Cabot Announces Third Quarter Operating Results
BOSTON, Aug. 2 /PRNewswire-FirstCall/ -- Cabot Corporation (NYSE: CBT) today announced net income of $25 million ($0.37 per diluted common share) for the third quarter of fiscal year 2006 ended June 30, 2006, compared to net income of $26 million ($0.39 per diluted common share) for the year ago quarter. The third fiscal quarter 2006 results included $2 million pre-tax of charges ($0.02 per diluted common share after tax) from certain items compared to $4 million pre-tax of charges ($0.04 per diluted common share after tax) from certain items in the third quarter of fiscal year 2005. Further details concerning certain items are included in Exhibit I of the press release.
In commenting on the results, Kennett F. Burnes, Cabot's Chairman and CEO, said, "We were, of course, not satisfied with our results for the quarter as we fell short of our own expectations. This shortfall was disappointing given the strong volume performance in all businesses. In particular, despite our Carbon Black Business having strong volumes, our inability to return to a more historic margin level unfavorably impacted performance. In addition, we had three cost issues during the quarter, higher utility costs, higher maintenance costs at Cabot Japan, and our aggressive initiative to reduce inventory levels, thereby reducing production levels, resulting in higher fixed costs per unit. Also, and as expected, the transition to market-based pricing and higher ore costs in the Supermetals Business reduced Cabot's overall profitability. We were pleased, however, to have our new capacity for our Carbon Black and Metal Oxides Businesses in China, and our inkjet colorants capacity expansion all successfully come on line during the quarter, particularly in a period of such strong demand."
The Carbon Black Business reported operating profits of $23 million compared to $26 million in both the third quarter of 2005 and the second quarter of 2006. Our carbon black product lines had solid volumes during the quarter. Rubber blacks volumes increased by 2% compared to the third quarter of 2005 and by 3% sequentially, and performance products returned to its more historic volume level with a 13% increase sequentially. Progress was made in restoring total variable margin during the quarter with margins in the third quarter of fiscal 2006 equivalent to those in the third quarter of fiscal 2005, but still below the levels seen prior to the recent period of continuously rising feedstock costs. In addition, quarterly operating costs were higher than we have experienced recently and three specific issues combined to reduce profitability by $9 million. First, higher utility costs impacted us by $2 million. Second, we made substantial progress in reducing operating working capital with a $38 million total improvement driven by a $28 million reduction in inventory. This resulted in a $4 million unfavorable impact on earnings from higher fixed costs per unit due to lower production levels. Third, Cabot Japan had higher maintenance costs, which unfavorably impacted us by $3 million.
The inkjet colorants product line continued to experience solid volume growth in both the OEM and aftermarket segments with a 40% increase over the third quarter of 2005 and a 4% increase over the second quarter of 2006. The transition from research to commercial grades, when compared to the third quarter of 2005, and some margin erosion, caused revenues to grow at a slower rate than volumes. Additionally, costs related to the new production capacity that is not yet being commercially utilized caused profitability to be lower both year over year and sequentially.
The Metal Oxides Business reported operating profits of $6 million during the quarter. This was $2 million higher than the third quarter of 2005 and $1 million higher than the second quarter of 2006. Fumed metal oxides continued to experience high capacity utilization and solid increases in demand, which led to higher profitability. Total volumes increased 11% compared to the third quarter of 2005, with higher electronics and niche volumes, and 3% sequentially. Favorable price mix and strong plant utilization more than offset increased year over year raw material and energy costs.
The Supermetals Business had a stronger than expected quarter, reporting $9 million in operating profits compared to $13 million in the third quarter of 2005 and $12 million in the second quarter of 2006. The continued transition from fixed price, fixed volume contracts to market-based arrangements and higher year over year raw material costs continue to unfavorably impact the business. However, the business is experiencing significant benefits from its previous cost reduction initiatives. We continue to make progress in reducing inventory levels, which have decreased by $46 million year to date.
