1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


              [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                         For the quarterly period ended

                                 MARCH 31, 2001

                                       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                                36-4324765
       (State of Incorporation)            (I.R.S. Employer Identification No.)

       870 NORTH COMMONS DRIVE                          60504
          AURORA, ILLINOIS                             (Zip Code)
(Address of principal executive offices)

       Registrant's telephone number, including area code: (630) 375-6631

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, and (2) has been subject to such filing requirements
for the past 90 days.

                            YES  x   NO
                               -----    -----

As of April 30, 2001 the Company had 23,973,754 shares of Common Stock, par
value $0.001 per share, outstanding.




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                       CABOT MICROELECTRONICS CORPORATION

                                      INDEX

PART I. FINANCIAL INFORMATION                                             PAGE

         Item 1.     Financial Statements

                     Statements of Income
                         Three and Six Months Ended March 31, 2001
                         and 2000.......................................    3

                     Balance Sheets
                         March 31, 2001 and September 30, 2000..........    4

                     Statements of Cash Flows
                         Six Months Ended March 31, 2001 and 2000.......    5

                     Notes to Financial Statements......................    6

         Item 2.     Management's Discussion and Analysis of Financial
                         Condition and Results of Operations............   10

         Item 3.     Quantitative and Qualitative Disclosures
                         About Market Risk..............................   18

PART II. OTHER INFORMATION

         Item 1.     Legal Proceedings..................................   18

         Item 4.     Submission of Matters to a Vote of
                         Security Holders...............................   18

         Item 6.     Exhibits and Reports on Form 8-K...................   19



   3







PART I. FINANCIAL INFORMATION
ITEM 1.


CABOT MICROELECTRONICS CORPORATION
STATEMENTS OF INCOME
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)




                                                                       THREE MONTHS                   SIX MONTHS
                                                                      ENDED MARCH 31,               ENDED MARCH 31,
                                                                   2001            2000           2001          2000
                                                                   ----            ----           ----          ----
                                                                                                 
Revenue  ...................................................  $      55,695    $     39,335   $   124,311    $    74,381

Cost of goods sold .........................................         25,923          19,815        58,486         36,125
                                                              -------------    ------------   -----------    -----------

         Gross profit.......................................         29,772          19,520        65,825         38,256

Operating expenses:
   Research and development.................................          6,805           4,729        13,343          9,305
   Selling and marketing....................................          2,249           1,675         4,518          3,032
   General and administrative...............................          6,485           3,326        11,632          6,901
   Amortization of goodwill and other intangibles...........            180             180           359            360
                                                              -------------    ------------   -----------    -----------
      Total operating expenses..............................         15,719           9,910        29,852         19,598
                                                              -------------    ------------   -----------    -----------

Operating income............................................         14,053           9,610        35,973         18,658

Other income, net...........................................            238             107           675            107
                                                              -------------    ------------   -----------    -----------
Income before income taxes..................................         14,291           9,717        36,648         18,765
Provision for income taxes..................................          4,907           3,500        12,825          6,800
                                                              -------------    ------------   -----------    -----------

      Net income............................................  $       9,384    $      6,217   $    23,823    $    11,965
                                                              =============    ============   ===========    ===========

Basic net income per share..................................  $        0.39    $       0.33   $      1.00    $      0.63
                                                              =============    ============   ===========    ===========

Weighted average basic shares outstanding...................         23,800          18,990        23,705         18,990
                                                              =============    ============   ===========    ===========

Diluted net income per share................................  $        0.39    $       0.33   $      0.98    $      0.63
                                                              =============    ============   ===========    ===========

Weighted average diluted shares outstanding.................         24,328          18,990        24,223         18,990
                                                              =============    ============   ===========    ===========



   The accompanying notes are an integral part of these financial statements.



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CABOT MICROELECTRONICS CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)



                                                                  MARCH 31,        SEPTEMBER 30,
                                                                     2001              2000
                                                                     ----              ----
                                                                  (UNAUDITED)
                                                                             
                                     ASSETS:
Current assets:
   Cash and cash equivalents................................   $         25,993    $        9,971
   Accounts receivable, less allowance for doubtful
      accounts of $456 at March 31, 2001
      and $233 at September 30, 2000........................             29,604            30,595
   Inventories..............................................             19,546            14,014
   Prepaid expenses and other current assets................              2,734             2,752
   Income taxes refundable..................................              3,311                 -
   Deferred income taxes....................................              2,565             1,721
                                                               ----------------    --------------
         Total current assets...............................             83,753            59,053

Property, plant and equipment, net..........................             79,453            71,873
Goodwill, net...............................................              1,186             1,328
Other intangible assets, net................................              1,782             2,002
Deferred income taxes.......................................              2,097             1,271
Other assets................................................                388               579
                                                               ----------------    --------------
         Total assets.......................................   $        168,659    $      136,106
                                                               ================    ==============

                      LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
   Accounts payable.........................................   $         10,460    $       11,646
   Accrued expenses and other current liabilities...........             13,516            12,554
   Deferred income taxes....................................                 32                 -
                                                               ----------------    --------------
         Total current liabilities..........................             24,008            24,200

   Long-term debt...........................................              3,500             3,500
   Deferred income taxes....................................              1,609               160
   Deferred compensation....................................                  -               684
                                                               ----------------    --------------
         Total liabilities..................................             29,117            28,544

Commitments and contingencies (Note 8)

Stockholders' equity:
   Common stock:
      Authorized: 200,000,000 shares, $0.001 par value
      Issued and outstanding: 23,925,770 shares at
      March 31, 2001 and 23,590,293 at September 30, 2000 ..   $             24    $           24
   Capital in excess of par value of common stock...........            101,413            88,290
   Retained earnings........................................             42,360            18,538
   Accumulated other comprehensive income (loss)............             (3,990)              792
   Unearned compensation....................................               (265)              (82)
                                                               -----------------   ---------------
         Total stockholders' equity.........................            139,542           107,562
                                                               ----------------    --------------

         Total liabilities and stockholders' equity.........   $        168,659    $      136,106
                                                               ================    ==============


   The accompanying notes are an integral part of these financial statements.


