results that
would have been achieved if the acquisition had actually
occurred as of the dates indicated, or of those results
that may be achieved in the future. The unaudited pro
forma consolidated results of operations include adjust-
ments to net income to give effect to: expensing of
IPR&D on October 1, 2008 and 2007; amortization of
intangible assets acquired; depreciation of property,
plant and equipment acquired; and income taxes.
4. Fair Value of Financial Instruments
On October 1, 2008, we adopted various accounting
standards issued by the FASB for the fair value measure-
ment of all financial assets and financial liabilities. These
standards established a common definition for fair value
in generally accepted accounting principles, established
a framework for measuring fair value and expanded
disclosure about such fair value measurements. These
standards also clarified the application of fair value mea-
surement in an inactive market and illustrated how an
entity would determine fair value when the market for a
financial asset is not active. These standards allow mea-
surement at fair value of eligible financial assets and
financial liabilities that are not otherwise measured at
fair value on an instrument-by-instrument basis (the “fair
value option”). We did not elect the fair value option for
any financial assets or financial liabilities that were not
previously required to be measured at fair value under
other generally accepted accounting principles. On
October 1, 2009, we adopted the accounting provisions
that relate to non-financial assets and non-financial lia-
bilities. The adoption of these provisions did not have a
material impact on our results of operations, financial
position or cash flows. We did not elect the fair value
option for any non-financial assets or non-financial liabil-
ities that were not previously required to be measured
at fair value under other generally accepted accounting
principles.
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
FASB established a three-level hierarchy for disclosure
based on the extent and level of judgment used to esti-
mate 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.
Effective April 1, 2009, we adopted new fair value stan-
dards issued by the FASB which require disclosures
about fair value of financial instruments in interim
reporting periods as well as in annual financial state-
ments and require fair value disclosures in summarized
financial information at interim periods.
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43
The following tables present financial assets that we
measured at fair value on a recurring basis at September
30, 2010 and 2009. As permitted under the relevant
standards, we have chosen to not measure any of our
liabilities at fair value as we believe our liabilities approx-
imate their fair value due to their short-term, highly liq-
uid characteristics. We have classified the following
assets in accordance with the fair value hierarchy set
forth in the applicable standards. In instances where the
inputs used to measure the fair value of an asset fall into
more than one level of the hierarchy, we have classified
them based on the lowest level input that is significant
to the determination of the fair value.
September 30, 2010
Level 1
Level 2
Level 3
Total Fair
Value
Cash and cash
equivalents
Auction rate
$ 254,164
$— $ — $254,164
securities (ARS)
—
—
8,066
8,066
Total
$ 254,164
$— $8,066
$262,230
September 30, 2009
Level 1
Level 2
Level 3
Total Fair
Value
Cash and cash
equivalents
Auction rate
$ 199,952
$— $ — $ 199,952
securities (ARS)
—
—
8,116
8,116
Total
$ 199,952
$— $ 8,116
$ 208,068
Our cash and cash equivalents consist of various bank
accounts used to support our operations and invest-
ments in institutional money-market funds which are
traded in active markets. The recorded amounts of cash,
accounts receivable and accounts payable approximate
their fair values due to their short-term, highly liquid
characteristics. The fair value of our long-term ARS is
determined through two discounted cash flow analyses,
one using a discount rate based on a market index com-
prised of tax exempt variable rate demand obligations
and one using a discount rate based on the LIBOR swap
curve, adding a risk factor to reflect current liquidity
issues in the ARS market.
Effective April 1, 2009, we adopted accounting stan-
dards issued by the FASB regarding the classification
and valuation of financial instruments, including the rec-
ognition and presentation of other-than-temporary
impairments for investment securities we own and the
determination of fair value of financial instruments when
the volume of trading activity significantly decreases. A
debt security is considered to be impaired when the fair
value of the debt security is less than its amortized cost
at the balance sheet date. An other-than-temporary
impairment must be recorded when a credit loss exists;
that is when the present value of the expected cash
flows from a debt security is less than the amortized
cost basis of the security. An impairment is considered
to be other-than-temporary when: 1) an entity intends to
sell a debt security that is impaired; 2) when it is more
likely than not that an entity will be required to sell the
security before the recovery of its amortized cost basis;
or 3) when a credit loss exists. An entity must recognize
an impairment related to any of the three of these cir-
cumstances currently in earnings.
We applied these standards to the valuation of our
investment in ARS at September 30, 2010. Our ARS
investments at September 30, 2010 consisted of two tax
exempt municipal debt securities with a total par value
of $8,300. The ARS market began to experience illiquid-
ity in early 2008, and this illiquidity continues. Despite
this lack of liquidity, there have been no defaults of the
underlying securities and interest income on these hold-
ings continues to be received on scheduled interest
payment dates. Our ARS, when purchased, were gen-
erally issued by A-rated municipalities. Although the
credit ratings of both municipalities have been down-
graded since our original investment, the ARS are credit
enhanced with bond insurance and carried a credit rat-
ing of AAA by Standard and Poors as of September 30,
2010. The credit rating of the insurer was downgraded
by Standard and Poors in October 2010 from AAA to
AA-plus. We incorporated this downgrade into our
valuation model and the downgrade did not materially
affect the valuation of our ARS as of September 30, 2010.
Since an active market for ARS does not currently exist,
we determine the fair value of these investments using a
Level 3 discounted cash flow analysis and also consider
other factors such as the reduced liquidity in the ARS
market and nature and quality of the insurance backing.
Key inputs to our discounted cash flow model include
projected cash flows from interest and principal pay-
ments and the weighted probabilities of improved
liquidity or debt refinancing by the issuer. We also incor-
porate certain Level 2 market indices into the discounted
cash flow analysis, including published rates such as the
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43
LIBOR rate, the LIBOR swap curve and a municipal swap
index published by the Securities Industry and Financial
Markets Association. The following table presents a
reconciliation of the activity in fiscal 2010 for fair value
measurements using level 3 inputs:
Balance as of October 1, 2009
Net sales of ARS
Balance as of September 30, 2010
$ 8,166
(50)
$ 8,066
Based on our fair value assessment, we determined that
one ARS continues to be impaired as of September 30,
2010. This security has a fair value of $3,166 (par value
$3,350). We assessed the impairment in accordance with
the applicable standards and determined that the
impairment was due to the lack of liquidity in the ARS
market rather than to credit risk. We have maintained
the $234 temporary impairment that we first recorded in
fiscal 2008. We believe that this ARS is not permanently
impaired because in the event of default by the issuer,
we expect the insurance provider would pay interest
and principal following the original repayment schedule,
we were able to successfully monetize at par value $50
of this security during our fiscal quarter ended March 31,
2010, and we do not intend to sell the security nor do we
believe we will be required to sell the security before
the value recovers, which may be at maturity. We deter-
mined that the fair value of the other ARS was not
impaired as of September 30, 2010. See Note 8 for more
information on these investments.
5. Inventories
Inventories consisted of the following:
Raw materials
Work in process
Finished goods
Total
September 30,
2010
2009
$23,542
3,189
25,165
$20,082
3,080
21,778
$51,896
$44,940
The increase in inventory from September 30, 2009 was
primarily due to a general increase in raw materials and
finished goods based on the higher level of demand for
our products in fiscal 2010.
6. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
Land
Buildings
Machinery and equipment
Furniture and fixtures
Information systems
Capital leases
Construction in progress
Total property, plant and
equipment
September 30,
2010
2009
$ 20,381
86,965
156,653
5,969
19,290
9,820
3,624
$ 19,550
84,625
143,795
5,782
17,898
9,820
2,497
302,702
283,967
Less: accumulated depreciation
and amortization of assets under
capital leases
(186,891)
(161,185)
Net property, plant and equipment
$ 115,811
$ 122,782
Depreciation expense, including amortization of assets
recorded under capital leases, was $22,568, $22,310 and
$23,114 for the years ended September 30, 2010, 2009
and 2008, respectively.
In fiscal 2009, we recorded $1,245 in impairment expense
primarily related to the decision to write-off certain
research and development equipment in accordance
with the applicable accounting standards for the impair-
ment and disposal of long-lived assets. Of this amount,
$22 and $1,223 was included in cost of goods sold and
research, development and technical expense, respec-
tively. Impairment expense for fiscal 2010 and 2008 was
not material.
7. Goodwill and Other Intangible Assets
Goodwill was $40,436 and $39,732 as of September 30,
2010 and 2009, respectively. The increase in goodwill
resulted from $832 in foreign exchange fluctuation of
the New Taiwan dollar related to goodwill associated
with the Epoch acquisition, partially offset by a $128
adjustment to record the tax effect of the difference
between goodwill recorded for accounting purposes
and goodwill recorded for tax purposes related to the
Epoch acquisition.
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45
The components of other intangible assets are as follows:
September 30, 2010
September 30, 2009
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Other intangible assets subject to amortization:
Product technology
Acquired patents and licenses
Trade secrets and know-how
Customer relationships, distribution rights and other
Total other intangible assets subject to amortization
Total other intangible assets not subject to amortization*
Total other intangible assets
$ 8,206
8,115
2,550
11,939
30,810
1,190
$32,000
$ 2,926
6,135
2,550
3,300
14,911
$14,911
$ 8,135
8,000
2,550
11,287
29,972
1,190
$31,162
$ 1,978
5,825
2,550
2,068
12,421
$12,421
*Total other intangible assets not subject to amortization primarily consist of trade names.
