Cabot Announces Second Quarter Operating Results

April 25, 2007

BOSTON, April 25 /PRNewswire-FirstCall/ -- Cabot Corporation (NYSE: CBT) today announced net income of $37 million after-tax ($0.54 per diluted common share) for the second quarter of 2007, including $5 million after-tax ($0.08 per diluted common share) of charges from certain items, compared to net income of $12 million after-tax ($0.17 per diluted common share) for the second quarter of fiscal 2006, including $20 million after-tax ($0.29 per diluted common share) of charges from certain items. Details of financial results and certain items included in net income are provided in the accompanying tables.

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In commenting on the results, Kennett F. Burnes, Cabot's Chairman and CEO, said, "We are very pleased with our second quarter financial results. We had strong volume growth in most of our businesses, and we continued to benefit during the quarter from our recent capacity additions in China in both carbon black and fumed silica. In addition, lower carbon black feedstock costs and the timing of pricing adjustments in our supply contracts favorably impacted results in rubber blacks and performance products during the quarter, albeit not as significantly as in the first quarter of 2007. Inkjet colorants' results improved significantly as a strong increase in volumes led to a recovery from a weak first quarter of 2007. Specialty Fluids maintained a solid utilization level compared to the prior year but declined somewhat following a strong first quarter of 2007. These strong results were dampened a bit by weaker than anticipated performance in the Supermetals Business as the expiration of our final significant long-term supply contract and some unanticipated costs led to a slight loss in this Business for the quarter."

Product Line Performance

Unit margins in both rubber blacks and performance products increased when compared to the second quarter of 2006, in part because of the time lag in our feedstock related pricing adjustments on contracted business. Volume increases in both product lines, 3% in rubber blacks and 7% in performance products, combined with lower feedstock and natural gas costs and favorable foreign currency translation to more than offset increased fixed costs of new capacity, leading to improved performance when compared to the second quarter of 2006. Sequentially, the impact of strong volume growth, 7% in rubber blacks and 10% in performance products, was almost entirely offset by lower unit margins as price declines driven by our contracted business outpaced raw material cost decreases. Therefore, in combination with a small increase in operating costs and administrative expenses, profitability declined slightly compared to the first quarter of 2007.

In inkjet colorants, volumes increased by 7% compared to the same quarter a year ago, and by 31% compared to the first quarter of 2007. Volumes in both the aftermarket and OEM market segments improved compared to the first quarter of 2007, leading to a significant increase in profitability. However, softness in the aftermarket and increased competition in the small office home office (SOHO) market segment continues to impact the product line. Costs associated with new production capacity, which is not yet fully commercially utilized, and increased R&D expenses unfavorably impacted the results of the product line compared to the second quarter of 2006.

Fumed silica volumes grew by 7% and 4% when compared to the second quarter of 2006 and the first quarter of 2007, respectively, as growth in the silicones and niche segments more than offset declines in the electronics segment when compared to both periods. When compared to the second quarter of 2006, the profitability of the product line improved as strong volumes, lower average feedstock costs from our new fumed silica capacity in China and lower hydrogen costs more than offset increased R&D and administrative expenses and higher fixed manufacturing costs related to new capacity. Sequentially, profitability decreased slightly as the positive impact of increased volumes was offset by higher raw material costs and increased R&D and administrative expenses.

The performance of the Supermetals Business decreased significantly when compared to both the second quarter of 2006 and the first quarter of 2007. When compared to both periods, the Business experienced lower volumes and pricing as the transition from contracted to market based sales was completed in December 2006. Compared to the second quarter of 2006, we have replaced nearly 70% of contracted volumes with market based sales. Sequentially, volumes decreased by 25% as the Business experienced the effects of both the loss of contracted volumes and some weakness in the electronics industry. Unfavorable product mix, the timing of certain costs and an unanticipated increase in a number of expenses also reduced profitability during the quarter.

In the Specialty Fluids Business, profitability decreased when compared to both the second quarter of 2006 and the first quarter of 2007. When compared to the second quarter of 2006, the Business maintained its fluid utilization level, with an increase in rental revenue offset by a lower volume of fluid sold. Increased engineering and global marketing costs caused profitability to decline slightly. Sequentially, normal seasonality in rental revenue and volume of fluid sold caused a decrease in the fluid utilization rate from an exceptionally strong first quarter of 2007.