During the third quarter of 2006, the Specialty Fluids Business reported operating profits of $5 million, equal to the third quarter of 2005, and $1 million higher than the second quarter of 2006. Utilization of our total available fluid decreased both year over year and sequentially but was offset by higher pricing on the quarter's activity. A labor strike at one of our large North Sea customers during the quarter, that has since been settled, caused delays in their drilling operations during the quarter and could impact our profitability for the full year by as much as $2 million. We were, however, extremely pleased to be awarded two appraisal wells in Argentina that we anticipate will begin to be drilled in the fourth quarter. If successful, this work could lead to the use of our fluid in additional wells and our first significant expansion outside of the North Sea.
With respect to the future, Burnes said, "Looking forward, we believe that our shortfall in performance during the third quarter will put us at the lower end of where we had hoped to be for the full year. We remain cautious given the energy costs we have all experienced over the past months and the potential impact of political instability in certain regions of the world. Given this uncertainty and our recent performance, we are taking a very close look at all of our costs and are looking for ways to further improve margins to ensure that the Carbon Black Business continues to earn an acceptable return. On a more positive note, we have recently seen an improvement in cash generation and a reduction in our net debt position. The contract transition in the Supermetals Business will continue to impact our overall financial performance and we remain focused on replacing lost contract volumes with market volumes and continuing our inventory reduction progress. We look forward to the strong utilization of our new capacity to serve growing demand in new markets and developing regions of the world and remain optimistic about the prospects for continued strong demand in our core businesses and ongoing growth in our new businesses."
Additional information regarding Cabot's third quarter fiscal year 2006 results is included in the Supplemental Business Information attached to the press release.
Included above are forward-looking statements relating to management's expectations regarding performance of our rubber blacks and performance products product lines; Cabot's overall business performance and prospects; our ability to replace lost contract volumes with open market volumes in the Supermetals Business; growth in inkjet colorants; the expansion of the Specialty Fluids Business outside of the North Sea; utilization of new capacity for rubber blacks, fumed metal oxides and inkjet colorants; and carbon black feedstock and natural gas prices. 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: a continuing rise in feedstock costs and a higher than expected increase in natural gas prices; lower than expected demand for our products; Cabot's ability to generate cost savings and implement restructuring initiatives; the Company's ability to maintain and grow its position in the small office, home office printing market and to participate in the growth in emerging inkjet applications for black colorants and to develop and commercialize colored pigments (which may be disrupted or delayed by technical difficulties, market acceptance, competitors' new products or difficulties in moving from the experimental stage to the manufacturing stage); unexpected delays in drilling operations at wells recently 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 2005 Annual Report on Form 10-K 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
Third Quarter Earnings Announcement, Fiscal 2006
CABOT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