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   5
CABOT MICROELECTRONICS CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)


                                                                         SIX MONTHS ENDED
                                                                             MARCH 31,
                                                                     2001                 2000
                                                                     ----                 ----
                                                                              
Cash flows from operating activities:
   Net Income...............................................    $       23,823      $       11,965
   Adjustments to reconcile net income to net cash
      provided by operating activities:
      Depreciation and amortization.........................             3,815               1,876
      Noncash compensation expense..........................             1,504                 550
      Provision for inventory writedown.....................               716                 100
      Stock option income tax benefits......................             4,469                   -
      Deferred income tax (benefit) expense.................              (190)                 38
      Loss on disposal of property, plant
        and equipment.......................................                 -                  13
   Changes in operating assets and liabilities:
      Accounts receivable...................................            (1,043)             (1,457)
      Inventories...........................................            (5,499)             (5,532)
      Prepaid expenses and other current assets.............              (224)             (1,263)
      Other noncurrent assets...............................               191                   -
      Accounts payable......................................              (456)              1,714
      Accrued expenses and other current liabilities........               612               1,207
      Income taxes payable..................................            (3,291)                  -
      Deferred compensation.................................              (684)                212
                                                                --------------      --------------
Net cash provided by operating activities...................            23,743               9,423

Cash flows from investing activities:
   Additions to property, plant and equipment...............           (14,805)            (17,960)
   Proceeds from the sale of property, plant,
        and equipment.......................................                 2               1,689
                                                                --------------      --------------
Net cash used by investing activities.......................           (14,803)            (16,271)
                                                                --------------      --------------

Cash flows from financing activities:
   Proceeds from issuance of long term debt.................                 -              17,000
   Dividend paid to Cabot Corporation.......................                 -             (17,000)
   Net proceeds from issuance of stock......................             7,021                   -
   Net capital contributed by Cabot Corporation.............                 -               6,901
                                                                --------------      --------------
Net cash provided by financing activities...................             7,021               6,901
                                                                --------------      --------------

Effect of exchange rate changes on cash.....................                61                 (50)
                                                                --------------      --------------
Increase in cash............................................            16,022                   3
Cash and cash equivalents at beginning of period............             9,971                  38
                                                                --------------      --------------
Cash and cash equivalents at end of period..................    $       25,993      $           41
                                                                ==============      ==============



   The accompanying notes are an integral part of these financial statements.


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                       CABOT MICROELECTRONICS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
        (UNAUDITED AND IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


1.   BACKGROUND AND BASIS OF PRESENTATION

     We are the leading supplier of high performance polishing slurries used in
the manufacture of the most advanced integrated circuit ("IC") devices, within a
process called chemical mechanical planarization ("CMP"). We believe that we
supply approximately 80% of the slurries sold to IC device manufacturers
worldwide. CMP is a polishing process used by IC device manufacturers to
planarize many of the multiple layers of material that are built upon silicon
wafers to produce advanced devices.

     The unaudited financial statements have been prepared by Cabot
Microelectronics Corporation ("Cabot Microelectronics", "the Company", "us",
"we", or "our"), pursuant to the rules of the Securities and Exchange Commission
("SEC") and accounting principles generally accepted in the United States of
America. In the opinion of management, these unaudited financial statements
include all adjustments necessary for the fair presentation of Cabot
Microelectronics' financial position, results of operations and cash flows for
the three and six months ended March 31, 2001 and March 31, 2000. Our financial
statements reflect the historical results of operations, financial position and
cash flows of Cabot Microelectronics, which prior to the initial public offering
and spin-off discussed in Note 2, operated as a division and subsidiary
(incorporated October, 1999) of Cabot Corporation ("Cabot"). The results of
operations for the three and six months ended March 31, 2001 may not be
indicative of the results to be expected for the fiscal year ending September
30, 2001. These financial statements should be read in conjunction with the
financial statements and related notes thereto included in Cabot
Microelectronics' Annual Report on Form 10-K for the fiscal year ended September
30, 2000. We operate predominantly in one industry segment - the development,
manufacture, and sale of CMP slurries. Certain reclassifications of prior fiscal
year amounts have been made to conform with the current period presentation.

     The balance sheets have been prepared using the historical basis of
accounting and include all of the assets and liabilities specifically
identifiable to Cabot Microelectronics. The statements of income include all
revenue and costs attributable to Cabot Microelectronics. For the six months
ended March 31, 2000, the statements of income include an allocation from Cabot
Corporation of employee benefits and costs of shared services (including legal,
finance, human resources, information systems, corporate office, and safety,
health and environmental expenses). These costs were allocated to Cabot
Microelectronics based on criteria that management believes to be equitable,
such as Cabot Microelectronics' revenue, headcount, or actual utilization in
proportion to Cabot Corporation's revenue, headcount, or actual utilization.
Management believes this provides a reasonable estimate of the costs
attributable to Cabot Microelectronics. For the six months ended March 31, 2000,
such allocated costs amounted to $3,021. Allocated costs may not necessarily be
indicative of the costs that would have been incurred by Cabot Microelectronics
on a stand-alone basis.


2.   SEPARATION FROM CABOT CORPORATION

     In July 1999, Cabot Corporation announced its plans to create an
independent publicly-traded company, Cabot Microelectronics, comprised of its
Microelectronics Materials Division. Cabot Microelectronics, which was
incorporated in October 1999, completed its initial public offering in April
2000 ("initial public offering"), receiving net proceeds of $82,765, after
deducting underwriting commissions and offering expenses, from the sale of
4,600,000 shares of common stock. Following the completion of the initial public
offering, Cabot Corporation owned approximately 80.5% of Cabot Microelectronics'
outstanding common stock. Cabot Microelectronics paid Cabot Corporation
aggregate dividends of $81,300 of which $17,000 was paid from borrowings under a
term credit facility prior to the initial public offering and $64,300 was paid
with proceeds from the initial public offering.

     On September 29, 2000, Cabot Corporation effected the spin-off
("spin-off"), of Cabot Microelectronics by distributing 0.280473721 shares of
Cabot Microelectronics common stock as a dividend on each share of Cabot
Corporation common stock outstanding on September 13, 2000, or an aggregate of
18,989,744 shares of Cabot Microelectronics common stock.



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                       CABOT MICROELECTRONICS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
        (UNAUDITED AND IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

3.   NET INCOME PER SHARE

     Statement of Financial Accounting Standards No. 128 "Earnings per Shares",
requires companies to provide a reconciliation of the numerator and denominator
of the basic and diluted earnings per share ("net income per share")
computations. Basic and diluted net income per share were calculated as follows:



                                                                      THREE MONTHS                    SIX MONTHS
                                                                     ENDED MARCH 31,                ENDED MARCH 31,
                                                                  2001           2000             2001          2000
                                                                  ----           ----             ----          ----
                                                                                                
Numerator:
         Income available to common shares................    $     9,384    $     6,217      $     23,823  $    11,965
                                                              ===========    ===========      ============  ===========

Denominator:
         Weighted average common shares...................     23,800,442     18,989,744        23,704,593   18,989,744
              (Denominator for basic calculation)

         Weighted average effect of dilutive securities:
              Stock based compensation ...................        527,059              -           518,052            -
                                                              -----------    -----------      ------------  -----------
         Diluted weighted average common shares...........     24,327,501     18,989,744        24,222,645   18,989,744
                                                              ===========    ===========      ============  ===========
              (Denominator for diluted calculation)

Net income per share:

         Basic............................................    $      0.39    $      0.33      $       1.00  $      0.63
                                                              ===========    ===========      ============  ===========

         Diluted..........................................    $      0.39    $      0.33      $       0.98  $      0.63
                                                              ===========    ===========      ============  ===========



     Basic and diluted net income per share for the three and six months ended
March 31, 2000 have been calculated using the 18,989,744 shares that were owned
by Cabot Corporation prior to the closing of the initial public offering. These
shares take into consideration a 18,989,744 to 1 stock split which occurred
subsequent to March 31, 2000, but prior to the completion of the initial public
offering.