Outlook

With respect to the future, Burnes said, "We anticipate that the benefit associated with the timing of pricing adjustments in our carbon black contracts has been realized, and we continue to watch feedstock costs closely as their volatility inevitably impacts our results. We are optimistic about carbon black volume growth outside of North America, but remain cautious about demand in North America. We anticipate continued solid performance from our fumed silica product line, particularly in the silicones and niche markets, and from our new capacity in China. Despite a weak second quarter and some concerns over market volumes for the remainder of the year, we expect the Supermetals Business to improve from this quarter's results and be profitable for the balance of the year. We also continue to develop additional cost reduction opportunities to improve performance in this Business. We optimistically await the results of near term customer launches in the high- speed segment of the inkjet market and will monitor progress over the second half of the year to ensure that we are well positioned to commission new capacity in a timely manner to serve demand. Our new businesses continue to make progress in market development and operational activities and we remain optimistic about their growth for the remainder of this year and beyond."

For those interested in more detailed information regarding Cabot's second quarter 2007 results, please see the Supplemental Business Information available on the Company's website in the Investor Relations section: http://investor.cabot-corp.com.

This press release includes forward-looking statements, particularly under the outlook section, relating to management's expectations regarding volume growth of our carbon black business outside of the North American region, performance in the fumed silica product line, improvement in results in the Supermetals Business and profitability of that Business, and growth in the new businesses. The following are some of the factors that could cause Cabot's actual results to differ materially from those expressed in the forward- looking statements: changes in feedstock costs; lower than expected demand for our products; our inability to achieve savings from cost reduction activities; our inability to maintain and grow our position in the small office, home office printing market and to participate in the growth in emerging inkjet applications; unexpected delays in drilling operations at wells awarded to the Specialty Fluids Business and the success of this Business in gaining wider acceptance by the energy industry of cesium formate as a drilling fluid and to penetrate new markets (including development of the required logistics to reach remote markets); and the timely customer acceptance of products from recent capacity expansion projects. Other factors and risks are discussed in the Company's 2006 Annual Report on Form 10-K and subsequent filings with the Securities and Exchange Commission.

Cabot Corporation is a global specialty chemicals and materials company headquartered in Boston, MA. Cabot's major products are carbon black, fumed silica, inkjet colorants, capacitor materials, and cesium formate drilling fluids.

Contact: Susannah R. Robinson
Director, Investor Relations
(617) 342-6129


    Second Quarter Earnings Announcement, Fiscal 2007


    CABOT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS

    Periods ended March 31
    Dollars in millions, except per         Three Months      Six Months
     share amounts (unaudited)              2007    2006     2007     2006

    Net sales and other operating
     revenues                               $637    $627   $1,292   $1,214
    Cost of sales                            499     542    1,005    1,023
      Gross profit                           138      85      287      191

    Selling and administrative expenses       63      59      117      117
    Research and technical expenses           17      14       32       27
      Income from operations                  58      12      138       47

    Other income and expense
      Interest and dividend income             3       1        5        3
      Interest expense                        (9)     (7)     (18)     (13)
      Other income (expense)                  (1)      6        1        2
       Total other income and expense         (7)      -      (12)      (8)

    Income from continuing operations
     before income taxes                      51      12      126       39

    Provision for income taxes               (15)     (1)     (34)      (5)
    Equity in net income of affiliated
     companies, net of tax                     3       4        6        7

    Minority interest in net income, net
     of tax                                   (2)     (3)      (7)      (7)

    Net income from continuing operations     37      12       91       34

    Cumulative effect of an accounting
     change, net of tax                        -       -        -        2

    Net income                                37      12       91       36
    Dividends on preferred stock, net of
     tax benefit                              (1)      -       (1)      (1)
    Net income available to common shares    $36     $12      $90      $35

    Diluted earnings per share of common
     stock
      Income from continuing operations    $0.54   $0.17    $1.33    $0.48
      Cumulative effect of an accounting
       change, net of tax                      -       -        -     0.04
       Net income                          $0.54   $0.17    $1.33    $0.52