Periods ended June 30 Three Months Nine Months
Dollars in millions, except per share
amounts (unaudited) 2006 2005 2006 2005
Net sales and other operating
revenues $666 $545 $1,880 $1,567
Cost of sales 551 427 1,574 1,202
Gross profit $115 $118 $306 $365
Selling and administrative expenses 59 63 176 173
Research and technical expenses 14 14 41 43
Goodwill asset impairment - - - 90
Income from operations $42 $41 $89 $59
Other income and expense
Interest and dividend income - 2 3 5
Interest expense (6) (8) (19) (24)
Other income (expense) (2) 1 - 5
Total other income and expense (8) (5) (16) (14)
Income from continuing operations
before income taxes 34 36 73 45
Provision for income taxes (8) (9) (13) (30)
Equity in net income of affiliated
companies, net of tax 1 2 8 6
Minority interest in net income, net
of tax (2) (3) (9) (9)
Net income from continuing operations 25 26 59 12
Cumulative effect of an accounting
change, net of tax - - 2 -
Net income 25 26 61 12
Dividends on preferred stock, net of
tax (1) (1) (2) (2)
Net income available to common shares $24 $25 $59 $10
Diluted income per common share
Income from continuing operations $0.37 $0.39 $0.85 $0.18
Cumulative effect of an accounting
change, net of tax $- $- $0.04 $-
Net income $0.37 $0.39 $0.89 $0.18
Weighted average common shares
outstanding
Diluted 69 69 69 69
Third Quarter Earnings Announcement, Fiscal 2006
CABOT CORPORATION SUMMARY RESULTS BY SEGMENTS
Periods ended June 30 Three Months Nine Months
Dollars in millions, except per share
amounts (unaudited) 2006 2005 2006 2005
SALES
Carbon Black Business $514 $387 $1,409 $1,101
Rubber blacks 367 252 1,011 712
Performance products 134 123 360 356
Inkjet colorants 12 10 35 28
Superior MicroPowders 1 2 3 5
Metal Oxides Business 66 57 185 175
Fumed metal oxides 65 57 184 175
Aerogels 1 - 1 -
Supermetals Business 66 93 226 256
Specialty Fluids Business 12 11 33 26
Segment sales (A) 658 548 1,853 1,558
Unallocated and other (B) 8 (3) 27 9
Net sales and other operating
revenues $666 $545 $1,880 $1,567
SEGMENT PROFIT
Carbon Black Business $23 $26 $70 $97
Metal Oxides Business 6 4 13 15
Supermetals Business 9 13 32 45
Specialty Fluids Business 5 5 13 11
Total Segment Profit (C) 43 48 128 168
Interest expense (6) (8) (19) (24)
General unallocated income
(expense) (D) (2) (2) (28) (93)
Less: Equity in net income of
affiliated companies, net of tax (1) (2) (8) (6)
Income from continuing operations
before income taxes 34 36 73 45
Provision for income taxes (8) (9) (13) (30)
Equity in net income of affiliated
companies, net of tax 1 2 8 6
Minority interest in net income, net
of tax (2) (3) (9) (9)
Income from continuing operations 25 26 59 12
Cumulative effect of an accounting
change, net of tax (E) - - 2 -
Net income 25 26 61 12
Dividends on preferred stock, net of
tax (1) (1) (2) (2)
Net income available to common shares $24 $25 $59 $10
Diluted earnings per common share
Income from continuing operations $0.37 $0.39 $0.85 $0.18
Cumulative effect of an accounting
change, net of tax (E) $- $- $0.04 $-
Net income $0.37 $0.39 $0.89 $0.18
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 and transfers
of materials at cost and 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
affiliated companies, royalties paid by equity affiliates, minority
interest and allocated corporate costs.
(D) General unallocated income (expense) includes foreign currency
transaction gains (losses), interest income, dividend income, and the
certain items listed in Exhibit I, including charges in the
Supermetals Business of $90 million of goodwill impairment in the
second quarter of 2005 and the $27 million Gwalia settlement payment
in the second quarter of 2006.
(E) Amounts related to the cumulative benefit resulting from the adoption
of FAS 123(R) in the first quarter of 2006, net of tax.