In fiscal 2010, other intangible assets increased by $323
due to foreign exchange fluctuations of the New Taiwan
dollar related to intangible assets associated with the
Epoch acquisition and we acquired $515 in other intan-
gible assets. In fiscal 2009, changes in the amounts
recorded as other intangible assets included $11,510 of
intangible assets added as a result of our acquisition of
Epoch and an increase of $1,075 due to foreign exchange
fluctuations of the New Taiwan dollar on the Epoch
intangible assets. In conjunction with the Epoch acquisi-
tion, we acquired $2,520 in product technology assets
with an average useful life of seven years and we acquired
$8,990 in fair value of customer relationships and other
intangible assets with a weighted-average useful life of
approximately nine years. We also purchased $1,410 of
IPR&D related to one project. The amount allocated to
IPR&D was determined through established valuation
techniques and was expensed upon acquisition because
technological feasibility had not yet been established
and no alternative future uses existed.
Goodwill and indefinite lived intangible assets are tested
for impairment annually in the fourth fiscal quarter or
more frequently if indicators of potential impairment
exist, using a fair-value-based approach. The recover-
ability of goodwill is measured at the reporting unit
level, which is defined as either an operating segment
or one level below an operating segment. We have con-
sistently determined the fair value of our reporting units
using a discounted cash flow analysis of our projected
future results. The recoverability of indefinite lived intan-
gible assets is measured using the royalty savings
method. The use of discounted projected future results
is based on assumptions that are consistent with our
estimates of future growth within the strategic plan used
to manage the underlying business. Factors requiring
significant judgment include assumptions related to
future growth rates, discount factors, royalty rates and
tax rates, among others. Changes in economic and
operating conditions that occur after the annual impair-
ment analysis or an interim impairment analysis that
impact these assumptions may result in future
impairment charges. As a result of the review performed
in the fourth quarter of fiscal 2010, we determined that
there was no impairment of our goodwill and intangible
assets as of September 30, 2010.
Amortization expense was $2,426, $2,522 and $2,837 for
fiscal 2010, 2009 and 2008, respectively. Estimated
future amortization expense for the five succeeding fis-
cal years is as follows:
Fiscal Year
2011
2012
2013
2014
2015
Estimated
Amortization
Expense
$2,627
2,593
2,427
2,385
2,346
8. Other Long-Term Assets
Other long-term assets consisted of the following:
Long-term investments
Other long-term assets
Total
September 30,
2010
2009
$ 8,066
1,281
$ 8,116
968
$ 9,347
$ 9,084
As discussed in Note 4 of this Form 10-K, the two ARS
that we owned as of September 30, 2010 are classified
as long-term investments. The securities are credit
enhanced with bond insurance to a AAA credit rating
from Standard and Poors as of September 30, 2010, and
all interest payments continue to be received on a timely
basis. The credit rating of the insurer was downgraded
by Standard and Poors in October 2010 from AAA to
AA-plus. We incorporated this downgrade into our valu-
ation model and this downgrade did not materially
affect the valuation of our ARS as of September 30,
2010. Although we believe these securities will ultimately
be collected in full, we believe that it is not likely that
we will be able to monetize the securities in our next
business cycle (which for us is generally one year). We
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45
maintain a $234 pretax reduction ($151 net of tax) in fair
value on the other ARS that we had recognized as of
September 30, 2009. We assessed the impairment and
determined that the impairment was temporary as it
was related to the illiquid ARS market rather than credit
risk. In addition, we continue to believe this decline in
fair value is temporary based on the nature of the under-
lying debt, the presence of bond insurance, our expec-
tation that the issuer may refinance its debt, the fact
that all interest payments have been received, our suc-
cessful monetization of $50 of this ARS during the quar-
ter ended March 31, 2010, and our intention not to sell
the security nor be required to sell the security until
the value recovers, which may be at maturity, given our
current cash position, our expected future cash flow,
and our unused debt capacity.
9. Accrued Expenses and Other
Current Liabilities
Accrued expenses and other current liabilities consisted
of the following:
Accrued compensation
Goods and services received,
not yet invoiced
Warranty accrual
Taxes, other than income taxes
Acquisition related
Other
Total
September 30,
2010
2009
$ 25,752
$ 8,462
4,359
375
1,162
—
2,865
2,806
360
1,175
6,600
3,741
$ 34,513
$ 23,144
The increase in accrued compensation was primarily
due to accruals for the annual incentive bonus program
for fiscal 2010. This increase was partially offset by a
reduction in accrued expenses related to our payment
of $6,600 out of an escrow account in Taiwan in August
2010 to acquire the remaining 10% of Epoch stock, as
further explained in Note 3.
10. Derivative Financial Instruments
On January 1, 2009, we adopted new accounting stan-
dards regarding disclosures about derivative instru-
ments and hedging activities. These standards require
enhanced disclosures about (a) how and why derivative
instruments are used, (b) how derivative instruments
and related hedged items are accounted for, and (c)
how derivative instruments and related hedged items
affect our financial position, financial performance and
cash flows.
Periodically 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. Our foreign exchange con-
tracts do not qualify for hedge accounting; therefore,
the gains and losses resulting from the impact of cur-
rency exchange rate movements on our forward foreign
exchange contracts are recognized as other income or
expense in the accompanying consolidated income
statements in the period in which the exchange rates
change. We do not use derivative financial instruments
for trading or speculative purposes. In addition, all
derivatives, whether designated in hedging relation-
ships or not, are required to be recorded on the balance
sheet at fair value. At September 30, 2010, we had one
forward foreign exchange contract selling Japanese
yen related to intercompany notes with one of our
subsidiaries in Japan and for the purpose of hedging
the risk associated with a net transactional exposure in
Japanese yen.
The fair value of our derivative instrument included in the Consolidated Balance Sheet was as follows:
Derivatives Not
Designated as
Hedging Instruments
Foreign exchange
contracts
Balance Sheet Location
Prepaid expenses and
other current assets
Accrued expenses and
other current liabilities
Asset Derivatives
Liability Derivatives
Fair Value at
September 30,
2010
Fair Value at
September 30,
2009
Fair Value at
September 30,
2010
Fair Value at
September 30,
2009
$ 5
$—
$—
$—
$—
$—
$ —
$242
The following table summarizes the effect of our derivative instrument on our Consolidated Statement of Income
for the fiscal years ended September 30, 2010, 2009 and 2008:
Derivatives Not Designated
as Hedging Instruments
Statement of Income Location
Gain (Loss) Recognized in Statement of Income
Fiscal Year Ended
September 30,
2010
September 30,
2009
September 30,
2008
Foreign exchange contracts
Other income (expense), net
$(555)
$(2,573)
$(928)
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11. Revolving Credit Facility
We have an unsecured revolving credit facility of $50,000
with an option to increase the facility up to $80,000.
Pursuant to an amendment in October 2008, this agree-
ment extends to November 2011, with an option to
renew for two additional one-year terms. In November
2010, the scheduled termination date was extended by
one year through October 2012. This amendment did
not include any other material changes to the terms of the
credit agreement. Under this agreement, interest accrues
on any outstanding balance at either the lending institu-
tion’s base rate or the eurodollar rate plus an applicable
margin. We also pay a non-use fee. Loans under this
facility are intended primarily for general corporate pur-
poses, including financing working capital, capital expen-
ditures and acquisitions. The credit agreement also
contains various covenants. No amounts are currently
outstanding under this credit facility and we believe we
are currently in compliance with its covenants.
12. Share-Based Compensation Plans
Equity Incentive Plan
In March 2004, our stockholders approved our Second
Amended and Restated Cabot Microelectronics
Corporation 2000 Equity Incentive Plan (the “EIP”), as
amended and restated September 23, 2008, which is
administered by the Compensation Committee of the
Board of Directors and is intended to provide manage-
ment with the flexibility to attract, retain and reward our
employees, directors, consultants and advisors. The EIP
allows for the granting of four types of equity incentive
awards: stock options, restricted stock, restricted stock
units and substitute awards. Substitute awards are those
awards that, in connection with an acquisition, may be
granted to employees, directors, consultants or advisors
of the acquired company, in substitution for equity
incentives held by them in the seller or the acquired
company. No substitute awards have been granted to
date. The EIP authorizes up to 9,500,000 shares of stock
to be granted thereunder, including up to 1,900,000
shares in the aggregate of restricted stock or restricted
stock units and up to 1,750,000 incentive stock options
(ISO). Shares issued under our share-based compensa-
tion plans are issued from new shares rather than from
treasury shares.
Non-qualified stock options issued under the EIP are
generally time-based and provide for a ten-year term,
with options generally vesting equally over a four-year
period, with first vesting on the first anniversary of the
award date. Compensation expense related to our stock
option awards was $7,081, $9,507 and $12,381 in fiscal
2010, 2009 and 2008, respectively. For additional infor-
mation on our accounting for share-based compensa-
tion, see Note 2 to the consolidated financial statements.
Under the EIP, employees and non-employees may also
be granted ISOs to purchase common stock at not less
than the fair value on the date of the grant. No ISOs
have been granted to date.
Under the EIP, employees and non-employees may be
awarded shares of restricted stock or restricted stock
units, which generally vest over a four-year period, with
first vesting on the anniversary of the grant date. In
general, shares of restricted stock and restricted stock
units may not be sold, assigned, transferred, pledged,
disposed of or otherwise encumbered. Holders of
restricted stock, and restricted stock units, if specified
in the award agreements, have all the rights of stock-
holders, including voting and dividend rights, subject to
the above restrictions, although the current holders of
restricted stock units do not have such rights. Restricted
shares under the EIP also may be purchased and placed
“on deposit” by executive officers pursuant to the 2001
Deposit Share Plan. Shares purchased under this Deposit
Share Plan receive a 50% match in restricted shares
(“Award Shares”). These Award Shares vest at the end of
a three-year period, and are subject to forfeiture upon
early withdrawal of the deposit shares. Compensation
expense related to our restricted stock and restricted
stock unit awards and restricted shares matched at 50%
pursuant to the Deposit Share Plan was $4,134, $2,893
and $2,022 for fiscal 2010, 2009 and 2008, respectively.
