Cabot Announces Third Quarter Operating Results
Kennett F. Burnes, Cabot Chairman and CEO, said, "Despite the improvement in segment profit from last year's third quarter, this was a difficult quarter for us. The weak economic environment continued to impact our businesses, which are also being hurt by rising oil and natural gas prices. As anticipated, our volumes decreased sequentially in our tantalum business due to the timing of shipments of contracted intermediate and finished products."
For the quarter ended June 30, 2003, operating profit for the Chemical Businesses increased year over year by $3 million, from $27 million in the third quarter of fiscal year 2002 to $30 million in the third quarter of fiscal year 2003. Sequentially, operating profit increased by $7 million from $23 million in the prior quarter. The year over year comparison benefited from favorable exchange impacts which more than offset a decline in volumes of 4% as well as lower margins. Sequentially, volumes improved by 2%, although product mix was unfavorable. Due to the weakening of the U.S. dollar, the translation of foreign operating earnings provided a benefit during the quarter of $12 million year over year and $1 million sequentially.
Within the Chemical Businesses segment, carbon black's operating profit was the same as the prior year's quarter and $6 million higher than the second fiscal quarter of 2003. Carbon black volumes decreased by 4% year over year but increased by 2% sequentially, with continued strength in the Asia Pacific region. In the third quarter, Cabot's fumed metal oxides business reported operating profit that was $5 million higher than the same quarter last year and $2 million higher than the second quarter of 2003. This business experienced 1% lower volumes compared to the same quarter of fiscal 2002 and 2% higher volumes compared to the second quarter of fiscal 2003. The inkjet colorants business continues to perform extremely well, with volumes increasing by 42% compared to the prior year quarter and by 23% sequentially. The transition of the business to its new manufacturing plant is progressing well despite adding temporarily to costs while the business consolidates its operations. Looking forward, given the continued economic weakness in North America and Europe and the recent rise in oil and natural gas prices, the Company is concerned about the outlook for the Chemical Businesses segment due to volume pressure and the challenge of maintaining margins in the non-contracted portion of the business.
Cabot Supermetals' third quarter operating profit increased by $4 million, from $10 million in 2002 to $14 million in 2003, but decreased by $23 million from the second quarter. Volumes were higher than the year ago quarter by 78% due to a combination of contracted tantalum powder, wire and intermediate product sales and some improvement in Asia Pacific volumes. Average selling prices declined compared to the prior year due to the re-negotiation of certain customer contracts during calendar year 2002, resulting in lower prices but extended contract terms. Volumes decreased sequentially from the second quarter of 2003 by 12% due to decreases in shipments of intermediate materials and the timing of shipments of contracted finished products.
In the third quarter of fiscal 2003, Cabot Specialty Fluids (CSF) reported a $1 million operating loss, which was equal to the third quarter of 2002 and $1 million better than the second quarter of 2003. Business activity remained low during the quarter.
During the quarter, the Company recorded certain charges from continuing operations and income from discontinued operations of $46 million. Certain charges from continuing operations included $14 million related to the acquisition of Superior Micropowders, which is included in R&D expense, and $17 million of restructuring costs incurred in Europe, of which $9 million are included in cost of goods sold and $8 million are in selling and administrative expense. In addition, the Company received $5 million in insurance recoveries, of which $1 million are from continuing operations, recorded in selling and administrative expense, and $4 million are from discontinued operations.
Also included in certain charges is a $20 million reserve to record the Company's estimated share of liability with respect to existing and future respirator product liability claims arising from exposure to asbestos and other materials. As previously disclosed, Cabot and certain third parties and their insurers, have product liability exposure in connection with a safety respirator products business that a subsidiary of Cabot acquired in 1990 and disposed of in 1995. Since December 2002, these parties have been in negotiations to fix the allocation of these liabilities among themselves. However, as no agreement has yet been reached, the Company is utilizing a leading expert, Hamilton, Rabinovitz & Alschuler, Inc, to assist in estimating these liabilities and the Company' share of those liabilities. The current estimate indicates that Cabot's share of these liabilities is approximately $20 million. This estimate is based upon a number of assumptions, including an assessment of Cabot's contractual obligations and the assumption that these other parties meet their obligations. Further refinements to this analysis may be made, and may cause the Company to make adjustments to its estimate. The $20 million charge is included in selling and administrative expense.
Burnes stated, "Today's operating environment continues to be extremely challenging. Competition in the carbon black market is intense, and we are currently experiencing downward price pressure at the same time as our raw material costs are increasing. While there are signs of improvement in the electronics market, our tantalum business is not yet benefiting from this due to high inventory levels in the supply chain, and we expect that earnings of this business will decline significantly beginning in fiscal 2004 as a customer's obligation to purchase intermediate products expires."
"On the positive side" Burnes concluded, "our developing businesses - inkjet colorants, cesium formate and aerogels - continue to make progress toward their goals. Inkjet volumes continue to grow sequentially at a double-digit rate, with successes in both the printer manufacturer market as well as the cartridge refill market. In cesium formate, we recently announced a significant event in the signing of a letter of intent with a major oil company to supply drilling fluids in both drill-in and completion applications over a several year period. We continue to refine the manufacturing process in our aerogels semi-works plant. We have also added a new platform for growth with the recent acquisition of Superior Micropowders (SMP). I am particularly excited about this acquisition because it may allow Cabot to develop new technology for areas that complement our existing markets, such as capacitor materials. It will also provide possibilities for future new business growth in high value-added areas such as electronic displays and fuel cells. I believe that the combination of our new business efforts and SMP provides a strong foundation for the long-term future of the Company."
For those interested in more detailed information on Cabot's Third Quarter 2003 results please see the Supplemental Business Information available today on the Company's website in the Investor Relations section: http://cabot-corp.com.
Cabot Corporation is a global specialty chemicals company headquartered in Boston, MA. Cabot's major products are carbon black, fumed silica, inkjet colorants, capacitor materials, and cesium formate drilling fluids. Forward-Looking Information: Included above are forward-looking statements relating to management's expectations regarding future profits, new business growth, the Company's product development program and the possible achievement of the Company's financial goals. Actual results may differ materially from the results anticipated in the forward-looking statements included in this press release due to a variety of factors, including domestic and global economic conditions, such as market supply and demand, prices and costs and availability of raw materials; fluctuations in currency exchange rates; patent rights of others; stock market conditions; the timely commercialization of products under development by the Company (which may be disrupted or delayed by technical difficulties, market acceptance, competitors' new products, as well as difficulties in moving from the experimental stage to the production stage); the Company's ability to successfully manage acquisitions; demand for our customers' products; competitors' reactions to market conditions; the accuracy of the assumptions used by the Company in establishing a reserve for its share of liability for respirator claims; and the outcome of pending litigation and governmental investigations. Other factors and risks are discussed in the Company's 2002 Annual Report on Form 10-K.
To access a copy of the Supplemental Business Information for this quarter please Click here.