KMG CHEMICALS INC

We have facilities in the United States, Canada, Mexico, Europe and Singapore, and generate a significant portion of our sales in foreign countries. Like other companies with foreign operations and sales, we are exposed to market risks relating to fluctuations in foreign currency exchange rates. At this time, the Euro, the Great Britain Pound and Singapore Dollars are the functional currencies of our operations in Europe and Asia. We are also exposed to risks associated with changes in the laws and policies governing foreign investments in Mexico, Europe and Asia, and to a lesser extent, changes in United States laws and regulations relating to foreign trade and investment. On June 23, 2016, the United Kingdom (U.K.) held a referendum in which voters approved an exit from the European Union, commonly referred to as “Brexit.” In February 2017, the British Parliament voted in favor of allowing the British government to begin negotiating the terms of the U.K.’s withdrawal from the European Union and discussions with the European Union began in March 2017. The U.K. will cease to be a member state when a withdrawal agreement is entered into (such agreement will also require parliamentary approval) or, failing that, two years following the notification of an intention to leave the European Union, unless the European Union (together with the U.K.) unanimously decides to extend this period. On March 29, 2017, the U.K. formally notified the European Union of its intention to leave the European Union. In March 2018, the European Union announced an agreement in principle to transitional provisions under which most European Union law would remain in force in the U.K. until the end of December 2020, however, this transitional period remains subject to the successful conclusion of a final withdrawal agreement between the parties. In the absence of such an agreement, there would be no transitional provisions and a “hard” Brexit would occur on March 29, 2019. Although it is unknown what the terms of such an agreement will be, it is possible that there will be greater

restrictions on imports and exports between the U.K. and European Union countries, a fluctuation in currency exchange rates and increased regulatory complexities. These changes may adversely affect our operations and financial results. While such changes in laws, regulations and conditions have not had a material adverse effect on our business or financial condition to date, we cannot assure you as to the future effect of any such changes.

Shortly after the Tax Act was enacted, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) which provides guidance on accounting for the Tax Act’s impact. In accordance with SAB 118, a company must reflect the income tax effects of the Tax Act in the reporting period in which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

The Company’s accounting for the following elements of the Tax Act is incomplete. However, the Company was able to make reasonable estimates of certain effects and, therefore, recorded provisional adjustments as follows:

As of July 31, 2018 and 2017, the Company has recorded a valuation allowance of $0.6 million and $1.8 million related to some of the Company’s European and Asian tax jurisdictions and certain state net operating loss carryforwards. In assessing whether a deferred tax asset will be realized, the Company considers whether it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company considers the reversal of existing taxable temporary differences, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, the Company believes it is more likely than not that it will realize the benefits of these deductible differences, net of the existing valuation allowances, as of July 31, 2018.

On September 24, 2018, a putative shareholder class action was filed in the United States District Court for the Northern District of Texas styled Richard Walter, individually and on behalf of all others similarly situated, v. KMG Chemicals, Inc., et. al., No. 4:18-cv-00785 (the “Walter Lawsuit”). The Walter Lawsuit names as defendants the Company and the members of its Board of Directors. The Walter Lawsuit asserts claims for alleged violation of Section 14(a) of the Exchange Act based on allegations that the Registration Statement on Form S-4 filed by Cabot Microelectronics with the SEC on September 12, 2018 in connection with the Merger is materially incomplete and misleading. The Walter Lawsuit further alleges that the Company’s directors violated Section 20(a) of the Exchange Act as alleged control persons. The Walter Lawsuit seeks, among other things, injunctive relief barring the defendants from holding a shareholder vote on the Merger or from consummating the Merger until they have issued adequate disclosures and monetary relief that is not quantified. The Company believes the allegations are without merit.