Employee Stock Purchase Plan
In March 2008, our stockholders approved our 2007
Cabot Microelectronics Employee Stock Purchase Plan
(the “ESPP”), which amended the ESPP for the primary
purpose of increasing the authorized shares of common
stock to be purchased under the ESPP from 475,000
designated shares to 975,000 shares. The ESPP allows all
full and certain part-time employees of Cabot Micro-
electronics and its subsidiaries to purchase shares of our
common stock through payroll deductions. Employees
can elect to have up to 10% of their annual earnings
withheld to purchase our stock, 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 begin-
ning or end of each semi-annual stock purchase period.
46
47
Prior to January 1, 2009, the shares were purchased at
the maximum 15% discount. In conjunction with certain
cost reduction initiatives we implemented in the second
quarter of fiscal 2009, the ESPP was amended as of
January 19, 2009 to suspend the 15% discount. Pursuant
to the amended ESPP, effective with the six-month
period beginning January 1, 2009, the ESPP shares were
purchased at a price equal to the lower of the closing
price at the beginning or end of each semi-annual offer-
ing period. In light of improved economic and industry
conditions, the ESPP was amended again as of January
1, 2010 to reinstate the 15% discount effective January 1,
2010. A total of 38,050, 57,815, and 54,625 shares were
issued under the ESPP during fiscal 2010, 2009 and 2008,
respectively. Compensation expense related to the ESPP
was $360, $324 and $508 in fiscal 2010, 2009 and 2008,
respectively.
Directors’ Deferred Compensation Plan
The Directors’ Deferred Compensation Plan, as amended
and restated September 23, 2008, became effective in
March 2001 and applies only to our non-employee
directors. The cumulative number of shares deferred
under the plan was 45,572 and 43,671 as of September
30, 2010 and 2009, respectively. Compensation expense
related to our Directors’ Deferred Compensation Plan
was $68, $78 and $156 for fiscal 2010, 2009 and 2008,
respectively.
Accounting for Share-Based Compensation
We record share-based compensation expense for all
share-based awards, including stock option grants,
restricted stock and restricted stock unit awards and
employee stock purchases. We calculate share-based
compensation expense using the straight-line approach
based on awards ultimately expected to vest, which
requires the use of an estimated forfeiture rate. Our
estimated forfeiture rate is primarily based on historical
experience, but may be revised in future periods if
actual forfeitures differ from the estimate. We use the
Black-Scholes model to estimate the grant date fair
value of our stock options and employee stock pur-
chases. This model requires the input of highly subjec-
tive assumptions, including the price volatility of the
underlying stock, the expected term of our stock options
and the risk-free interest rate. We estimate the expected
volatility of our stock options based on a combination of
our stock’s historical volatility and the implied volatilities
from actively-traded options on our stock. We calculate
the expected term of our stock options using the simpli-
fied method, due to our limited amount of historical
option exercise data, and we add a slight premium to
this expected term for employees who meet the defini-
tion of retirement eligible pursuant to their grants dur-
ing the contractual term of the grant. The simplified
method uses an average of the vesting term and the
contractual term of the option to calculate the expected
term. The risk-free rate is derived from the U.S. Treasury
yield curve in effect at the time of grant.
The fair value of our share-based awards was estimated
using the Black-Scholes model with the following weighted-
average assumptions:
Stock Options
Weighted-average grant
date fair value
Expected term (in years)
Expected volatility
Risk-free rate of return
Dividend yield
ESPP
Weighted-average grant
date fair value
Expected term (in years)
Expected volatility
Risk-free rate of return
Dividend yield
Year Ended September 30,
2010
2009
2008
$13.42
6.35
$11.63
6.50
$17.74
6.51
39%
2.6%
—
50%
2.1%
—
43%
3.5%
—
$7.45
0.50
33%
0.3%
—
$6.38
0.50
$8.74
0.50
48%
1.2%
—
33%
3.4%
—
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 transfer-
able. Because employee stock options and employee
stock purchases have certain characteristics that are sig-
nificantly 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
employee stock purchases may not provide an accurate
measure. Although the value of our stock options and
employee stock purchases are determined in accor-
dance with applicable accounting standards using an
option-pricing model, those values may not be indica-
tive of the fair values observed in a willing buyer/willing
seller market transaction.
The fair value of our restricted stock and restricted stock
unit awards represents the closing price of our common
stock on the date of grant. Share-based compensation
expense related to restricted stock and restricted stock
unit awards is recorded net of expected forfeitures.
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49
Share-Based Compensation Expense
Total share-based compensation expense for the year
ended September 30, 2010, 2009 and 2008, is as follows:
Income statement classifications:
Cost of goods sold
Research, development
and technical
Selling and marketing
General and administrative
Tax benefit
Total share-based com-
pensation expense,
net of tax
Year Ended
September 30,
2010
2009
2008
$ 986 $ 982
$ 1,119
908
1,025
8,724
(4,145)
1,079
1,207
9,534
(4,574)
1,226
1,492
11,230
(5,367)
$ 7,498 $ 8,228
$ 9,700
The costs presented in the preceding table for share-
based compensation expense may not be representa-
tive of the total effects on reported income for future
years. Factors that may impact future years include, but
are not limited to, changes to our historical approaches
to long-term incentives such as described above, the
timing and number of future grants of share-based
awards, the vesting period and contractual term of
share-based awards and types of equity awards granted.
Further, share-based compensation may be impacted
by changes in the fair value of future awards through
variables such as fluctuations in and volatility of our
stock price, as well as changes in employee exercise
behavior and forfeiture rates.
Our non-employee directors received their annual
equity award in March 2010. In conjunction with this
award, the Board of Directors and respective commit-
tees of the Board approved non-material revisions to
the terms of the relevant award agreements to provide
for immediate vesting of the award at the time of termi-
nation of service for any reason other than by reason of
Cause, Death, Disability or a Change in Control, as
defined in the Cabot Microelectronics Corporation 2000
Equity Incentive Plan, if at such time the non-employee
director has completed an equivalent of at least two full
terms as a director of the Company, as defined in the
Company’s bylaws. Three of the Company’s non-
employee directors had completed at least two such full
terms of service as of the date of the March 2010 award.
Consequently, the requisite service period for the award
has already been satisfied and we recorded the fair
value of $442 of the awards to these three directors to
share-based compensation expense in the fiscal quarter
ended March 31, 2010 rather than recording that
expense over the four-year vesting period stated in the
award agreement.
Stock Option Activity
A summary of stock option activity under the EIP as of September 30, 2010, and changes during the fiscal 2010 are
presented below:
Stock
Options
Weighted-Average
Exercise Price
Weighted-Average
Remaining Contractual
Term (in years)
Aggregate
Intrinsic Value
(in thousands)
Outstanding at September 30, 2009
Granted
Exercised
Forfeited or canceled
Outstanding at September 30, 2010
Exercisable at September 30, 2010
Expected to vest at September 30, 2010
4,368,913
467,286
(74,019)
(29,589)
4,732,591
3,612,162
942,449
$ 38.51
31.57
30.85
40.50
$37.94
$40.60
$29.37
5.1
4.1
8.4
$6,513
$2,366
$7,866
The aggregate intrinsic value in the table above repre-
sents the total pretax intrinsic value (i.e., for all in-the-
money stock options, the difference between our closing
stock price of $32.18 on the last trading day of fiscal 2010
and the exercise price, multiplied by the number of
shares) that would have been received by the option
holders had all option holders exercised their options
on the last trading day of fiscal 2010. The total intrinsic
value of options exercised was $492, $68 and $871 for
fiscal 2010, 2009 and 2008, respectively.
48
49
The total cash received from options exercised was
$2,283, $680 and $3,128 for fiscal 2010, 2009 and 2008,
respectively. The actual tax benefit realized for the tax
deductions from options exercised was $175, $24 and
$310 for fiscal 2010, 2009 and 2008, respectively. The
total fair value of stock options vested during fiscal years
2010, 2009 and 2008 was $8,494, $12,560 and $11,848,
respectively. As of September 30, 2010, there was $8,510
of total unrecognized share-based compensation expense
related to unvested stock options under the EIP. That
cost is expected to be recognized over a weighted-
average period of 2.5 years.
Restricted Stock
A summary of the status of the restricted stock awards
and restricted stock unit awards outstanding under the
EIP as of September 30, 2010, and changes during fiscal
2010, are presented below:
Nonvested at
September 30, 2009
Granted
Vested
Forfeited
Nonvested at
September 30, 2010
Restricted
Stock Awards
and Units
Weighted-
Average Grant
Date Fair Value
331,603
157,902
(108,335)
(3,710)
$ 28.38
31.57
29.62
30.00
377,460
$29.34
As of September 30, 2010, there was $6,045 of total unrec-
ognized share-based compensation expense related to
nonvested restricted stock awards and restricted stock
units under the EIP. That cost is expected to be recog-
nized over a weighted-average period of 2.5 years. The
total fair values of restricted stock awards and restricted
stock units vested during fiscal years 2010, 2009 and
2008 were $3,209, $2,471 and $1,449, respectively.
13. Savings Plan
Effective in May 2000, we adopted the Cabot Microelec-
tronics Corporation 401(k) Plan (the “401(k) Plan”), which
is a qualified defined contribution plan, covering all eli-
gible U.S. employees meeting certain minimum age and
eligibility requirements, as defined by the 401(k) Plan.