4.   DERIVATIVES

     In the first quarter of fiscal 2001, Cabot Microelectronics adopted
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities," which establishes accounting
and reporting standards for derivative instruments and for hedging activities.
All derivatives, whether designated in hedging relationships or not, are
required to be recorded on the balance sheet at fair value. If the derivative is
designated as a fair value hedge, the changes in the fair value of the
derivative and of the hedged item attributable to the hedged risk are recognized
in earnings. If the derivative is designated as a cash flow hedge, the effective
portions of changes in the fair value of the derivative are recorded in other
comprehensive income and are recognized in the income statement when the hedged
item affects earnings. Ineffective portions of changes in the fair value of cash
flow hedges are recognized in earnings.

     The adoption of SFAS 133 resulted in a reduction to comprehensive income
for the three and six months ended March 31, 2001 of $160 and $806,
respectively. This was attributable to unrealized losses on derivatives
designated as cash flow hedges which were entered into to hedge commitments
involving construction contracts associated with our Geino, Japan expansion. We
will reclassify gains and losses associated with cash flow hedges into earnings
in the same period or periods in which related assets affect earnings. There
were no other significant derivatives as of March 31, 2001. The adoption of SFAS
133 did not have a material impact on the Company's operations or financial
position.


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                       CABOT MICROELECTRONICS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS - (Continued)
        (UNAUDITED AND IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

5.   COMPREHENSIVE INCOME

         The components of comprehensive income are as follows (in thousands):



                                                                        THREE MONTHS                  SIX MONTHS
                                                                       ENDED MARCH 31,              ENDED MARCH 31,
                                                                   2001             2000          2001           2000
                                                                   ----             ----          ----           ----
                                                                                                  
         Net Income.......................................    $      9,384      $     6,217   $    23,823     $   11,965
         Other comprehensive income:
              Net unrealized loss on derivative instruments           (646)               -          (806)             -
              Foreign currency translation adjustment.....          (2,810)            (339)       (3,976)          (305)
                                                              ------------      -----------   -----------     ----------
         Total comprehensive income.......................    $      5,928      $     5,878   $    19,041     $   11,660
                                                              ============      ===========   ===========     ==========



6.   INVENTORIES

     Inventories consisted of the following:


                                                                                               MARCH 31,    SEPTEMBER 30,
                                                                                                  2001          2000
                                                                                                  ----          ----
                                                                                                        
         Raw materials.....................................................................   $    13,524     $    9,139
         Work in process...................................................................            92             28
         Finished goods....................................................................         5,930          4,847
                                                                                              -----------     ----------
         Total.............................................................................   $    19,546     $   14,014
                                                                                              ===========     ==========


7.   LONG-TERM DEBT

     At March 31, 2001 debt was comprised of an unsecured term loan in the
amount of $3,500 funded on the basis of the State of Illinois State Treasurer's
Economic Program. This loan is due on June 1, 2005 and incurs interest at an
annual rate of 6.37%. We originally borrowed $17,000 under a term credit
facility and paid the proceeds of this borrowing to Cabot Corporation as a
dividend. The original debt was comprised of a term loan in the amount of
$13,500 and the $3,500 term loan referred to above. During the third quarter of
2000, Cabot Microelectronics repaid the $13,500 term loan and subsequent to June
30, 2000, this term loan was converted to a revolving line of credit of $8,500
described below.

     We also have a $25,000 unsecured revolving credit facility which terminates
in March 29, 2003. Interest is incurred at either the institution's base rate or
the LIBOR rate plus an applicable margin. We also have a $8,500 revolving line
of credit which terminates on June 1, 2003. Interest is incurred at either the
institution's base rate or the Eurodollar rate plus an applicable margin. Loans
under both facilities will be used primarily for general corporate purposes,
including working capital and capital expenditures. No amounts were outstanding
under either line of credit at March 31, 2001 or September 30, 2000.


8.   CONTINGENCIES

     In June 1998, one of our major competitors, Rodel Inc., filed a lawsuit
against Cabot Corporation in the United States District Court for the District
of Delaware entitled Rodel, Inc. v. Cabot Corporation (Civil Action No. 98-352).
In this lawsuit, Rodel has requested a jury trial and is seeking a permanent
injunction and an award of compensatory, punitive, and other damages relating to
allegations that Cabot Corporation is infringing United States Patent No.
4,959,113 (entitled "Method and Composition for Polishing Metal Surfaces"),
which is owned by an affiliate of Rodel. We refer to this patent as the Roberts
patent and this lawsuit as the Roberts lawsuit. Cabot Corporation filed an
answer and counterclaim seeking dismissal of the Roberts lawsuit with


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                       CABOT MICROELECTRONICS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
        (UNAUDITED AND IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


prejudice, a judgment that Cabot Corporation is not infringing the Roberts
patent and/or that the Roberts patent is invalid, and other relief. Cabot
Corporation subsequently filed a motion for summary judgment that the Roberts
patent is invalid because all of the claims contained in the patent were not
sufficiently different under applicable patent law from subject matter contained
in previously granted patents, specifically United States Patents Nos.
4,705,566, 4,956,015 and 4,929,257, each of which is owned by a third party not
affiliated with Rodel or us. This motion was denied on September 30, 1999 based
on the court's finding that there were genuine issues of material fact to be
determined at trial. After the ruling on the summary judgment motion, Rodel
filed a request for reexamination of the Roberts patent with the United States
Patent and Trademark Office (PTO), which was granted on November 12, 1999. On
March 28, 2000 the court issued an order staying the Roberts action, which
presently is in the discovery stage, pending completion of the reexamination of
the Roberts patent by the PTO. In light of the reexamination, on September 29,
2000, the court denied the parties' respective motions to amend and dismiss,
with leave to refile subsequent to completion of the reexamination. As of May 1,
2001, the case remains stayed following the issuance of the reexamination
certificate by the PTO on March 13, 2001.