Third Quarter Earnings Announcement, Fiscal 2006
CABOT CORPORATION CONDENSED CONSOLIDATED FINANCIAL POSITION
June 30, September 30,
2006 2005
Dollars in millions (unaudited)
Current assets:
Cash and cash equivalents $114 $181
Short-term marketable securities
investments 1 30
Accounts and notes receivable, net
of reserve for doubtful accounts
of $7 and $4 541 430
Inventories:
Raw materials 144 169
Work in process 120 134
Finished goods 145 151
Other 39 39
Total inventories 448 493
Prepaid expenses and other current
assets 92 66
Assets held for sale - 5
Deferred income taxes 50 41
Total current assets 1,246 1,246
Investments:
Equity affiliates 57 63
Long-term marketable securities and
cost investments 3 6
Total investments 60 69
Property, plant and equipment 2,479 2,264
Accumulated depreciation and
amortization (1,530) (1,430)
Net property, plant and
equipment 949 834
Other assets:
Goodwill 35 25
Intangible assets, net of
accumulated amortization of $9
and $9 5 6
Assets held for rent 39 37
Deferred income taxes 106 108
Other assets 58 49
Total other assets 243 225
Total assets $2,498 $2,374
Third Quarter Earnings Announcement, Fiscal 2006
CABOT CORPORATION CONDENSED CONSOLIDATED FINANCIAL POSITION
June 30, September 30,
2006 2005
Dollars in millions, (unaudited)
except for share and per share amounts
Current liabilities:
Notes payable to banks $44 $34
Accounts payable and accrued
liabilities 369 321
Income taxes payable 44 30
Deferred income taxes 1 1
Current portion of long-term debt 39 47
Total current liabilities 497 433
Long-term debt 458 463
Deferred income taxes 13 15
Other liabilities 292 307
Commitments and contingencies
Minority interest 64 57
Stockholders' equity:
Preferred stock:
Authorized: 2,000,000 shares of $1 par
value Series B ESOP Convertible
Preferred Stock 7.75% Cumulative
issued: 75,336 shares; outstanding:
57,043 and 61,068 shares
(aggregate per share
Redemption value of $40 and $44) 57 61
Less cost of shares of preferred
treasury stock (38) (38)
Common stock:
Authorized: 200,000,000 shares
of $1 par value Issued and
outstanding: 63,452,646 and
62,971,872 63 63
Less cost of shares of common
treasury stock (5) (5)
Additional paid-in capital 21 32
Retained earnings 1,144 1,127
Unearned compensation - (41)
Deferred employee benefits (39) (42)
Notes receivable for restricted stock (15) (19)
Accumulated other comprehensive loss (14) (39)
Total stockholders' equity 1,174 1,099
Total liabilities and stockholders'
equity $2,498 $2,374
CABOT CORPORATION
Fiscal 2005
In millions, except per share
amounts (unaudited) Dec. Q. Mar. Q. June Q. Sept. Q. FY
Sales
Carbon Black Business $345 $369 $387 $389 $1,490
Rubber blacks 225 235 252 264 976
Performance products 110 123 123 113 469
Inkjet colorants 9 9 10 11 39
Superior MicroPowders 1 2 2 1 6
Metal Oxides Business 60 58 57 56 231
Fumed metal oxides 60 58 57 56 231
Aerogels - - - - -
Supermetals Business 77 86 93 90 346
Specialty Fluids Business 7 8 11 14 40
Segment Sales (A) 489 521 548 549 2,107
Unallocated and other (B) 6 6 (3) 9 18
Net sales and other operating
revenues $495 $527 $545 $558 $2,125
Segment Profit (Loss)
Carbon Black Business $30 $41 $26 $(4) $94
Metal Oxides Business 6 5 4 1 16
Supermetals Business 16 16 13 7 52
Specialty Fluids Business 2 4 5 7 17
Total segment profit (C) 54 66 48 11 179
Net Income (Loss) Available to
Common Shares
Interest expense (8) (8) (8) (5) (29)
General unallocated income
(expense) (D) 1 (91) (2) (139) (231)
Less: Equity in net income of
affiliated companies, net of tax (2) (2) (2) (6) (12)
Income (Loss) from Continuing
Operations before income taxes 45 (35) 36 (139) (93)
(Provision) benefit for income
taxes (9) (13) (9) 76 45
Equity in net income of affiliated
companies, net of tax 2 2 2 6 12
Minority interest in net income, net
of tax (3) (4) (3) (2) (12)
Income (Loss) from Continuing
Operations 35 (50) 26 (59) (48)
Cumulative effect of an accounting