    Weighted average common shares
     outstanding
      Diluted                                 69      69       69       69



    Second Quarter Earnings Announcement, Fiscal 2007


    CABOT CORPORATION SUMMARY RESULTS BY SEGMENTS


    Periods ended March 31
    Dollars in millions, except per         Three Months      Six Months
     share amounts (unaudited)              2007    2006     2007     2006

    SALES

    Carbon Black Business (A)               $493    $476     $978     $895
      Rubber blacks                          346     346      697      644
      Performance products                   134     117      257      226
      Inkjet colorants                        13      12       23       23
      Superior MicroPowders                    -       1        1        2

    Metal Oxides Business                     68      62      133      119
      Fumed metal oxides                      68      62      133      119
      Aerogel                                  -       -        -        -

    Supermetals Business                      53      67      130      160

    Specialty Fluids Business                 10      11       26       21
      Segment sales                          624     616    1,267    1,195

    Unallocated and other (B)                 13      11       25       19
      Net sales and other operating
       revenues                             $637    $627   $1,292   $1,214

    SEGMENT PROFIT

    Carbon Black Business                    $57     $26     $111      $47

    Metal Oxides Business                     10       5       19        7

    Supermetals Business                      (2)     12       14       23

    Specialty Fluids Business                  3       4       11        8

      Total Segment Profit (C)                68      47      155       85

    Interest expense                          (9)     (7)     (18)     (13)
    General unallocated expense (D)           (5)    (24)      (5)     (26)
    Less: Equity in net income of
     affiliated companies, net of tax         (3)     (4)      (6)      (7)

    Income from continuing operations
     before income taxes                      51      12      126       39

    Provision for income taxes               (15)     (1)     (34)      (5)

    Equity in net income of affiliated
     companies, net of tax                     3       4        6        7

    Minority interest in net income, net
     of tax                                   (2)     (3)      (7)      (7)

     Income from continuing operations        37      12       91       34

    Cumulative effect of an accounting
     change, net of tax (E)                    -       -        -        2

    Net income                                37      12       91       36

    Dividends on preferred stock, net of
     tax benefit                              (1)      -       (1)      (1)

    Net income available to common shares    $36     $12      $90      $35


    Diluted earnings per share of common
     stock
      Income from continuing operations    $0.54   $0.17    $1.33    $0.48

      Cumulative effect of an accounting
       change, net of tax (E)                -       -        -       0.04

      Net income                           $0.54   $0.17    $1.33    $0.52

    Weighted average common shares
     outstanding

      Diluted                                 69      69       69       69


    (A) Segment sales for certain operating segments within the Carbon Black
        Business include 100% of sales of one equity affiliate at market-
        based prices.

    (B) Unallocated and other reflects an elimination for sales of one equity
        affiliate offset by royalties paid by equity affiliates and external
        shipping and handling fees.

    (C) Segment profit is a measure used by Cabot's operating decision-makers
        to measure consolidated operating results and assess segment
        performance.  Segment profit includes equity in net income of
        affliliated companies and excludes royalties paid by equity
        affiliates, minority interest and allocated corporate costs.

    (D) General unallocated expense includes foreign currency transaction
        gains (losses), interest income, dividend income, and the certain
        items listed in Exhibit I.

    (E) Cumulative benefit of an accounting change for implementation of FAS
        123 (R), net of tax.



    Second Quarter Earnings Announcement, Fiscal 2007


    CABOT CORPORATION CONDENSED CONSOLIDATED FINANCIAL POSITION



                                               March 31     September 30,
                                                 2007           2006
    Dollars in millions, except share and     (unaudited)    (audited)
    per share amounts

    Current assets:

      Cash and cash equivalents                  $248           $189
      Short-term marketable securities             21              1
      Accounts and notes receivable, net
       of reserve for doubtful accounts
       of $5 and $6                               541            534
      Inventories:
           Raw materials                          137            131
           Work in process                         99            109
           Finished goods                         149            139
           Other                                   43             41
                Total inventories                 428            420
      Prepaid expenses and other current
       assets                                      78             75
      Deferred income taxes                        34             36
           Total current assets                 1,350          1,255