Participants may make elective contributions of up to 60%
of their eligible compensation. All amounts contributed
by participants and earnings on these contributions
are fully vested at all times. The 401(k) Plan provides
for matching and fixed non-elective contributions by
the Company. Under the 401(k) Plan, the Company will
match 100% of the first four percent of the participant’s
eligible compensation and 50% of the next two percent
of the participant’s eligible compen sation that is con-
tributed, subject to limitations required by government
regulations. On April 1, 2009, in conjunction with certain
cost reduction initiatives we implemented in fiscal 2009,
the 401(k) Plan was amended to suspend the matching
contribution made by the Company. In light of improved
economic and industry conditions, effective January 1,
2010, the Plan was amended again to reinstate the
matching contribution. Under the 401(k) Plan, all U.S.
employees, even those who do not contribute to the
401(k) Plan, receive a contribution by the Company in an
amount equal to four percent of eligible compensation,
and thus are participants in the 401(k) Plan. Participants
are 100% vested in all Company contributions at all
times. The Company’s expense for the 401(k) Plan totaled
$2,981, $2,813 and $3,780 for the fiscal years ended
September 30, 2010, 2009 and 2008, respectively.
14. Other Income (Expense), Net
Other income (expense), net, consisted of the following:
Interest income
Interest expense
Other income (expense)
Year Ended
September 30,
2010
2009
2008
$ 228
(233)
(729)
$ 1,057
(365)
(93)
$ 5,559
(395)
284
Total other income (expense), net
$ (734)
$ 599
$ 5,448
The decrease in other income, net in fiscal 2010 was
primarily due to lower interest income resulting from
lower interest rates earned on our cash balances and
investments compared to fiscal 2009, and the foreign
exchange effects on revenues and expenses, primarily
related to changes in the exchange rate of the Japanese
yen to the U.S. dollar, net of the gains and losses incurred
on forward foreign exchange contracts discussed in
Note 10 of this Form 10-K. The decrease in other income,
net in fiscal 2009 compared to fiscal 2008 was primarily
due to lower interest income resulting from lower inter-
est rates earned on our lower average cash and ARS
balances compared to fiscal 2008. We monetized the
majority of our investments in ARS during fiscal 2008
and reinvested these funds into money market invest-
ments which earn interest at lower rates.
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15. Stockholders’ Equity
The following is a summary of our capital stock activity
over the past three years:
September 30, 2007
Exercise of stock options
Restricted stock under EIP, net
of forfeitures
Restricted stock under Deposit
Share Plan
Common stock under ESPP
Repurchases of common stock
under share repurchase plans
September 30, 2008
Exercise of stock options
Restricted stock under EIP, net
of forfeitures
Restricted stock under Deposit
Share Plan, net of forfeitures
Common stock under ESPP
Repurchases of common
stock—other
September 30, 2009
Exercise of stock options
Restricted stock under EIP, net
of forfeitures
Restricted stock under Deposit
Share Plan, net of forfeitures
Common stock under ESPP
Repurchases of common stock
under share repurchase plans
Repurchases of common
stock—other
Number of Shares
Common
Stock
25,635,730
99,159
Treasury
Stock
1,627,337
110,767
6,709
54,625
25,906,990
21,617
146,881
9,813
57,815
26,143,116
74,019
127,390
2,140
38,050
1,056,472
2,683,809
14,425
2,698,234
723,184
24,651
September 30, 2010
26,384,715
3,446,069
Common Stock
Each share of common stock entitles the holder to one
vote on all matters submitted to a vote of Cabot Micro-
electronics’ stockholders. Common stockholders are
entitled to receive ratably the dividends, if any, as may
be declared by the Board of Directors. The number of
authorized shares of common stock is 200,000,000 shares.
Stockholder Rights Plan
In March 2000 the Board of Directors of Cabot Micro-
electronics approved a stock rights agreement and
declared a dividend distribution of one right to pur-
chase one one-thousandth of a share of Series A Junior
Participating Preferred Stock for each outstanding share
of common stock to stockholders of record on April 7,
2000. This rights agreement expired in April 2010 accord-
ing to its terms.
Share Repurchases
In January 2008, we announced that our Board of
Directors had authorized a share repurchase program
for up to $75,000 of our outstanding common stock.
Shares are repurchased from time to time, depending
on market conditions, in open market transactions, at
management’s discretion. We fund share repurchases
from our existing cash balance. The program, which
became effective on the authorization date, may be sus-
pended or terminated at any time, at the Company’s
discretion. During fiscal 2010, we repurchased 723,184
shares of common stock at a cost of $24,998. We did not
repurchase any shares under the share repurchase pro-
gram in fiscal 2009. During fiscal 2008, we repurchased a
total of 1,056,472 shares of common stock under these
programs at a cost of $39,001. For additional informa-
tion on share repurchases, see Part II, Item 5, “Market
for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.”
Separate from this share repurchase program, a total of
24,651 and 14,425 shares were purchased during fiscal
2010 and 2009, respectively, pursuant to the terms of
our EIP as shares withheld from award recipients to
cover payroll taxes on the vesting of shares of restricted
stock granted under the EIP.
16. Income Taxes
Income before income taxes was as follows:
Domestic
Foreign
Total
Year Ended September 30,
2010
2009
2008
$ 39,835
33,442
$ 2,909
13,713
$ 44,912
9,978
$ 73,277
$ 16,622
$ 54,890
Taxes on income consisted of the following:
U.S. federal and state:
Current
Deferred
Total
Foreign:
Current
Deferred
Total
Year Ended September 30,
2010
2009
2008
$ 15,372
(2,643)
$ 2,688
(2,163)
$ 20,814
(6,874)
$ 12,729
$
525
$ 13,940
$ 10,597
493
$ 4,811
99
$ 2,491
121
11,090
4,910
2,612
Total U.S. and foreign
$ 23,819
$ 5,435
$ 16,552
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The provision for income taxes at our effective tax rate
differed from the statutory rate as follows:
Federal statutory rate
U.S. benefits from research and
experimentation activities
State taxes, net of federal effect
Permanent reinvestment of
foreign income
Tax-exempt interest income
Share-based compensation
Domestic production deduction
Other, net
Year Ended
September 30,
2010
2009
2008
35.0% 35.0% 35.0%
(0.6)
0.5
(2.7)
(0.1)
0.3
(0.1)
0.2
(5.0)
0.6
—
(1.9)
2.9
(0.2)
1.3
(2.2)
0.7
—
(3.2)
0.5
(0.5)
(0.1)
Provision for income taxes
32.5% 32.7% 30.2%
In fiscal 2010, we elected to permanently reinvest the
earnings of certain of our foreign subsidiaries outside
the U.S. rather than repatriating the earnings to the U.S.
We have not provided deferred taxes on approximately
$14.1 million of undistributed earnings of such subsidiar-
ies. These earnings could become subject to additional
income tax if they are remitted as dividends to the U.S.
parent company, loaned to the U.S. parent company, or
upon sale of subsidiary stock. This election reduced our
effective income tax rate in fiscal 2010 by 2.7 percent-
age points. Decreased tax expense related to share-
based compensation also decreased our effective income
tax rate. These decreases in our effective tax rate were
partially offset by the present expiration of the research
and development tax credit effective December 31,
2009, and lower tax-exempt interest income.
On October 1, 2007, we adopted the standards for the
accounting for uncertainty in income taxes, which pre-
scribe a threshold for the financial statement recogni-
tion 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 posi-
tion 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. Upon adoption, we rec-
ognized a $59 reduction to our beginning retained earn-
ings balance and we reclassified $450 from current
income taxes payable to a non-current tax liability for
unrecognized tax benefits, including interest and pen-
alties. We made this reclassification to a non-current
liability because settlement was not expected to occur
within one year of the balance sheet date.
The following table presents the changes in the balance
of gross unrecognized tax benefits during the last three
fiscal years:
Balance September 30, 2007
Establish liability for uncertain tax positions
Additions for tax positions relating to the current
$ —
509
fiscal year
Additions for tax positions relating to prior fiscal years
Lapse of statute of limitations
Balance September 30, 2008
Additions for tax positions relating to the current
fiscal year
Additions for tax positions relating to prior fiscal years
Settlements with taxing authorities
Lapse of statute of limitations
Balance September 30, 2009
Additions for tax positions relating to the current
fiscal year
Additions for tax positions relating to prior fiscal years
Settlements with taxing authorities
Lapse of statute of limitations
—
26
(219)
316
—
79
(10)
(136)
249
—
153
(28)
(201)
Balance September 30, 2010
$ 173
We recognize interest and penalties related to uncertain
tax positions as income tax expense in our financial state-
ments. Interest and penalties accrued on our Consoli-
dated Balance Sheet were $6 and $25 at September 30,
2010 and 2009, respectively, and interest and penalties
charged to expense were not material.
We believe the tax periods open to examination by the
U.S. federal government include fiscal years 2007 through
2009. We believe the tax periods open to examination
by U.S. state and local governments include fiscal years
2006 through 2009 and the tax periods open to exami-
nation by foreign jurisdictions include fiscal years 2003
through 2009. We do not anticipate a significant change
to the total amount of unrecognized tax benefits within
the next 12 months.
Significant components of deferred income taxes were
as follows:
Deferred tax assets:
Employee benefits
Inventory
Depreciation and amortization
Product warranty
Bad debt reserve
Share-based compensation expense
Other, net
September 30,
2010
2009
$ 1,318
2,356
3,143
178
397
18,457
455
$ 1,626
2,501
2,251
173
452
15,783
408
Total deferred tax assets
$ 26,304
$ 23,194
Deferred tax liabilities:
Translation adjustment
Other, net
$ 10,839
3,881
$ 7,938
3,309
Total deferred tax liabilities
$ 14,720
$ 11,247
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53
17. Commitments and Contingencies
Legal Proceedings
While we are not involved in any legal proceedings that
we believe will have a material impact on our consoli-
dated financial position, results of operations or cash
flows, we periodically become a party to legal proceed-
ings in the ordinary course of business. For example, in
January 2007, we filed a legal action against DuPont Air
Products NanoMaterials LLC (DA Nano), a CMP slurry
competitor, in the United States District Court for the
District of Arizona, charging that DA Nano’s manufactur-
ing and marketing of CMP slurries infringe certain CMP
slurry patents that we own. The affected DA Nano prod-
ucts include certain products used for tungsten CMP.