     In April 1999, Rodel commenced a second lawsuit against Cabot Corporation
in the United States District Court for the District of Delaware entitled Rodel,
Inc. v. Cabot Corporation (Civil Action No. 99-256). In this lawsuit, Rodel has
requested a jury trial and is seeking a permanent injunction and an award of
compensatory, punitive, and other damages relating to allegations that Cabot
Corporation is infringing two other patents owned by an affiliate of Rodel.
These two patents are United States Patent No. 5,391,258 (entitled "Compositions
and Methods for Polishing") and United States Patent No. 5,476,606 (entitled
"Compositions and Methods for Polishing"). We refer to these patents as the
Brancaleoni patents and this lawsuit as the Brancaleoni lawsuit. Cabot
Corporation has filed an answer and counterclaim to the complaint seeking
dismissal of the complaint with prejudice, a judgment that Cabot Corporation is
not infringing the Brancaleoni patents and/or that the Brancaleoni patents are
invalid, and other relief. On September 29, 2000, the court denied Cabot
Corporation's motion to dismiss, and granted Rodel's leave to amend the
Brancaleoni lawsuit to add Rodel's affiliate that owns the Brancaleoni patents,
Rodel Holdings, Inc. ("Rodel Holdings"), as a plaintiff. On October 24, 2000,
Rodel and Rodel Holdings filed an amended complaint that added Rodel Holdings as
a plaintiff to the Brancaleoni lawsuit. On November 6, 2000, Cabot Corporation
filed its answer and counterclaim seeking a judgement that Cabot Corporation is
not infringing the Brancaleoni patents and/or that the Brancaleoni patents are
invalid, and other relief. The Brancaleoni lawsuit is presently in the discovery
stage. On January 18, 2001, the court amended its scheduling order and set June
15, 2001 for completion of discovery, October 25, 2001 for a final pretrial
conference, and February, 2002 for the commencement of trial.

     In the Roberts lawsuit, the only product that Rodel to date has alleged
infringes the Roberts patent is our W2000 slurry, which is used to polish
tungsten and which currently accounts for a significant portion of our total
revenue. In the Brancaleoni lawsuit, Rodel and Rodel Holdings have not alleged
that any specific product infringes the Brancaleoni patents; instead, Rodel and
Rodel Holdings allege that our United States Patent No. 5,858,813 (entitled
"Chemical Mechanical Polishing Slurry for Metal Layers and Films" and which
relates to a CMP polishing slurry for metal surfaces including, among other
things, aluminum and copper) is evidence that Cabot Corporation is infringing
the Brancaleoni patents through the manufacture and sales of unspecified
products. At this stage, we cannot predict whether or to what extent Rodel
and/or Rodel Holdings will make specific infringement claims with respect to any
of our products other than W2000 in these or any future proceedings. It is
possible that Rodel and/or Rodel Holdings will claim that many of our products
infringe its patents.

      Although Cabot Corporation is the only named defendant in these lawsuits
at present, the defense of which we have assumed and now are controlling, we
have agreed to indemnify Cabot Corporation for any and all losses and expenses
arising out of this litigation as well as any other litigation arising out of
our business. While we believe there are meritorious defenses to the pending
actions and intend to defend them vigorously, these defenses may not be
successful. If Rodel (and/or Rodel Holdings) prevails in either of these cases,
we may have to pay damages and, in the future, may be prohibited from producing
any products found to infringe or required to pay Rodel (and/or Rodel Holdings)
royalty and licensing fees with respect to sales of those products. We do not
believe a loss is probable, nor can we estimate the amount of loss, if any, that
might result from this matter. Accordingly, no provision has been made in our
financial statements.



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   10
                       CABOT MICROELECTRONICS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
        (UNAUDITED AND IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)


9.   RECENT ACCOUNTING PRONOUNCEMENTS

     In December 1999, the SEC released Staff Accounting Bulletin No. 101 ("SAB
101"), which provides guidance on the recognition, presentation and disclosure
of revenue in financial statements filed with the SEC. Cabot Microelectronics
Corporation is required to be in conformity with the provisions of SAB 101 no
later than July 1, 2001 and we do not expect a material change in our financial
condition or results of operations as a result of the adoption of SAB 101.


ITEM 2.  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" includes "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. This Act
provides a "safe harbor" for forward-looking statements to encourage companies
to provide prospective 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 differ from the
projected results. All statements other than statements of historical fact we
make in this Form 10-Q are forward-looking. In particular, the statements herein
regarding industry prospects, our future results of operations or financial
position 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
obligation to update this forward-looking information. The section entitled
"Factors Affecting Future Operating Results" describes some, but not all, of the
factors that could cause these differences. This section, "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
should be read in conjunction with the financial statements and related notes
thereto included in Cabot Microelectronics' Annual Report on Form 10-K for the
fiscal year ended September 30, 2000.

     Financial comparisons with prior periods are affected by certain agreements
entered into with Cabot Corporation at the time of the initial public offering.
We historically sold various dispersion products to Cabot Corporation at our
cost of manufacturing. We entered into a dispersion services agreement with
Cabot Corporation, which became effective upon the completion of our initial
public offering, under which we provide dispersion products to Cabot Corporation
at our cost to manufacture plus a margin and Cabot Corporation supplies us with
the fumed metal oxide raw materials for these dispersions. The effect is to
reduce both our cost of goods sold and revenue for these dispersions since we no
longer purchase these materials and include them in either cost of goods sold or
revenue. In addition, we historically purchased fumed metal oxides, critical raw
materials for our slurries, from Cabot Corporation at their standard cost. We
entered into a fumed metal oxide supply agreement with Cabot Corporation, which
became effective on April 4, 2000, under which we purchase fumed metal oxides at
a contractually agreed upon price. The agreement provides for fixed price
increases each year and other price increases if Cabot Corporation's cost of
producing fumed metal oxides increases. The effects of these agreements on the
comparison of operating results are disclosed in the discussion that follows.


                              RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2001 VERSUS THREE MONTHS ENDED MARCH 31, 2000

REVENUE

     Total revenue was $55.7 million for the three months ended March 31, 2001,
which represented a 42%, or $16.4 million, increase from the three months ended
March 31, 2000. Of this increase, $14.9 million was due to a 38% increase in
volume and $1.4 million was due to increased weighted average selling prices due
to product sales mix. The volume growth was driven mainly by the increased use
of CMP slurries in the manufacture of IC devices. Revenue for the three months
ended March 31, 2000 would have been $0.3 million lower had our dispersion
services agreement with Cabot Corporation been in effect throughout the period.



10



   11
     The significant inventory build of IC chips over the last half of 2000 and
the weakening demand in most of the end market applications for electronic
systems combined with weakness in the overall economy, has led to a rapid
decline in semiconductor capacity utilization, capital spending and wafer
starts. Some of the advanced IC products, those at or below 0.25 micron feature
sizes, have been affected by this rapid decline. As a result, our business is
being impacted, despite the continued growth of the leading edge process
technologies like copper, feature shrinks and 300mm wafers.