    Investments:
      Equity affiliates                            59             59
      Long-term marketable securities and
       cost investments                             2              3
           Total investments                       61             62

    Property, plant and equipment               2,616          2,531
    Accumulated depreciation and
     amortization                              (1,657)        (1,567)
         Net property, plant and
          equipment                               959            964

    Other assets:
      Goodwill                                     33             31
      Intangible assets, net of
       accumulated amortization of $10
       and $10                                      4              5
      Assets held for rent                         42             40
      Deferred income taxes                        97            100
      Other assets                                 79             77
           Total other assets                     255            253

    Total assets                               $2,625         $2,534



    Second Quarter Earnings Announcement, Fiscal 2007


    CABOT CORPORATION CONDENSED CONSOLIDATED FINANCIAL POSITION



                                                March 31    September 30,
                                                   2007         2006
    Dollars in millions, except share and      (unaudited)   (audited)
    per share amounts

    Current liabilities:

      Notes payable to banks                      $69            $58
      Accounts payable and accrued
       liabilities                                379            384
      Income taxes payable                         38             27
      Deferred income taxes                         2              2
      Current portion of long-term debt            18             34
           Total current liabilities              506            505

    Long-term debt                                442            459
    Deferred income taxes                          19             20
    Other liabilities                             290            286

    Minority interest                              68             68

    Stockholders' equity:
      Preferred stock:
        Authorized:  2,000,000 shares of
         $1 par value
            Series B ESOP Convertible
             Preferred Stock 7.75%
             Cumulative
               Authorized: 200,000 shares
               Issued: 50,580 and 55,895
                shares                             50             56
               Outstanding: 33,419 and
                38,734 shares (aggregate
                redemption value of $33
                and $39 at $1,000 per
                share)
               Less cost of 17,161 shares
                of preferred treasury
                stock                             (38)           (38)
      Common stock:
        Authorized:  200,000,000 shares
         of $1 par value
        Issued: 64,506,134 and 63,579,040
         shares                                    65             64
        Outstanding: 64,361,188 and
         63,432,651 shares
        Less cost of 144,946 and 146,389
         shares of common treasury stock           (5)            (5)
    Additional paid-in capital                     29              7
    Retained earnings                           1,228          1,160
    Deferred employee benefits                    (36)           (38)
    Notes receivable for restricted stock         (19)           (20)
    Accumulated other comprehensive
     income                                        26             10
           Total stockholders' equity           1,300          1,196

    Total liabilities and stockholders'
     equity                                    $2,625         $2,534



    CABOT CORPORATION
                                                       Fiscal  2006
    In millions,
    except per share amounts                 Dec.   Mar.  June   Sept.
    (unaudited)                               Q.     Q.     Q.    Q.     FY

    Sales
    Carbon Black Business (A)               $419   $476   $514   $508  $1,917
       Rubber blacks                         298    346    367    367   1,378
       Performance products                  109    117    134    128     488
       Inkjet colorants                       11     12     12     12      47
       Superior MicroPowders                   1      1      1      1       4
    Metal Oxides Business                     57     62     66     69     254
       Fumed metal oxides                     57     62     65     69     253
       Aerogel                               -        -      1      -       1
    Supermetals Business                      93     67     66     66     292
    Specialty Fluids Business                 10     11     12     11      44
       Segment Sales                         579    616    658    654   2,507
    Unallocated and other (B)                  8     11      8      9      36

    Net sales and other operating revenues  $587   $627   $666   $663  $2,543

    Segment Profit
    Carbon Black Business(C)                 $21    $26    $23    $31    $101
    Metal Oxides Business(C)                   2      5      6      9      22
    Supermetals Business                      11     12      9      9      41
    Specialty Fluids Business                  4      4      5      3      16
       Total Segment Profit (D)               38     47     43     52     180

    Income from operations
    Interest expense                          (6)    (7)    (6)    (8)    (27)
    General unallocated expense (E)           (2)   (24)    (2)   (16)    (44)
    Less: Equity in net income of
     affiliated companies, net of tax         (3)    (4)    (1)    (4)    (12)