change, net of tax (E) - - - - -
Net income (loss) 35 (50) 26 (59) (48)
Dividends on preferred stock, net of
tax (1) - (1) (1) (3)
Net income (loss) available to
common shares $34 $(50) $25 $(60) $(51)
Diluted income (loss) per
common share
Income (Loss) from Continuing
Operations $0.51 $(0.84) $0.39 $(1.02) $(0.84)
Cumulative effects of an accounting
change, net of tax (E) - - - - -
Net income (loss) $0.51 $(0.84) $0.39 $(1.02) $(0.84)
Weighted average common shares
outstanding
Diluted (F) 69 60 69 59 60
CABOT CORPORATION
Fiscal 2006
In millions, except per share
amounts (unaudited) Dec. Q. Mar. Q. June Q. Sept. Q. FY
Sales
Carbon Black Business $419 $476 $514 $1,409
Rubber blacks 298 346 367 1,011
Performance products 109 117 134 360
Inkjet colorants 11 12 12 35
Superior MicroPowders 1 1 1 3
Metal Oxides Business 57 62 66 185
Fumed metal oxides 57 62 65 184
Aerogels - - 1 1
Supermetals Business 93 67 66 226
Specialty Fluids Business 10 11 12 33
Segment Sales (A) 579 616 658 1,853
Unallocated and other (B) 8 11 8 27
Net sales and other operating
revenues $587 $627 $666 $1,880
Segment Profit (Loss)
Carbon Black Business $21 $26 $23 $70
Metal Oxides Business 2 5 6 13
Supermetals Business 11 12 9 32
Specialty Fluids Business 4 4 5 13
Total segment profit (C) 38 47 43 128
Net Income (Loss) Available to Common
Shares
Interest expense (6) (7) (6) (19)
General unallocated income (expense)
(D) (2) (24) (2) (28)
Less: Equity in net income of
affiliated companies, net of tax (3) (4) (1) (8)
Income (Loss) from Continuing
Operations before income taxes 27 12 34 73
(Provision) benefit for income taxes (4) (1) (8) (13)
Equity in net income of affiliated
companies, net of tax 3 4 1 8
Minority interest in net income, net
of tax (4) (3) (2) (9)
Income (Loss) from Continuing
Operations 22 12 25 59
Cumulative effect of an accounting
change, net of tax (E) 2 - - 2
Net income (loss) 24 12 25 61
Dividends on preferred stock,
net of tax (1) - (1) (2)
Net income (loss) available to
common shares $23 $12 $24 $59
Diluted income (loss)
per common share
Income (Loss) from Continuing
Operations $0.31 $0.17 $0.37 $0.85
Cumulative effects of an accounting
change, net of tax (E) 0.04 - - 0.04
Net income (loss) $0.35 $0.17 $0.37 $0.89
Weighted average common shares
outstanding
Diluted (F) 68 69 69 69
(A) Segment sales for certain operating segments within the Carbon Black
Business include 100% of sales of one equity affiliate and transfers
of materials at cost and at market-based prices.
(B) Unallocated and other reflects an elimination for sales for one equity
affiliate offset by royalties paid by equity affiliates, 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
affiliated companies and excludes royalties paid by equity affiliates,
minority interest and allocated corporate costs.
(D) General unallocated income (expense) includes foreign currency
transaction gains (losses), interest income, dividend income and
certain items listed in Exhibit I. These amounts also include the
following charges in the Supermetals Business: $90 million of goodwill
impairment charges recorded in the second quarter of 2005, $121
million of long-lived asset impairment charges recorded in the fourth
quarter of fiscal 2005 and the $27 million settlement payment in the
second quarter of 2006.
(E) Amounts relate to the cumulative benefit resulting from the adoption
of FAS 123(R) in the first quarter of 2006, net of tax.
(F) The weighted average common shares outstanding for the quarter ending
March 31, 2005 and the quarter and year ending September 30, 2005
reflects the exclusion of those shares that would be antidilutive due
to the company's net loss position in these periods. The shares
excluded totaled approximately 9 million shares for the quarter ending
March 31, 2005 and approximately 9 million and 8 million shares,
respectively, for the quarter and year ending September 30, 2005.