COST OF GOODS SOLD

     Total cost of goods sold was $25.9 million for the three months ended March
31, 2001, which represented an increase of 31% or $6.1 million from the three
months ended March 31, 2000. This increase was primarily due to higher sales
volume. Certain favorable inventory adjustments of $0.6 million also reduced
cost of goods sold. Cost of goods sold for the three months ended March 31, 2000
would have been $1.4 million higher had our dispersion services agreement and
fumed metal oxide supply agreement with Cabot Corporation been in effect
throughout this period.

GROSS PROFIT

     Our gross profit as a percentage of net revenue was 53% for the three
months ended March 31, 2001 as compared to 50% for the three months ended March
31, 2000. The increase in gross profit resulted primarily from favorable sales
mix and a lower percentage of sales being sourced from Geino, Japan. Gross
margin for the three months ended March 31, 2000 would have been 46% of net
revenue had our dispersion services agreement and fumed metal oxide supply
agreement with Cabot Corporation been in effect throughout this period.

RESEARCH AND DEVELOPMENT

     Research and development expenses were $6.8 million in the three months
ended March 31, 2001, which represented an increase of 44%, or $2.1 million,
from the three months ended March 31, 2000. The majority of this increase was
due to higher staffing levels and operating supplies. Key activities during the
three months ended March 31, 2001 involved the continued development of new and
enhanced slurry products, new CMP polishing pad technology and advanced particle
technology.

SELLING AND MARKETING

     Selling and marketing expenses were $2.2 million in the three months ended
March 31, 2001, which represented an increase of 34%, or $0.6 million, from the
three months ended March 31, 2000. The increase was primarily due to increased
selling and marketing activities in the Asia Pacific region.

GENERAL AND ADMINISTRATIVE

     General and administrative expenses were $6.5 million in the three months
ended March 31, 2001, which represented an increase of 95%, or $3.2 million,
from the three months ended March 31, 2000. The increase was primarily related
to increased staffing and other expenses needed to support the general growth of
the business. This increase also includes a $0.9 million non-cash charge related
to a stock option agreement.

AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES

     Amortization of goodwill and other intangibles was $0.2 million in the
three months ended March 31, 2001 and the three months ended March 31, 2000 and
related to goodwill and other intangible assets associated with the acquisition
of selected distributor assets from a third party in 1995.

PROVISION FOR INCOME TAXES

     The effective tax rate on income from operations was 34.3% for the three
months ended March 31, 2001 and 36.0% for the three months ended March 31, 2000.
The decrease in the effective tax rate was mainly driven by a greater percentage
of export sales resulting in increased foreign sales corporation deductions.


11



   12



NET INCOME

     Net income was $9.4 million in the three months ended March 31, 2001, which
represented an increase of 51%, or $3.2 million, from the three months ended
March 31, 2000 as a result of the factors discussed above. Net income for the
three months ended March 31, 2000 would have been $1.3 million lower had our
dispersion services agreement and fumed metal oxide supply agreement with Cabot
Corporation been in effect throughout the period.



SIX MONTHS ENDED MARCH 31, 2001 VERSUS SIX MONTHS ENDED MARCH 31, 2000

REVENUE

     Total revenue was $124.3 million for the six months ended March 31, 2001,
which represented a 67%, or $49.9 million, increase from the six months ended
March 31, 2000. Of this increase, $43.5 million was due to a 58% increase in
volume and $6.4 million was due to increased weighted average selling prices due
to product sales mix. The volume growth was driven mainly by the increased use
of CMP slurries in the manufacture of IC devices. Revenue for the six months
ended March 31, 2000 would have been $0.6 million lower had our dispersion
services agreement with Cabot Corporation been in effect throughout this period.

COST OF GOODS SOLD

     Total cost of goods sold was $58.5 million for the six months ended March
31, 2001, which represented an increase of 62% or $22.4 million from the six
months ended March 31, 2000. This increase was primarily due to higher sales
volume. The overall increase in costs was partially offset by certain favorable
inventory adjustments of $0.6 million. Cost of goods sold for the six months
ended March 31, 2000 would have been $2.4 million higher had our dispersion
services agreement and fumed metal oxide supply agreement with Cabot Corporation
been in effect throughout this period.

GROSS PROFIT

     Our gross profit as a percentage of net revenue was 53% for the six months
ended March 31, 2001 as compared to 51% for the six months ended March 31, 2000.
The increase in gross profit resulted primarily from favorable sales mix. Gross
margin for the six months ended March 31, 2000 would have been 48% of net
revenue had our dispersion services agreement and fumed metal oxide supply
agreement with Cabot Corporation been in effect throughout this period.

RESEARCH AND DEVELOPMENT

     Research and development expenses were $13.3 million in the six months
ended March 31, 2001, which represented an increase of 43%, or $4.0 million,
from the six months ended March 31, 2000. The majority of this increase was due
to higher staffing levels and operating supplies. Key activities during the six
months ended March 31, 2001 involved the continued development of new and
enhanced slurry products, new CMP polishing pad technology and advanced particle
technology.

SELLING AND MARKETING

     Selling and marketing expenses were $4.5 million in the six months ended
March 31, 2001, which represented an increase of 49%, or $1.5 million, from the
six months ended March 31, 2000. The increase was primarily due to increased
selling and marketing activities in the Asia Pacific and North America regions.

GENERAL AND ADMINISTRATIVE

     General and administrative expenses were $11.6 million in the six months
ended March 31, 2001, which represented an increase of 69%, or $4.7 million,
from the six months ended March 31, 2000. The increase resulted primarily from
increased staffing and expenses needed to support the general growth of the
business. This increase also includes a $0.9 million non-cash charge related to
a stock option agreement.



12


   13



AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES

     Amortization of goodwill and other intangibles was $0.4 million in the six
months ended March 31, 2001 and the six months ended March 31, 2000 and related
to goodwill and other intangible assets associated with the acquisition of
selected distributor assets from a third party in 1995.

PROVISION FOR INCOME TAXES

     The effective tax rate on income from operations was 35.0% in the six
months ended March 31, 2001 and 36.2% for the six months ended March 31, 2000.
The decrease in the effective tax rate was mainly driven by a greater percentage
of export sales resulting in increased foreign sales corporation deductions.

NET INCOME

     Net income was $23.8 million in the six months ended March 31, 2001, which
represented an increase of 99%, or $11.9 million, from the six months ended
March 31, 2000 as a result of the factors discussed above. Net income for the
six months ended March 31, 2000 would have been $2.3 million lower had our
dispersion services agreement and fumed metal oxide supply agreement with Cabot
Corporation been in effect throughout the period.



                         LIQUIDITY AND CAPITAL RESOURCES

     We had cash flows from operating activities of $23.7 million in the six
months ended March 31, 2001 and $9.4 million in the six months ended March 31,
2000. Our cash provided by operating activities for the six months ended March
31, 2001 originated from net income from operations of $23.8 million plus
non-cash items of $10.3 million, offset by a net increase in working capital of
$10.4 million mostly from increases in inventory and decreases in income taxes
payable. Our principal funding requirements have been for working capital and
for additions to property, plant and equipment that support the expansion of our
business.