    Income from continuing operations
     before income taxes                      27     12     34     24      97
    (Provision) benefit for income taxes      (4)    (1)    (8)     4      (9)
    Equity in net income of affiliated
     companies, net of tax                     3      4      1      4      12
    Minority interest in net income, net
     of tax                                   (4)    (3)    (2)    (3)    (12)

    Net income from continuing operations     22     12     25     29      88
    Cumulative effect of accounting
     changes, net of tax (F)                   2      -      -     (4)     (2)
    Discontinued operations (G)                -      -      -      2       2

    Net income                                24     12     25     27      88
    Dividends on preferred stock, net of
     tax benefit                              (1)     -     (1)     -      (2)

       Net income available to common
        shares                               $23    $12    $24    $27     $86

    Diluted earnings per share of common
     stock
    Net income from continuing operations  $0.31  $0.17  $0.37  $0.43   $1.28
    Cumulative effects of accounting
     changes, net of tax (F)                0.04    -      -    (0.07)  (0.03)
    Discontinued operations (G)              -      -      -     0.03    0.03
    Net income                             $0.35  $0.17  $0.37  $0.39   $1.28
    Weighted average common shares
     outstanding
    Diluted                                   68     69     69     68      68


                                                        Fiscal  2007
    In millions,
    except per share amounts               Dec.   Mar.   June   Sept.
    (unaudited)                             Q.     Q.      Q.     Q.     FY

    Sales
    Carbon Black Business (A)              $485   $493                  $978
       Rubber blacks                        351    346                   697
       Performance products                 123    134                   257
       Inkjet colorants                      10     13                    23
       Superior MicroPowders                  1      -                     1
    Metal Oxides Business                    65     68                   133
       Fumed metal oxides                    65     68                   133
       Aerogel                                -      -                   -
    Supermetals Business                     77     53                   130
    Specialty Fluids Business                16     10                    26
       Segment Sales                        643    624                 1,267
    Unallocated and other (B)                12     13                    25

    Net sales and other operating
     revenues                              $655   $637                $1,292

    Segment Profit
    Carbon Black Business(C)                $54    $57                  $111
    Metal Oxides Business(C)                  9     10                    19
    Supermetals Business                     16     (2)                   14
    Specialty Fluids Business                 8      3                    11
       Total Segment Profit (D)              87     68                   155

    Income from operations
    Interest expense                         (9)    (9)                  (18)
    General unallocated expense (E)           -     (5)                   (5)
    Less: Equity in net income of
     affiliated companies, net of tax        (3)    (3)                   (6)

    Income from continuing operations
     before income taxes                     75     51                   126
    (Provision) benefit for income taxes    (19)   (15)                  (34)
    Equity in net income of affiliated
     companies, net of tax                    3      3                     6
    Minority interest in net income, net
     of tax                                  (5)    (2)                   (7)

    Net income from continuing operations    54     37                    91
    Cumulative effect of accounting
     changes, net of tax (F)                  -      -                     -
    Discontinued operations (G)               -      -                     -

    Net income                               54     37                    91
    Dividends on preferred stock, net of
     tax benefit                              -     (1)                   (1)

       Net income available to common
        shares                              $54    $36                   $90

    Diluted earnings per share of common
     stock
    Net income from continuing operations $0.79  $0.54                 $1.33
    Cumulative effects of accounting
     changes, net of tax (F)                 -      -                      -
    Discontinued operations (G)              -      -                      -
    Net income                            $0.79  $0.54                 $1.33
    Weighted average common shares
     outstanding
    Diluted                                  69     69                    69


    (A) Segment sales for certain operating segments within the Carbon Black
        Business include 100% of sales of one equity affiliate at market-based
        prices.

    (B) Unallocated and other reflects an elimination for sales for one equity
        Baffiliate offset by royalties paid by equity affiliates and external
        shipping and handling fees.

    (C) The fourth quarter and fiscal year end 2006 amounts include a
        reclassification of $4 million of profit from the Carbon Black segment
        to the Metal Oxides segment.  This reclassification was deemed to be
        immaterial for purposes of the annual segment reporting in the
        September 30, 2006 consolidated financial statements.