Third Quarter Earnings Announcement, Fiscal 2006
CABOT CORPORATION CERTAIN ITEMS - Exhibit I
Periods ended
June 30 Three Months Nine Months
Dollars in
millions,
except per
share amounts
(unaudited) 2006 2006 2005 2005 2006 2006 2005 2005
per per per per
$ share(A) $ share(A) $ share(A) $ share(A)
Certain items
before income
taxes
Restructuring
initiatives $(1) $(0.01) $(4) $(0.04) $(4) $(0.04) $(12) $(0.12)
Cost reduction
initiatives (1) (0.01) - - (4) (0.04) - -
Gwalia settlement
payment - - - - (27) (0.25) - -
Goodwill asset
impairment - - - - - - (90) (1.30)
Total
certain
items (2) (0.02) (4) (0.04) (35) (0.33) (102) (1.42)
Cumulative effect
of an accounting
change (B) - - - - 4 0.04 - -
Total certain
items and
cumulative
effect of
an accounting
change (2) (0.02) (4) (0.04) (31) (0.29) (102) (1.42)
Tax impact of
certain items
and cumulative
effect of
an accounting
change (C) - - 1 - 10 - 6 0.04
Total certain
items and
cumulative
effect of
an accounting
change,
after tax $(2) $(0.02) $(3) $(0.04) $(21) $(0.29) $(96) $(1.38)
Periods ended June 30 Three Months Nine Months
Dollars in millions (unaudited) 2006 2005 2006 2005
Statement of Operations Line Item
Net sales and other operating
revenues $- $- $1 $-
Cost of sales (1) (4) (31) (11)
Selling and administrative expenses (1) - (5) (1)
Goodwill asset impairment - - - (90)
Total certain items $(2) $(4) $(35) $(102)
(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.
(C) Represents tax impact of certain items and cumulative effect of
an accounting change.
CABOT CORPORATION
THIRD QUARTER FISCAL YEAR 2006
SUPPLEMENTAL BUSINESS INFORMATION
(Unaudited)
Business Segment Analysis
Volume changes for the third quarter of 2006 compared to the third quarter of 2005 and the second quarter of 2006 were as follows:
Business Segment Q3 2006 vs Q3 2005 Q3 2006 vs Q2 2006
Carbon Black Business
Rubber Blacks * 2 % 3 %
Performance Products (3) % 13 %
Inkjet Colorants 40 % 4 %
Metal Oxides Business
Fumed Metal Oxides 11 % 3 %
Supermetals Business (9) % 8 %
* volume changes in the Carbon Black Business exclude Cabot Japan volumes
Rubber Blacks Regional Analysis
Volume changes by region for the third quarter of 2006 compared to the third quarter of 2005 and the second quarter of 2006 were as follows:
Region Q3 2006 vs Q3 2005 Q3 2006 vs Q2 2006
North America (2) % (2) %
South America 4 % 11 %
Europe 3 % (2) %
Asia Pacific * (7) % 3 %
China 17 % 13 %
* volume changes in Asia Pacific region exclude Cabot Japan volumes
Capital Expenditures
Cabot invested approximately $43 million in capital expenditures during
the third quarter of 2006 compared to $45 million during the third quarter of
2005.
Share Repurchases
Q1 FY06 Q2 FY06 Q3 FY06
Total Shares Repurchased 85,733 76,316 246,309
Open Market Shares Repurchased - - -
Cash Cost of Open Market Purchases - - -
* Approximately 2.7 million shares remain available for purchase under the
current Board of Directors' authorization.
Working Capital
During the third quarter of 2006 working capital decreased by $53 million on a constant dollar basis ($45 million at actual exchange rates) driven by reduced inventory levels and an increase in payables. The decrease was partially offset by higher accounts receivable levels from strong volumes and price increases, and upward pressure on inventory costs resulting from higher feedstock costs.
Effective Tax Rate
The Company's effective tax rate for both net income and net income from continuing operations was 22% for the third quarter of 2006.
SOURCE Cabot Corporation 08/02/2006 CONTACT: Susannah R. Robinson, Director, Investor Relations, of Cabot Corporation, +1-617-342-6129 Web site: http://www.cabot-corp.com
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