We filed our infringement complaint as a counterclaim
in response to an action filed by DA Nano in the same
court in December 2006 that sought declaratory relief
and alleged non-infringement, invalidity and unenforce-
ability regarding some of the patents at issue in our
complaint against DA Nano. DA Nano filed its complaint
following our refusal of its request that we license to it
our patents raised in its complaint. DA Nano’s complaint
did not allege any infringement by our products of intel-
lectual property owned by DA Nano. From June 14
through July 8, 2010, a jury trial for the case was held.
All of Cabot Microelectronics’ patents at issue in the
case were found valid. However, the jury found that DA
Nano’s products at issue do not infringe the asserted
claims of these patents. In November 2010, we filed a
Notice of Appeal regarding infringement, and DA Nano
filed a cross-appeal. While the outcome of this and any
legal matter cannot be predicted with certainty, we con-
tinue to believe that our claims and defenses in the
pending action are meritorious, and we intend to con-
tinue to pursue and defend them.
Product Warranties
We maintain a warranty reserve that reflects manage-
ment’s best estimate of the cost to replace product that
does not meet customers’ specifications and perfor-
mance requirements, and costs related to such replace-
ment. The warranty reserve is based upon a historical
product replacement rate, adjusted for any specific known
conditions or circumstances. Additions and deductions
to the warranty reserve are recorded in cost of goods
sold. Our warranty reserve requirements changed dur-
ing fiscal 2010 as follows:
Balance as of September 30, 2009
Reserve for product warranty during
the reporting period
Settlement of warranty
Balance as of September 30, 2010
$ 360
1,161
(1,146)
$ 375
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 cer-
tain 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 contingen-
cies 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,
2010, 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.
Lease Commitments
We lease certain vehicles, warehouse facilities, office
space, machinery and equipment under cancelable and
noncancelable leases, all of which expire within four
years from now and may be renewed by us. Lease com-
mitments also include certain costs associated with our
pad finishing operation located at Taiwan Semiconductor
Manufacturing Company, which are accounted for as an
operating lease which is currently scheduled to end in
August 2012. Rent expense under such arrangements
during fiscal 2010, 2009 and 2008 totaled $2,480, $1,883
and $1,726, respectively.
In December 2001 we entered into a fumed alumina
supply agreement with Cabot Corporation under which
we agreed to pay Cabot Corporation for the expansion
of a fumed alumina manufacturing facility in Tuscola,
Illinois. The arrangement for the facility has been treated
as a capital lease for accounting purposes and the pres-
ent value of the minimum quarterly payments resulted
in an initial $9,776 lease obligation and related leased
asset. The initial term of the agreement expired in Decem-
ber 2006, but it was renewed for another five-year term
ending in December 2011.
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53
Future minimum rental commitments under noncancel-
able leases as of September 30, 2010 are as follows:
Fiscal Year
2011
2012
2013
2014
2015
Thereafter
Amount related to interest
Capital lease obligation
Operating
Capital
$2,936
2,031
972
934
695
1,271
$8,839
$1,354
10
2
—
—
—
1,366
(58)
$1,308
Purchase Obligations
Purchase obligations include our take-or-pay arrange-
ments with suppliers, and purchase orders and other
obligations entered into in the normal course of busi-
ness regarding the purchase of goods and services.
We purchase fumed silica primarily under a fumed silica
supply agreement with Cabot Corporation, our former
parent company that is not a related party, that became
effective in January 2004, and was amended in September
2006 and in April 2008, the latter of which extended the
termination date of the agreement from December 2009
to December 2012 and also changed the pricing and
some other non-material terms of the agreement to
the benefit of both parties. The agreement will automat-
ically renew unless either party gives notice of non-
renewal. We are generally obligated to purchase fumed
silica for at least 90% of our six-month volume forecast
for certain of our slurry products, to purchase certain
non-material minimum quantities every six months, and
to pay for the shortfall if we purchase less than these
amounts. We currently anticipate meeting minimum
forecasted purchase volume requirements. We also
operate under a fumed alumina supply agreement with
Cabot Corporation which runs through December 2011.
Purchase obligations include $7,352 of contractual com-
mitments for fumed silica and fumed alumina under
these contracts.
18. Earnings Per Share
The standards of accounting for earnings per share require companies to provide a reconciliation of the numer ator
and denominator of the basic and diluted earnings per share computations. Basic and diluted earnings per share
were calculated as follows:
Numerator:
Earnings available to common shares
Denominator:
Weighted-average common shares
(Denominator for basic calculation)
Weighted-average effect of dilutive securities:
Share-based compensation
Diluted weighted-average common shares
(Denominator for diluted calculation)
Earnings per share:
Basic
Diluted
Year Ended September 30,
2010
2009
2008
$49,458
$11,187
$38,338
23,083,807
23,078,967
23,315,072
188,772
17,457
33,195
23,272,579
23,096,424
23,348,267
$ 2.14
$ 2.13
$ 0.48
$ 1.64
$ 0.48
$ 1.64
For the twelve months ended September 30, 2010, 2009, and 2008, approximately 2.6 million, 3.9 million and 2.7 million
shares, respectively, attributable to outstanding stock options were excluded from the calculation of diluted earnings
per share because the exercise price of the options was greater than the average market price of our common stock
and, therefore, their inclusion would have been anti-dilutive.
54
55
The following table shows revenue generated by prod-
uct line in fiscal 2010, 2009 and 2008:
Revenue:
Tungsten slurries
Dielectric slurries
Copper slurries
Polishing pads
Data storage slurries
Engineered Surface
Finishes
Year Ended September 30,
2010
2009
2008
$ 147,788
117,484
75,898
29,909
20,806
$ 111,364
85,761
49,311
17,704
15,532
$ 153,261
120,050
54,393
15,109
14,472
16,316
11,700
17,784
Total
$ 408,201
$ 291,372
$ 375,069
19. Financial Information by Industry Segment,
Geographic Area and Product Line
We operate predominantly in one industry segment
—the development, manufacture, and sale of CMP
consumables.
Revenues are attributed to the United States and for-
eign 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:
Revenue:
United States
Asia
Europe
Total
Property, plant and
equipment, net:
United States
Asia
Europe
Year Ended September 30,
2010
2009
2008
$ 55,666
327,202
25,333
$ 46,781
227,142
17,449
$ 71,395
276,387
27,287
$ 408,201
$ 291,372
$ 375,069
$ 55,576
60,235
—
$ 62,462
60,319
1
$ 70,972
44,864
7
Total
$ 115,811
$ 122,782
$ 115,843
The following table shows revenue from sales to cus-
tomers in foreign countries that accounted for more
than ten percent of our total revenue in fiscal 2010, 2009
and 2008:
Revenue:
Taiwan
Japan
Singapore
Korea
Year Ended September 30,
2010
2009
2008
$ 129,533
60,207
44,316
42,669
$ 92,023
44,307
*
30,873
$ 109,282
47,642
*
43,653
*Denotes less than ten percent of total
The following table shows net property, plant and
equipment in foreign countries that accounted for more
than ten percent of our total net property, plant and
equipment in fiscal 2010, 2009 and 2008:
Property, plant and
equipment, net:
Japan
Taiwan
Year Ended September 30,
2010
2009
2008
$ 42,225
17,542
$ 43,362
16,430
$ 42,732
*
*Denotes less than ten percent of total
54
55
SELECTED QUARTERLY OPERATING RESULTS
(Unaudited and in thousands, except per share amounts)
The following table presents our unaudited financial information for the eight quarterly periods ended September
30, 2010. 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 adjust-
ments 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.
Revenue
Cost of goods sold
Gross profit
Operating expenses:
Research, development and technical
Selling and marketing
General and administrative
Purchased in-process research and development
Total operating expenses
Operating income (loss)
Other income (expense), net
Income (loss) before income taxes
Provision (benefit) for income taxes
Net income (loss)
Sept. 30,
2010
June 30,
2010
March 31,
2010
Dec. 31,
2009
Sept. 30,
2009
June 30,
2009
March 31,
2009
Dec. 31,
2008
$ 110,318
56,590
$ 101,655
51,759
$98,556
49,091
$ 97,672
47,264
$96,513
49,775
$ 86,443
46,143
$ 45,399
32,689
$ 63,017
34,311
53,728
49,896
49,465
50,408
46,738
40,300
12,710
28,706
13,454
7,024
12,202
—
32,680
21,048
(527)
20,521
5,231
12,875
7,009
14,637
—
34,521
15,375
172
15,547
5,450
12,908
6,530
12,699
—
32,137
17,328
(440)
16,888
5,941
12,581
6,322
11,245
—
30,148
20,260
61
20,321
7,197
12,514
5,798
9,673
—
27,985
18,753
(712)
18,041
5,871
10,901
5,207
9,043
(90)
25,061
15,239
(42)
15,197
6,183
12,621
5,261
10,590
1,500
29,972
(17,262)
477
(16,785)
(6,672)
12,114
5,973
11,326
—
29,413
(707)
876
169
53
$ 15,290
$ 10,097
$10,947
$ 13,124
$12,170
$ 9,014
$(10,113)
$
116
Basic earnings (loss) per share
$
0.67
$
0.44
$ 0.47
$ 0.57
$ 0.53
$ 0.39
$ (0.44)
$ 0.01
Weighted-average basic shares outstanding
22,821
23,143
23,263
23,167
23,137
23,113
23,107
23,020
Diluted earnings (loss) per share
$
0.66
$
0.43
$ 0.47
$ 0.56
$ 0.52
$ 0.39
$ (0.44)
$ 0.01
Weighted-average diluted shares outstanding
23,002
23,478
23,485
23,294
23,248
23,154
23,107
23,026
56
57
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
The following table sets forth activities in our allowance for doubtful accounts:
Allowance for Doubtful Accounts
Year ended:
September 30, 2010
September 30, 2009
September 30, 2008
Balance
at Beginning
of Year
Amounts
Charged to
Expenses
Deductions
and
Adjustments
Balance
at End
of Year
$1,277
403
635
$(113)
856
(99)
$ (43)
18
(133)
$1,121
1,277
403
We maintain a warranty reserve that reflects management’s best estimate of the cost to replace product that does
not meet customers’ specifications and performance requirements, and costs related to such replacement. The
warranty reserve is based upon a historical product replacement rate, adjusted for any specific known conditions or
circumstances. Additions and deductions to the warranty reserve are recorded in cost of goods sold. Charges to
expenses and deductions, shown below, represent the net change required to maintain an appropriate reserve.