    (D) Segment profit is a measure used by Cabot's operating decision-makers
        to measure consolidated operating results and assess segment
        performance. Segment profit includes equity in net income of
        affiliated companies, royalties paid by equity affiliates, minority
        interest and allocated corporate costs.

    (E) General unallocated expense includes foreign currency transaction
        gains (losses), interest income, dividend income and certain items
        listed in Exhibit I.

    (F) Amounts relate to the cumulative benefit resulting from the adoption
        of FAS 123(R) in the first quarter of 2006 of $0.04 and the cumulative
        expense resulting from the adoption of FIN 47 in the fourth quarter of
        2006 of ($0.07).

    (G) Amount relates to a favorable tax settlement recognized during the
        period from our discontinued liquified natural gas business.



    Second Quarter Earnings Announcement, Fiscal 2007


    CABOT CORPORATION  CERTAIN ITEMS - Exhibit I


    Periods ended March 31                          Three Months
    Dollars in millions, except per
     share amounts (unaudited)              2007    2007     2006      2006
                                              $      per      $         per
                                                   share(A)          share(A)

    Certain items before income taxes

    Environmental reserves/settlement       $(5)   $(0.06)     $-        $-

    Restructuring initiatives - Global       (2)    (0.02)      -         -

    Restructuring initiatives - Altona        -         -      (2)    (0.02)

    Cost reduction initiatives                -         -      (2)    (0.02)

    Gwalia settlement payment                 -         -     (27)    (0.25)

     Total certain items                     (7)    (0.08)    (31)    (0.29)

    Cumulative effect of an accounting
     change (B)                               -         -       -         -

     Total certain items and cumulative
      effect of an accounting change         (7)    (0.08)    (31)    (0.29)

    Tax impact of certain items and
     cumulative effect of an accounting
     change                                   2       -        11       -

    Total certain items and cumulative
     effect of an accounting change,
     after tax                              $(5)   $(0.08)   $(20)   $(0.29)



    Periods ended March 31                           Six Months
    Dollars in millions, except per
     share amounts (unaudited)              2007     2007     2006     2006
                                             $       per        $       per
                                                    share(A)          share(A)

    Certain items before income taxes

    Environmental reserves/settlement       $(5)   $(0.06)     $-        $-

    Restructuring initiatives - Global       (4)    (0.04)      -         -

    Restructuring initiatives - Altona       (1)    (0.01)     (3)    (0.03)

    Cost reduction initiatives                -         -      (3)    (0.03)

    Gwalia settlement payment                 -         -     (27)    (0.25)

     Total certain items                    (10)    (0.11)    (33)    (0.31)

    Cumulative effect of an accounting
     change (B)                               -         -       4      0.04

     Total certain items and cumulative
      effect of an accounting change        (10)    (0.11)    (29)    (0.27)

    Tax impact of certain items and
     cumulative effect of an accounting
     change                                   3         -      10         -

    Total certain items and cumulative
     effect of an accounting change,
     after tax                              $(7)   $(0.11)   $(19)   $(0.27)



    Periods ended March 31                Three Months         Six Months
    Dollars in millions
     (unaudited)                          2007   2006          2007   2006

    Statement of Operations Line Item

    Net sales and other
     operating revenues                    $-     $1            $-     $1

    Cost of sales                           6    (30)            8    (30)

    Selling and administrative
     expenses                               1     (2)            2     (4)

                  Total certain items      $7    $(31)          $10  $(33)



    Periods ended March 31                Three Months         Six Months
    Dollars in millions
     (unaudited)                           2007   2006         2007   2006

    Certain items by Segment

    Carbon Black Business                   $4    $(2)          $7    $(3)

    Supermetals Business                     2    (29)           2    (30)

    Other                                    1      -            1      -

         Total certain items                $7   $(31)         $10   $(33)



    (A) Per share amounts are calculated after tax.

    (B) Cumulative benefit resulting from adoption of FAS 123(R) in the first
        quarter of 2006, net of tax.

SOURCE Cabot Corporation

Susannah R. Robinson
Director, Investor Relations
Cabot Corporation
+1-617-342-6129

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