     In the six months ended March 31, 2001, cash flows used in investing
activities were $14.8 million, primarily due to the expansion of our Geino,
Japan manufacturing facility and the purchase of production and research and
development equipment in Aurora, Illinois. In the six months ended March 31,
2000, cash flows used in investing activities were $16.3 million, primarily due
to the construction of our Aurora, Illinois manufacturing building, the purchase
of land in Korea for a new distribution facility and the purchase of research
and development equipment.

     Cash flows from financing activities of $7.0 million for the six months
ended March 31, 2001 resulted from the issuance of common stock for the exercise
of stock options and the Employee Stock Purchase Plan. Cash flows from financing
activities for the six months ended March 31, 2000 were $6.9 million and
resulted from capital contributions from Cabot Corporation. During that period
we also borrowed $17.0 million under a term credit facility and paid the
proceeds of this borrowing to Cabot as a dividend.

     We have a $25 million unsecured revolving credit facility which terminates
on March 29, 2003. Interest is incurred at either the institution's base rate or
the LIBOR rate plus an applicable margin. We also have a $8.5 million revolving
line of credit which terminates on June 1, 2003. Interest is incurred at either
the institution's base rate or the Eurodollar rate plus an applicable margin.
Loans under both facilities will be used primarily for general corporate
purposes, including working capital and capital expenditures. No amounts were
outstanding under either line of credit at March 31, 2001 or September 30, 2000.

     We believe that cash generated by our operations and available borrowings
under our revolving credit facilities will be sufficient to fund our operations
and expected capital expenditures for the next 24 months. However, we plan to
expand our business and continue to improve our technology and, to do so, we may
be required to raise additional funds in the future through public or private
equity or debt financing, strategic relationships or other arrangements.



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                   FACTORS AFFECTING FUTURE OPERATING RESULTS

RISKS RELATING TO OUR BUSINESS

HISTORICAL FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF OUR RESULTS AS A
SEPARATE COMPANY.

     The historical financial information we have presented may not reflect what
our results of operations, financial position and cash flows would have been had
we been a separate, stand-alone entity for the six months ended March 31, 2000
and may not be indicative of what our results of operations, financial position
and cash flows will be in the future. As a result, information to evaluate our
business is limited. This is because:

-    when we were a division of Cabot Corporation, Cabot provided us with
     various services and allocated expenses for these services to us in amounts
     that may not have been the same as the expenses we would have incurred had
     we performed or acquired these services ourselves;

-    we have changed our fumed metal oxide supply and dispersion services
     arrangements with Cabot Corporation and the prices we are paying under our
     new arrangements are higher than the prices we paid prior to our initial
     public offering; and

-    the historical financial information for the periods prior to our initial
     public offering does not reflect other events and changes that have
     occurred or will occur as a result of our separation from Cabot
     Corporation, including the establishment of our capital structure, the
     incurrence of debt and changes in our expenses as a result of new employee,
     tax and other structures and matters.


WE HAVE A NARROW PRODUCT RANGE AND OUR PRODUCTS MAY BECOME OBSOLETE, OR
TECHNOLOGICAL CHANGES MAY REDUCE OR LIMIT INCREASES IN CMP CONSUMPTION

     Our business is substantially dependent on a single class of products, CMP
slurries, which historically has accounted for almost all of our revenue. 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
and improve our products in response to evolving customer needs and industry
trends. Since its inception, the semiconductor industry has experienced rapid
technological changes and advances in the design, manufacture, performance and
application of IC devices and these changes and advances are expected to
continue in the future.


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 THEM AS CUSTOMERS

     Our customer base is concentrated among a limited number of large
customers. One or more of these principal customers may stop buying CMP slurries
from us or may substantially reduce the quantity of CMP slurries they purchase
from us. Any cancellation, deferral or significant reduction in CMP slurries
sold to these principal customers or a significant number of smaller customers
could seriously harm our business, financial condition and results of
operations.

     For the six months ended March 31, 2001, our five largest customers
accounted for approximately 57% of our revenue. This represents a slight
increase over the six months ended March 31, 2000 in which our five largest
customers accounted for approximately 55% of revenue.


IF WE LOSE PENDING OR FUTURE INTELLECTUAL PROPERTY LAWSUITS RELATING TO OUR
BUSINESS, WE COULD BE LIABLE FOR SIGNIFICANT DAMAGES AND LEGAL EXPENSES AND
COULD BE ENJOINED FROM MANUFACTURING OUR SLURRY PRODUCTS




14



   15


     Cabot Corporation is currently the subject of two lawsuits against it
involving infringement claims relating to our business. If Cabot Corporation or
we were to lose these or future lawsuits, we could be liable for significant
damages and legal expenses and could be enjoined from manufacturing our slurry
products. Although Cabot Corporation is the only named defendant in these
lawsuits at present, the defense of which we have assumed and are now
controlling, we have agreed to indemnify Cabot Corporation for any and all
losses and expenses arising out of this litigation as well as any other
litigation arising out of our business. See "Footnote 8. - Contingencies", under
PART I, Item 1 - Notes to Financial Statements in this Quarterly Report on Form
10-Q for further discussion.

     In addition, we may be subject to future infringement claims by Rodel or
others with respect to our products and processes. These claims, even if they
are without merit, could be expensive and time consuming to defend and if we
were to lose any future infringement claims we could be subject to injunctions,
damages and/or royalty or licensing agreements. Royalty or licensing agreements,
if required as a result of any pending or future claims, may not be available to
us on acceptable terms or at all. Moreover, from time to time we agree to
indemnify certain of our customers for losses the customers may incur as a
result of intellectual property claims brought against them arising out of their
purchase or use of our products.


ANY PROBLEM OR INTERRUPTION IN OUR SUPPLY FROM CABOT CORPORATION OF FUMED METAL
OXIDES, OUR MOST IMPORTANT RAW MATERIALS, COULD DELAY OUR SLURRY PRODUCTION AND
ADVERSELY AFFECT OUR SALES

     Fumed metal oxides are the primary raw materials we use in many of our CMP
slurries. Our business would suffer from any problem or interruption in our
supply of fumed metal oxides. Cabot Corporation is currently our exclusive
supplier of certain fumed metal oxides for certain of our products. We have
entered into a fumed metal oxide supply agreement with Cabot Corporation, which
became effective upon completion of our initial public offering, and under
which, according to certain terms and conditions, Cabot continues to be our
exclusive supplier of certain fumed metal oxides for our slurry products
produced as of the date of the initial public offering. It may be difficult to
secure alternative sources of fumed metal oxides in the event Cabot Corporation
encounters supply problems.