Warranty Reserves
Year ended:
September 30, 2010
September 30, 2009
September 30, 2008
Balance
at Beginning
of Year
Reserve for Product
Warranty During the
Reporting Period
Adjustments to
Pre-Existing
Warranty Reserve
Settlement
of Warranty
Balance
at End
of Year
$360
863
527
$1,161
1,067
962
$—
—
—
$(1,146)
(1,570)
(626)
$375
360
863
56
57
MANAGEMENT RESPONSIBILITY
The accompanying consolidated financial statements
were prepared by the Company in conformity with
accounting principles generally accepted in the United
States of America. The Company’s management is
responsible for the integrity of these statements and of
the underlying data, estimates and judgments.
The Company’s management establishes and maintains
a system of internal accounting controls designed to
provide reasonable assurance that its assets are safe-
guarded from loss or unauthorized use, transactions are
properly authorized and recorded, and that financial
records can be relied upon for the preparation of the
consolidated financial statements. This system includes
written policies and procedures, a code of business con-
duct and an organizational structure that provides for
appropriate division of responsibility and the training of
personnel. This system is monitored and evaluated on
an ongoing basis by management in conjunction with its
internal audit function.
The Company’s management assesses the effectiveness
of its internal control over financial reporting on an
annual basis. In making this assessment, management
uses the criteria set forth by the Committee of Spon-
soring Organizations of the Treadway Commission in
Internal Control—Integrated Framework. Management
acknowledges, however, that all internal control sys-
tems, no matter how well designed, have inherent limi-
tations and can provide only reasonable assurance with
respect to financial statement preparation and presen-
tation. In addition, the Company’s independent regis-
tered public accounting firm evaluates the Company’s
internal control over financial reporting and performs
such tests and other procedures as it deems necessary
to reach and express an opinion on the fairness of the
financial statements.
In addition, the Audit Committee of the Board of
Directors provides general oversight responsibility for
the financial statements. Composed entirely of Directors
who are independent and not employees of the
Company, the Committee meets periodically with the
Company’s management, internal auditors and the
independent registered public accounting firm to review
the quality of financial reporting and internal controls,
as well as results of auditing efforts. The internal audi-
tors and independent registered public accounting firm
have full and direct access to the Audit Committee, with
and without management present.
/s/ William P. Noglows
William P. Noglows
Chief Executive Officer
/s/ William S. Johnson
William S. Johnson
Chief Financial Officer
/s/ Thomas S. Roman
Thomas S. Roman
Principal Accounting Officer
58
59
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief
Executive Officer (CEO) and Chief Financial Officer
(CFO), has evaluated the effectiveness of the design
and operation of our disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Securities Exchange
Act of 1934, as amended (“the Exchange Act”)), as of
September 30, 2010. Based on that evaluation, our CEO
and CFO have concluded that our disclosure controls
and procedures were effective to ensure that infor-
mation required to be disclosed in our Exchange Act
reports is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and
forms, and to ensure that such information is accumu-
lated and communicated to management, including the
CEO and CFO, as appropriate to allow timely decisions
regarding required disclosure.
While we believe the present design of our disclosure
controls and procedures is effective enough to make
known to our senior management in a timely fashion all
material information concerning our business, we intend
to continue to improve the design and effectiveness of
our disclosure controls and procedures to the extent
necessary in the future to provide our senior manage-
ment with timely access to such material information,
and to correct any deficiencies that we may discover in
the future, as appropriate.
Management’s Report on Internal Control Over
Financial Reporting
Our management is responsible for establishing and
maintaining adequate internal control over financial
reporting for the Company. Internal control over finan-
cial reporting is defined in Rule 13a-15(f) or Rule 15d-15(f)
promulgated under the Securities Exchange Act of 1934
as a process designed by, or under the supervision of,
the Company’s CEO and CFO to provide reasonable
assurance regarding the reliability of our financial report-
ing and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles in the United States of America.
Internal control over financial reporting includes policies
and procedures that: pertain to the maintenance of
records that in reasonable detail accurately and fairly
reflect our transactions and dispositions of the Com-
pany’s assets; provide reasonable assurance that trans-
actions are recorded as necessary for preparation of
our financial statements in accordance with generally
accepted accounting principles; provide reasonable
assurance that receipts and expenditures of Company
assets are made in accordance with management autho-
rization; and provide reasonable assurance that unau-
thorized acquisition, use or disposition of Company
assets that could have a material effect on our financial
statements would be prevented or detected on a timely
basis. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect mis-
statements. Also, projections of any evaluation of effec-
tiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Our management evaluated the effectiveness of our
internal control over financial reporting based on the
framework in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Based on this
evaluation, our management concluded that the Com-
pany’s internal control over financial reporting was
effective as of September 30, 2010. The effectiveness
of the Company’s internal control over financial report-
ing as of September 30, 2010 has been audited by
PricewaterhouseCoopers LLP, an independent regis-
tered public accounting firm, as stated in their attesta-
tion report which appears under Item 8 of this Annual
Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over finan-
cial reporting that occurred during our most recent
fiscal quarter that have materially affected, or are rea-
sonably likely to materially affect, our internal control
over financial reporting.
Inherent Limitations on Effectiveness of Controls
Because of inherent limitations, our disclosure controls
or our internal control over financial reporting may not
prevent all errors and all fraud. A control system, no
matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objec-
tives of the control system are met. Further, the design
of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all con-
trol issues and instances of fraud, if any, within the
Company have been detected. These inherent limita-
tions include the realities that judgments in decision-
making can be faulty, and that breakdowns can occur
because of a simple error or mistake. Additionally, con-
trols can be circumvented by the individual acts of some
persons, by collusion of two or more people or by man-
agement override of the controls. The design of any
58
59
system of controls also is based in part upon certain
assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed
in achieving its stated goals under all potential future
conditions; over time, controls may become inadequate
because of changes in conditions, or the degree of
compliance with policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may
occur and not be detected.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and
Corporate Governance
The information required by Item 10 of Form 10-K with
respect to identification of directors, the existence of a
separately-designated standing audit committee, identi-
fication of members of such committee and identification
of an audit committee financial expert is incorporated
by reference from the information contained in the sec-
tions captioned “Election of Directors” and “Board
Structure and Compensation” in our definitive Proxy
Statement for the Annual Meeting of Stockholders to be
held March 8, 2011 (the “Proxy Statement”). In addition,
for information with respect to the executive officers of
our Company, see “Executive Officers” at the end of
Part I of this Form 10-K and the section captioned “Sec-
tion 16(a) Beneficial Ownership Reporting Compliance”
in the Proxy Statement. Information required by Item
405 of Regulation S-K is incorporated by reference from
the information contained in the section captioned
“Section 16(a) Beneficial Ownership Reporting Compli-
ance” in the Proxy Statement.
We have adopted a code of business conduct for all of
our employees and directors, including our principal
executive officer, other executive officers, principal
financial officer and senior financial personnel. A copy of
our code of business conduct is available free of charge
on our Company website at www.cabotcmp.com. We
intend to post on our website any material changes to,
or waivers from our code of business conduct, if any,
within two days of any such event.
Item 11. Executive Compensation
The information required by Item 11 of Form 10-K is
incorporated by reference from the information con-
tained in the section captioned “Executive Compen-
sation” in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Equity Compensation Plan Information
Shown below is information as of September 30, 2010, with respect to the shares of common stock that may be
issued under Cabot Microelectronics’ existing equity compensation plans.
(a)
(b)
(c)
Number of Securities to
Be Issued upon Exercise
of Outstanding Options,
Warrants and Rights
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding Securities
Reflected in Column (a))
4,843,858(1)
—
4,843,858(1)
$37.94(1)
—
$37.94(1)
2,885,610(2)
—
2,885,610(2)
Plan category
Equity compensation plans approved by
security holders
Equity compensation plans not approved
by security holders
Total
(1) Column (a) includes 47,572 shares that non-employee directors, who defer their compensation under our Directors’ Deferred Compensation
Plan, have the right to acquire pursuant thereto, and 63,695 shares that non-employee directors and non-U.S. employees have the right to
acquire upon the vesting of the equivalent restricted stock units that they have been awarded under our equity incentive plan. Column
(b) excludes both of these from the weighted-average exercise price.
(2) Column (c) includes 507,222 shares available for future issuance under our Employee Stock Purchase Plan.
The other information required by Item 12 of Form 10-K is incorporated by reference from the information contained
in the section captioned “Stock Ownership” in the Proxy Statement.
60
61
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by Item 13 of Form 10-K is incorporated by reference from the information contained in the
section captioned “Certain Relationships and Related Transactions” in the Proxy Statement.
Item 14. Principal Accountant Fees and Services
The information required by Item 14 of Form 10-K is incorporated by reference from the information contained in the
section captioned “Fees of Independent Auditors and Audit Committee Report” in the Proxy Statement.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following Financial Statements and Financial Statement Schedule are included in Item 8 herein:
1. Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income for the years ended September 30, 2010, 2009 and 2008
Consolidated Balance Sheets at September 30, 2010 and 2009
Consolidated Statements of Cash Flows for the years ended September 30, 2010, 2009 and 2008
Consolidated Statements of Changes in Stockholders’ Equity for the years ended September 30, 2010, 2009 and 2008
Notes to the Consolidated Financial Statements
2. Financial Statement Schedule: Schedule II—Valuation and Qualifying Accounts
3. Exhibits—The following exhibits are filed as part of, or incorporated by reference into, this Report on Form 10-K:
Exhibit
Number
3.2 (14)
3.3 (1)
3.4 (2)
4.1 (2)
4.2 (3)
4.3 (4)
10.1 (15)
Description
Amended and Restated By-Laws of Cabot Microelectronics Corporation.
Form of Amended and Restated Certificate of Incorporation of Cabot Microelectronics Corporation.
Form of Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock.
Form of Cabot Microelectronics Corporation Common Stock Certificate.
Rights Agreement.
Amendment to Rights Agreement.
Second Amended and Restated Cabot Microelectronics Corporation 2000 Equity Incentive Plan, as
amended and restated September 23, 2008.*
10.2 (19)
Form of Second Amended and Restated Cabot Microelectronics Corporation 2000 Equity Incentive
Plan Non-Qualified Stock Option Grant Agreement (directors).*
10.4 (15)
10.5 (15)
Form of Second Amended and Restated Cabot Microelectronics Corporation 2000 Equity Incentive
Plan Non-Qualified Stock Option Grant Agreement (U.S. employees (including executive officers)).*
Form of Second Amended and Restated Cabot Microelectronics Corporation 2000 Equity Incentive
Plan Restricted Stock Award Agreement (employees (including executive officers)).*
10.6 (19)
Form of Second Amended and Restated Cabot Microelectronics Corporation 2000 Equity Incentive
Plan Restricted Stock Units Award Agreement for Directors.*
10.15 (18) Cabot Microelectronics Corporation 2007 Employee Stock Purchase Plan, as Amended and Restated
January 1, 2010.*
10.22 (18) Cabot Microelectronics Corporation 401(k) Plan, as amended.*
10.23 (15)
10.28 (15) Directors’ Deferred Compensation Plan, as amended September 23, 2008.*
10.29 (6)
Form of Amended and Restated Change in Control Severance Protection Agreement.**
Amended and Restated Credit Agreement dated November 24, 2003 among Cabot Microelectronics
Corporation, Various Financial Institutions and LaSalle Bank National Association, as Administrative
Agent, and National City Bank of Michigan/Illinois, as Syndication Agent.
60
61
Exhibit
Number
10.30 (5)
10.31 (5)
Form of Deposit Share Agreement.***
Amendment No. 1 to Fumed Metal Oxide Agreement, between Cabot Microelectronics Corporation
and Cabot Corporation.+
Description
10.32 (5)
10.33 (15) Adoption Agreement, as amended September 23, 2008, of Cabot Microelectronics Corporation Supple-
Fumed Alumina Supply Agreement.+
mental Employee Retirement Plan.*
10.34 (10) Code of Business Conduct.
10.36 (6)
10.37 (7)
10.38 (7)
10.39 (7)
10.40 (8)
Directors’ Cash Compensation Umbrella Program.*
Employment and Transition Agreement dated November 3, 2003.*
Employment Offer Letter dated November 2, 2003.*
Employment Offer Letter dated November 17, 2003.*
Amendment No. 2 to Fumed Metal Oxide Agreement, between Cabot Microelectronics Corporation
and Cabot Corporation.
10.41 (8)
Amendment No. 3 to Fumed Metal Oxide Agreement, between Cabot Microelectronics Corporation
and Cabot Corporation.
10.42 (8)
10.43 (8)
10.44 (9)
10.45 (9)
Fumed Silica Supply Agreement.+
General Release, Waiver and Covenant Not to Sue.*
Amendment as of January 17, 2005 to Four Grant Agreements for Non-Qualified Stock Option Awards
with Grant Dates of March 13, 2001, March 12, 2002, March 11, 2003 and March 9, 2004, respectively.*
Amendment as of January 29, 2005 to Three Grant Agreements for Non-Qualified Stock Option
Awards with Grant Dates of March 13, 2001, March 12, 2002 and March 11, 2003, respectively.*
10.46 (20) Non-Employee Directors’ Compensation Summary as of March 2010.*
10.47 (11) Asset Purchase Agreement by and among Cabot Microelectronic Corporation, QED Technologies
International, Inc., QED Technologies, Inc., Don Golini and Lowell Mintz dated June 15, 2006.
10.48 (11)
Technology Asset Purchase Agreement dated June 15, 2006 by and among Cabot Microelectronics
Corporation, QED Technologies International, Inc., and Byelocorp Scientific, Inc.
10.49 (12) Amendment No. 1 to Fumed Silica Supply Agreement, between Cabot Microelectronics Corporation
and Cabot Corporation.+
10.50 (13) Amendment No. 2 to Fumed Silica Supply Agreement, between Cabot Microelectronics Corporation
and Cabot Corporation.+
First Amendment to the Employment Offer Letter dated November 2, 2003.*
First Amendment to the Employment Offer Letter dated November 23, 2003.*
10.51 (15)
10.52 (15)
10.53 (15) Cabot Microelectronics Corporation Supplemental Employee Retirement Plan, as amended.*
10.54 (15) Cabot Microelectronics Corporation Annual Incentive and Sales Incentive Programs.*
10.55 (16)
Share Purchase Agreement dated December 19, 2008 among Cabot Microelectronics Global
Corporation, Eternal Chemical Co., Ltd., Major Co-Sellers, and Epoch Material Co., Ltd.+
10.56 (17)
First Amendment to Amended and Restated Credit Agreement dated October 30, 2008 among Cabot
Microelectronics Corporation, Bank of America, N.A., as Administrative Agent, Issuing Bank, and
Swing Line Bank, and JPMorgan Chase Bank, N.A., as Syndication Agent.
10.57 (18) Adoption Agreement, as amended January 1, 2010, of Cabot Microelectronics Corporation 401(k) Plan.*
21.1
23.1
24.1
31.1
Subsidiaries of Cabot Microelectronics Corporation.
Consent of Independent Registered Public Accounting Firm.
Power of Attorney.
Certification of Chief Executive Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2
32.1
Certification of Chief Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
62
63
(1)
Filed as an exhibit to, and incorporated by reference from the Registrant’s Registration Statement on Form S-1
(No. 333-95093) filed with the Commission on March 27, 2000.
(2)
Filed as an exhibit to, and incorporated by reference from the Registrant’s Registration Statement on Form S-1
(No. 333-95093) filed with the Commission on April 3, 2000.
(3)
Filed as an exhibit to, and incorporated by reference from the Registrant’s Registration Statement on Form S-1
(No. 333-95093) filed with the Commission on April 4, 2000.
(4)
Filed as an exhibit to, and incorporated by reference from the Registrant’s Current Report on Form 8-K
(No. 000-30205) filed with the Commission on October 6, 2000.
(5)
Filed as an exhibit to, and incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q
(No. 000-30205) filed with the Commission on February 12, 2002.
(6)
Filed as an exhibit to, and incorporated by reference from the Registrant’s Annual Report on Form 10-K
(No. 000-30205) filed with the Commission on December 10, 2003.
(7)
Filed as an exhibit to, and incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q
(No. 000-30205) filed with the Commission on February 12, 2004.
(8)
Filed as an exhibit to, and incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q
(No. 000-30205) filed with the Commission on May 7, 2004.
(9)
Filed as an exhibit to, and incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q
(No. 000-30205) filed with the Commission on May 9, 2005.
(10)
Filed as an exhibit to, and incorporated by reference from the Registrant’s Annual Report on Form 10-K
(No. 000-30205) filed with the Commission on December 7, 2005.
(11)
Filed as an exhibit to, and incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q
(No. 000-30205) filed with the Commission on August 9, 2006.
(12)
Filed as an exhibit to, and incorporated by reference from the Registrant’s Annual Report on Form 10-K
(No. 000-30205) filed with the Commission on November 29, 2006.
(13)
Filed as an exhibit to, and incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q
(No. 000-30205) filed with the Commission on August 8, 2008.
(14)
Filed as an exhibit to, and incorporated by reference from the Registrant’s Current Report on Form 8-K
(No. 000-30205) filed with the Commission on September 24, 2008.
(15)
Filed as an exhibit to, and incorporated by reference from the Registrant’s Annual Report on Form 10-K
(No. 000-30205) filed with the Commission on November 25, 2008.
(16)
Filed as an exhibit to, and incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q
(No. 000-30205) filed with the Commission on February 5, 2009.
(17)
Filed as an exhibit to, and incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q
(No. 000-30205) filed with the Commission on May 8, 2009.
(18)
Filed as an exhibit to, and incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q
(No. 000-30205) filed with the Commission on February 8, 2010.
(19)
Filed as an exhibit to, and incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q
(No. 000-30205) filed with the Commission on May 7, 2010.
(20)
Filed as an exhibit to, and incorporated by reference from the Registrant’s Current Report on Form 8-K
(No. 000-30205) filed with the Commission on March 10, 2010.
* Management contract, or compensatory plan or arrangement.