     In addition, if we change the supplier or type of fumed metal oxides we use
to make our CMP slurries or are required to purchase them from a different Cabot
Corporation manufacturing facility, our customers might be forced to requalify
our CMP slurries for their manufacturing processes and products. The
requalification process would likely take a significant amount of time to
complete, during which our sales of CMP slurries to these customers could be
interrupted or reduced.

     We have also specifically engineered our slurry chemistries with the fumed
metal oxides currently used in the production of our CMP products. A change in
the fumed metal oxides we use to make our slurry products could require us to
modify our chemistries. This modification may involve a significant amount of
time and cost to complete and therefore have an adverse effect on our business
and sales.


OUR BUSINESS COULD BE SERIOUSLY HARMED IF OUR EXISTING OR FUTURE COMPETITORS
DEVELOP SUPERIOR SLURRY PRODUCTS OR OFFER BETTER PRICING TERMS OR SERVICE, OR IF
ANY OF OUR MAJOR CUSTOMERS DEVELOP IN-HOUSE SLURRY MANUFACTURING CAPABILITY

     Increased competition from current CMP slurry manufacturers, new entrants
to the CMP slurry market or a decision by any of our major customers to produce
slurry products in-house could seriously harm our business and results of
operations. Opportunities exist for companies with sufficient financial or
technological resources to emerge as potential competitors by developing their
own CMP slurry products. Some of our major customers, and some potential
customers, currently manufacture slurries in-house and others have the financial
and technological capability to do so. The existence or threat of increased
competition and in-house production could limit or reduce the prices we are able
to charge for our slurry products. In addition, our competitors may have or
obtain intellectual property rights which may restrict our ability to market our
existing products and/or to innovate and develop new products.


BECAUSE WE HAVE LIMITED EXPERIENCE IN MANUFACTURING AND SELLING CMP POLISHING
PADS AND SLURRIES FOR CMP POLISHING OF THE MAGNETIC HEADS IN HARD DISK DRIVES,
EXPANSION OF OUR BUSINESS INTO THESE AREAS AND APPLICATIONS MAY NOT BE
SUCCESSFUL




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   16
     An element of our strategy is to leverage our current customer
relationships and technological expertise to expand our business into new
product areas and applications, including manufacturing CMP polishing pads and
slurries for CMP polishing of the magnetic heads in hard disk drives. We have
had limited experience in developing and marketing these products, particularly
polishing pads, which involve technologies and production processes that are new
to us. We or the suppliers of the raw materials that we use to make our
polishing pads may not be able to solve any technological or production problems
that we or they may encounter. In addition, if we or these suppliers are unable
to keep pace with technological or other developments in the design and
production of polishing pads, we will probably not be competitive in the
polishing pad market For these reasons, the expansion of our business into these
new product areas or applications may not be successful.


WE ARE SUBJECT TO SOME RISKS ASSOCIATED WITH OUR FOREIGN OPERATIONS

     We currently have operations and a large customer base outside the United
States. For fiscal 2000, approximately 56% of our revenue was generated by sales
to customers outside the United States. For the six months ended March 31, 2001,
approximately 61% of our revenue was generated by sales to customers outside the
United States. We encounter risks in doing business in foreign countries. These
risks include, but are not limited to, adverse changes in economic and political
conditions, as well as the difficulty in enforceability of business and customer
contracts and agreements, including protection of intellectual property rights.


RISKS RELATING TO OUR SEPARATION FROM CABOT CORPORATION

WE CURRENTLY USE CABOT CORPORATION'S INFORMATION TECHNOLOGY SERVICES AND SYSTEMS
AND OUR ABILITY TO SATISFY OUR CUSTOMERS AND OPERATE OUR BUSINESS WILL SUFFER IF
WE DO NOT IMPLEMENT A NEW COST EFFECTIVE INFRASTRUCTURE TO SUPPORT OUR EXPANDING
BUSINESS NEEDS

     We currently use duplicated versions of Cabot Corporation's systems to
support our operations, including systems covering order processing, inventory
management, shipping and accounting. Many of these systems were not optimized
for our business processes. We have initiated a project to implement new systems
to replace the duplicated versions of Cabot's systems within the next 12 months.
We may not be successful in implementing these systems and transitioning data
from the duplicated versions of Cabot's systems to our new systems. We continue
to rely upon the network infrastructure provided and maintained by Cabot.


A NUMBER OF OUR DIRECTORS MAY HAVE CONFLICTS OF INTEREST BECAUSE THEY ARE ALSO
DIRECTORS OR EXECUTIVE OFFICERS OF CABOT CORPORATION OR OWN CABOT CORPORATION
STOCK

     Three members of our board of directors are directors and/or executive
officers of Cabot Corporation. Our directors who are also directors and/or
executive officers of Cabot Corporation have obligations to both companies and
may have conflicts of interest with respect to matters involving or affecting
us, such as acquisitions and other corporate opportunities that may be suitable
for both us and Cabot, as well as related party transactions and intercompany
agreements between us and Cabot such as our fumed metal oxide and dispersion
services agreements. In addition, a number of our directors and executive
officers own Cabot stock and options on Cabot stock they acquired as employees
of Cabot. This ownership could create, or appear to create, potential conflicts
of interest when these directors and officers are faced with decisions that
could have different implications for our company and Cabot.


WE MAY HAVE CONFLICTS WITH CABOT CORPORATION WITH RESPECT TO OUR PAST AND
ONGOING RELATIONSHIPS

     Conflicts of interest may arise between Cabot Corporation and us in a
number of areas relating to our past and ongoing relationships. We may have
conflicts with Cabot Corporation that we cannot resolve and, even if we are able
to do so, the resolution of these conflicts may not be as favorable as if we
were dealing with a party with whom we had never been affiliated. For example,
Cabot continues to be our exclusive supplier, subject to certain terms and
conditions, of certain fumed metal oxides for our slurry products produced as of
the date of our initial public offering under a fumed metal oxide supply
agreement between Cabot and our company. This and other agreements were

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   17

made in the context of an affiliated relationship and were negotiated in the
overall context of our separation from Cabot. The prices and other terms under
these agreements may be less favorable to us than what we could have obtained
in arm's-length negotiations with unaffiliated third parties for similar
services or under similar agreements. It is particularly difficult to assess
whether the price for fumed metal oxides provided under our fumed metal oxide
supply agreement with Cabot is the same as or different from the price we could
have obtained in arm's-length negotiations with an unaffiliated third party in
light of the long-term nature of the contract, the volumes provided for under
the agreement and our particular quality requirements.