** Substantially similar change in control severance protection agreements have been entered into with William P. Noglows, H. Carol Bernstein,
William S. Johnson, Daniel J. Pike, Thomas S. Roman, Stephen R. Smith, Clifford L. Spiro, Adam F. Weisman, Daniel S. Wobby, Yumiko Damashek
and David H. Li, with differences only in the amount of payments and benefits to be received by such persons.
*** Substantially similar deposit share agreements have been entered into with William P. Noglows, H. Carol Bernstein, William S. Johnson, Daniel
J. Pike, Thomas S. Roman, Stephen R. Smith, Clifford L. Spiro, Adam F. Weisman and Daniel S. Wobby with differences only in the amount of
initial deposit made and deposit shares purchased by such persons.
+ This Exhibit has been filed separately with the Commission pursuant to the grant of a confidential treatment request. The confidential portions
of this Exhibit have been omitted and are marked by an asterisk.
62
63
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized:
Date: November 23, 2010
/s/ WILLIAM P. NOGLOWS
CABOT MICROELECTRONICS CORPORATION
William P. Noglows
Chairman of the Board, President and Chief Executive Officer
[Principal Executive Officer]
Date: November 23, 2010
/s/ WILLIAM S. JOHNSON
Date: November 23, 2010
William S. Johnson
Vice President and Chief Financial Officer
[Principal Financial Officer]
/s/ THOMAS S. ROMAN
Thomas S. Roman
Corporate Controller
[Principal Accounting Officer]
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated:
Date: November 23, 2010
/s/ WILLIAM P. NOGLOWS
William P. Noglows
Chairman of the Board, President and Chief Executive Officer
[Director]
Date: November 23, 2010
/s/ ROBERT J. BIRGENEAU*
Robert J. Birgeneau
[Director]
Date: November 23, 2010
/s/ JOHN P. FRAZEE, JR.*
John P. Frazee, Jr.
[Director]
Date: November 23, 2010
/s/ H. LAURANCE FULLER*
H. Laurance Fuller
[Director]
Date: November 23, 2010
/s/ BARBARA A. KLEIN*
Barbara A. Klein
[Director]
Date: November 23, 2010
/s/ EDWARD J. MOONEY*
Edward J. Mooney
[Director]
Date: November 23, 2010
/s/ STEVEN V. WILKINSON*
Date: November 23, 2010
Steven V. Wilkinson
[Director]
/s/ BAILING XIA*
Bailing Xia
[Director]
*by H. Carol Bernstein as Attorney-in-fact pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934.
64
65
Exhibit 31.1
CERTIFICATION
I, William P. Noglows, certify that:
1. I have reviewed this Annual Report on Form 10-K of Cabot Microelectronics Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: November 23, 2010
/s/ WILLIAM P. NOGLOWS
William P. Noglows
Chief Executive Officer
64
65
Exhibit 31.2
CERTIFICATION
I, William S. Johnson, certify that:
1. I have reviewed this Annual Report on Form 10-K of Cabot Microelectronics Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors:
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
Date: November 23, 2010
/s/ WILLIAM S. JOHNSON
William S. Johnson
Chief Financial Officer
66
67
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Cabot Microelectronics Corporation (the “Company”) on Form 10-K for the
fiscal year ended September 30, 2010, as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results
of operations of the Company.
Date: November 23, 2010
/s/ WILLIAM P. NOGLOWS
William P. Noglows
Chief Executive Officer
Date: November 23, 2010
/s/ WILLIAM S. JOHNSON
William S. Johnson
Chief Financial Officer
66
67
S t o c K h o l d e r S ’ I N F o r M A t I o N
OFFICERS
BOARD OF DIRECTORS
CORPORATE INFORMATION
William P. Noglows
Chairman, President and
Chief Executive Officer
H. Carol Bernstein
Vice President, Secretary
and General Counsel
Yumiko Damashek
Vice President,
Japan and Asia Operations
William S. Johnson
Vice President and
Chief Financial Officer
David H. Li
Vice President, Asia Pacific Region
Daniel J. Pike
Vice President,
Corporate Development
Thomas S. Roman
Corporate Controller
Stephen R. Smith
Vice President, Marketing
Clifford L. Spiro
Vice President,
Research and Development
Carmelina M. Stoklosa
Treasurer and Director, Finance
Adam F. Weisman
Vice President, Business Operations
Daniel S. Wobby
Vice President, Global Sales
William P. Noglows
Chairman, President and
Chief Executive Officer,
Cabot Microelectronics
Corporation
Robert J. Birgeneau
Chancellor,
University of California,
Berkeley
John P. Frazee, Jr.
Former Chairman and
Chief Executive Officer,
Centel Corporation
H. Laurance Fuller
Former Co-Chairman,
BP Amoco PLC
Barbara A. Klein
Former Chief Financial Officer,
CDW Corporation
Edward J. Mooney
Former Chairman and
Chief Executive Officer,
Nalco Chemical Company
Steven V. Wilkinson
Former Partner,
Arthur Andersen LLP
Bailing Xia
Chairman and
Chief Executive Officer,
Summer Leaf, Inc.
HEADQUARTERS
Cabot Microelectronics Corporation
870 N. Commons Drive
Aurora, IL 60504
630.375.6631 phone
800.811.2756 toll free
630.499.2666 fax
www.cabotcmp.com
INVESTOR INFORMATION
Contact our offices by mail at
the address above, by telephone
at 630.499.2600 or at
www.cabotcmp.com.
STOCK INFORMATION
Cabot Microelectronics is traded on
the NASDAQ Global Select Market
under the symbol CCMP.
STOCK TRANSFER AGENT
AND REGISTRAR
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
781.575.3400
www.computershare.com
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
Chicago, IL
STOCKHOLDERS’ MEETING
The Annual Meeting of Stockholders
will be held at 8 a.m. Central
Time on March 8, 2011, at
Cabot Microelectronics Corporation
870 N. Commons Drive
Aurora, IL
FORM 10-K
A copy of the Cabot Microelectronics
Annual Report on Form 10-K for the fiscal
year ended September 30, 2010, filed
with the Securities and Exchange Com-
mi s sion, is enclosed and also available
without charge at www.cabotcmp.com.
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O U R C O M P A N Y
Cabot Microelectronics is the world’s leading supplier of chemical mechanical planarization (CMP) slurries and a
growing CMP pad supplier to the semiconductor industry. Our CMP consumables products are used to level,
smooth and remove excess material from the multiple layers of material that are deposited upon silicon wafers
in the production of most semiconductor devices. This enables our customers to manufacture smaller, faster and
more complex devices. We also produce slurries for the data storage industry that are used to polish certain
600
hard disk drive components, and we are pursuing a number of other demanding surface modification applications
through our Engineered Surface Finishes business.
400
The global semiconductor industry experienced a strong rebound in 2010, driven by solid global consumer
demand for items like smart phones and tablet computers, particularly in the vibrant Asia Pacific region, as well
200
as the return of corporate IT spending. We benefited from this strong industry environment, posting record
revenue and diluted earnings per share in fiscal 2010. The solid execution of our strategies and key initiatives
0
resulted in over 40 percent growth in total revenue, nearly 70 percent growth in our pad business, the introduction
of next generation products in all major application areas and the receipt of customer supplier awards from four
of the world’s top semiconductor manufacturers in 2010.
F I N A N C I A L H I G H L I G H T S
In millions, except per share and percentage amounts
Revenue
Gross profit margin
Operating income
Net income
Diluted earnings per share
Total assets
Stockholders’ equity
Cash and cash equivalents
Cash provided by operations
FY10
FY09
Change
$408.2
$291.4
40.1%
49.9%
44.1%
13.2
74.0
49.5
2.13
571.8
514.3
254.2
88.4
16.0
11.2
0.48
515.1
470.7
200.0
44.7
361.9
342.1
343.8
11.0
9.3
27.1
97.7
After tax return on invested capital
18.8%
4.0%
370.0
2.5
2.0
1.5
1.0
0.5
0.0
100
50
0
T E N Y E A R S S T R O N G
2
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2
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$
R E V E N U E
(in millions)
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
2
7
.
1
$
6
6
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1
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4
.
0
$
3
1
.
2
$
D I L U T E D
E A R N I N G S
P E R S H A R E
(in dollars)
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
Note: Under accounting rules, the company began recording share-based compensation expense beginning in FY06.
Consequently, fiscal years prior to FY06 do not include share-based compensation expense. On average, share-based
compensation expense reduced diluted earnings per share by approximately 35 cents per year from FY06 through FY10.
.
5
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4
4
$
.
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8
8
$
C A S H
F R O M
O P E R A T I O N S
(in millions)
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
Cabot Microelectronics Corporation
870 N. Commons Drive
Aurora, IL 60504
www.cabotcmp.com
Cabot Microelectronics is committed to conducting its business operations in a manner that preserves the
environment, which includes limiting waste, conserving energy and preventing pollution. Our commitment goes
beyond regulatory compliance and ISO certifications. Since initiating our environmental program in fiscal 2008,
we have successfully lessened our impact on the environment in the following ways:
31%
53%
43%
4%
4%
IN C R E A S E IN
PA P E R R E C Y C L IN G
IN C R E A S E IN
S O L ID WA S T E
R E C Y C L IN G
R E D u C T IO N IN
L A N D f I L L WA S T E
R E D u C T IO N IN
C O 2 E m I S S IO N S
R E D u C T IO N IN
E L E C T R I C I T Y u S A GE
We continue to partner with our customers to help them achieve their environmental goals. As we look to the
future, we plan to further reduce the environmental impact of doing business by strongly encouraging our
suppliers to share our commitment to the environment, and we plan to measure the progress of these preferred
suppliers. Through our own environmental initiatives, as well as through joint programs with our customers and
suppliers, we strive to continue to be a trusted business partner and model corporate citizen with respect to
environmental issues.
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