WE FACE RISKS ASSOCIATED WITH BEING A MEMBER OF CABOT CORPORATION'S CONSOLIDATED
GROUP FOR FEDERAL INCOME TAX PURPOSES

     For the period prior to the spin-off from Cabot Corporation, we will be
included in Cabot's consolidated group for federal income tax purposes. Under a
tax sharing agreement with Cabot, we will pay Cabot the amount of federal, state
and local income taxes we would be required to pay to the relevant taxing
authorities if we were a separate taxpayer not included in Cabot's consolidated
or combined returns. In addition, by virtue of its controlling ownership and the
tax sharing agreement for the period of time up to September 29, 2000, Cabot
will effectively control substantially all of our tax decisions for that time
period. Under the tax sharing agreement, Cabot will have sole authority to
respond to and conduct all tax proceedings including tax audits relating to
Cabot consolidated or combined income tax returns in which we are included.
Moreover, notwithstanding the tax sharing agreement, federal law provides that
each member of a consolidated group is liable for the group's entire tax
obligation. Thus, to the extent Cabot or other members of the group fail to make
any federal income tax payments required of them by law, we could be liable for
the shortfall. Similar principles may apply for state income tax purposes in
many states.


IF THE SPIN-OFF IS NOT TAX-FREE, WE COULD BE LIABLE TO CABOT CORPORATION FOR THE
RESULTING TAXES

     On September 29, 2000, Cabot Corporation effected the spin-off of Cabot
Microelectronics by distributing 0.280473721 shares of our common stock as a
dividend on each share of Cabot Corporation common stock outstanding on
September 13, 2000, or an aggregate of 18,989,744 shares of our common stock. We
have agreed to indemnify Cabot Corporation in the event the spin-off is not
tax-free to Cabot as a result of various actions taken by or with respect to us
or our failure to take various actions, all as set forth in our tax sharing
agreement with Cabot. We may not be able to control some of the events that
could trigger this liability. In particular, any acquisition of us by a third
party within two years of the spin-off could result in the spin-off becoming a
taxable transaction and give rise to our obligation to indemnify Cabot for any
resulting tax liability.


RISKS RELATING TO THE MARKET FOR OUR COMMON STOCK

THE MARKET PRICE MAY FLUCTUATE WIDELY AND RAPIDLY

     The market price of our common stock could fluctuate significantly as a
result of factors such as: economic and stock market conditions generally and
specifically as they may impact participants in the semiconductor industry;
changes in financial estimates and recommendations by securities analysts
following our stock; earnings and other announcements by, and changes in market
evaluations of, participants in the semiconductor industry; changes in business
or regulatory conditions affecting participants in the semiconductor industry;
announcements or implementation by us or our competitors of technological
innovations or new products; and trading volume of our common stock.

     The securities of many companies have experienced extreme price and volume
fluctuations in recent years, often unrelated to the companies' operating
performance. Specifically, market prices for securities of technology related
companies have frequently reached elevated levels, often following their initial
public offerings. These levels may not be sustainable and may not bear any
relationship to these companies' operating performances. In the past, following
periods of volatility in the market price of a company's securities,
stockholders have often instituted securities class action litigation against a
company. If we were involved in a class action suit, it could divert the
attention of senior management, and, if adversely determined, have a negative
impact on our business, results of operations and financial condition.



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   18



ITEM 3.  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. Our foreign 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 British Pound.
Our exposure to foreign currency exchange risks has not been significant because
a significant portion of our foreign sales are denominated in U.S. dollars. As
foreign markets become a more significant portion of our business, we have begun
to enter into forward contracts in an effort to manage foreign currency exchange
exposure. Approximately 15% of our revenue is transacted in currencies other
than the U.S. dollar. We currently do not enter into forward exchange contracts
for speculative or trading purposes.


MARKET RISK AND SENSITIVITY ANALYSIS FOREIGN EXCHANGE RATE RISK

     We have performed a sensitivity analysis assuming a hypothetical 10%
adverse movement in foreign exchange rates. As of March 31, 2001, the analysis
demonstrated that such market movements would not have a material adverse effect
on our 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. We believe that our exposure to foreign
currency exchange rate risk at March 31, 2001 was not material.


PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     Legal proceedings are discussed in "Footnote 8. - Contingencies", under
PART I, Item 1 - Notes to Financial Statements and such discussion is
incorporated herein by reference.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     At the annual meeting of stockholders of Cabot Microelectronics held on
March 13, 2001, the following proposals were adopted:

Proposal I - Election of Directors

                     Number of Votes For Election    Number of Votes Withheld
                     ----------------------------    -------------------------

Juan Enriquez-Cabot           21,404,688                      487,116
William P. Noglows            21,313,275                      578,529


Proposal II - Approval of Amended and Restated Cabot Microelectronics
Corporation 2000 Equity Incentive Plan

     A proposal to approve our Amended and Restated Cabot Microelectronics
Corporation 2000 Equity Incentive Plan was approved with 10,844,949 shares cast
for, 7,693,378 shares cast against and 251,625 shares abstaining. In addition,
there were 3,101,851 broker non-votes.



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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

         (a)     Exhibits

                 The exhibit numbers in the following list correspond to the
                 number assigned to such exhibits in the Exhibit Table of Item
                 601 of Regulation S-K:

                       EXHIBIT
                       NUMBER      DESCRIPTION

                       10.14       Amended and Restated 2000 Equity Incentive
                                   Plan, dated March 13, 2001.*

                       10.23(1)    Form of Change in Control Severance
                                   Protection Agreement

                       10.28       Directors Deferred Compensation Plan.*


                 * Management contract, or compensatory plan or arrangement.

                 (1) Filed as Exhibit 10.23 to, and incorporated by reference
                 from the Registrant's Annual Report on Form 10-K filed with the
                 commission on December 28, 2000. Substantially similar change
                 in control severance protection agreements have been entered
                 into in our second fiscal quarter of 2001 with Martin M. Ellen,
                 Hiroyuki Nishiya, Daniel S. Wobby and certain other key
                 employees, with differences in the amount of payments, benefits
                 and particular terms and conditions to be received by such
                 persons.


         (b)     Reports on Form 8-K

              In a report dated March 12, 2001, Cabot Microelectronics reported
         under Item 9. "Regulation FD Disclosure" and Item 7. "Financial
         Statements and Exhibits" that on March 12, 2001 Cabot Microelectronics
         updated its outlook for its financial performance for the second
         fiscal quarter of 2001.



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                                   SIGNATURES

Pursuant to the requirements 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.

                                   CABOT MICROELECTRONICS CORPORATION


Date: May 14, 2001                 /s/ MARTIN M. ELLEN
                                   --------------------------------------------
                                   Martin M. Ellen
                                   Vice President and Chief Financial Officer
                                   [Principal Financial Officer]


Date: May 14, 2001                 /s/ DANIEL S. WOBBY
                                   --------------------------------------------
                                   Daniel S. Wobby
                                   Corporate Controller
                                   [Principal Accounting Officer]



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