Cabot Announces Third Quarter Operating Results
BOSTON, July 25 /PRNewswire-FirstCall/ -- Cabot Corporation (NYSE: CBT) today announced net income of $20 million after-tax ($0.30 per diluted common share) for the third quarter of 2007, including $3 million after-tax ($0.05 per diluted common share) of charges from certain items and discontinued operations, compared to net income of $25 million after-tax ($0.37 per diluted common share) for the third quarter of fiscal 2006, including $2 million after-tax ($0.02 per diluted common share) of charges from certain items. Details of our financial results, certain items and the charge from discontinued operations 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, "While we are disappointed with our financial results for the third quarter of 2007, we remain optimistic regarding the overall health of our business and are quite encouraged with our business development activities. Many of the unfavorable performance drivers were anticipated, including continued volatility in carbon black feedstock costs, the recent slowdown in the electronics industry affecting both Supermetals and fumed metal oxides and continued weakness in the inkjet aftermarket segment. On the positive side, demand in the carbon black and fumed metal oxides product lines remained very strong, our Specialty Fluids Business performed well during the quarter and we continue to be pleased with the prospects for the high-speed inkjet market."
Product Line Performance
The carbon black product lines continued their strong volume performance but were negatively impacted by higher feedstock costs during the quarter. Rubber blacks' volumes increased by 4% when compared to the third quarter of 2006 and by 2% sequentially, with continued growth in emerging regions. When compared to the third quarter of 2006, this volume increase was the primary driver of improved results, as lower raw material costs were offset by lower pricing from the feedstock related pricing mechanism in our contracts. When compared to the second quarter of 2007, despite the increase in volumes, results declined due to the decrease in rubber blacks' unit margins caused by lower contract prices and higher feedstock costs. In performance products, volumes declined by 2% when compared to the same period of 2006 due to low end product sales during the third quarter of 2006 that did not recur during this quarter. Despite this decline, the product line experienced strong sales in the masterbatch segment and improved performance as a result of favorable pricing and product mix. Sequentially, performance products' volumes increased by 5% and pricing remained relatively stable, however, higher raw material costs offset this otherwise strong performance. Our rubber blacks and performance products product lines were unfavorably impacted during the third quarter of 2007 by the time lag in our feedstock related pricing adjustments and the impact of the immediate recognition of feedstock costs in North America. These factors unfavorably impacted our carbon black product lines by $16 million, compared to a positive impact of $5 million in the second quarter of 2007.
Inkjet colorants continued to struggle with the decline in the aftermarket segment during the quarter, but the high-speed printing segment remains promising. Volumes decreased by 2% compared to the third quarter of 2006 and by 5% compared to the second quarter of 2007 primarily because of weakness in aftermarket volumes, which decreased by 41% compared to the third quarter of 2006 and by 7% sequentially. Profitability in the product line decreased when compared to both periods. When compared to the third quarter of 2006, a slightly beneficial product mix and strong sales in the high-speed segment were not enough to offset SOHO volume softness, higher costs associated with new capacity and increased R&D spending aimed at the future growth of the product line. Sequentially, lower volumes and inventory related costs combined to decrease profitability.
Fumed metal oxides continued its strong performance with year to date profitability up by more than 30% driven by high plant utilization, including at our new manufacturing facility in China. Volumes grew by 1% in the third quarter of 2007 when compared to the third quarter of fiscal 2006, as strong growth in the silicones and niche segments more than offset significantly decreased demand in the electronics segment. Compared to the same quarter of 2006, the profitability of the product line improved as lower average feedstock costs from our new facility in China, lower hydrogen costs and slightly higher volumes more than offset increased fixed manufacturing costs related to our facility in China and higher maintenance costs at other sites. When compared to the second quarter of 2007, volumes decreased by nearly 3% with softness in both the silicones and electronics segments. Sequentially, profitability was flat as lower costs and favorable currency translation offset the impact of lower volumes.
The Supermetals Business again struggled with an uncertain market and high ore costs, and while its performance improved somewhat from the second quarter of 2007, it remained below expectations. When compared to the third quarter of 2006, the Business experienced significantly lower profitability driven by a 28% reduction in total tantalum volumes and lower pricing from the transition to market based sales that was completed in December 2006. Additionally, higher ore costs unfavorably impacted profitability when compared to the same period of 2006. Compared to the second quarter of 2007, profitability improved slightly as lower manufacturing spending and several one time expenses in the second quarter of 2007 that did not recur in the current quarter more than offset 8% lower volumes and an unfavorable product mix.
The Specialty Fluids Business had an encouraging quarter. Strong rental revenues caused profitability to increase when compared to both the third quarter of 2006 and the second quarter of 2007. Our fluid utilization rate, which represents the percentage of total available fluid that is utilized during a particular period, increased significantly to 19% for the third quarter of 2007, compared to 9% in the third quarter of 2006 and 13% in the second quarter of 2007.
Outlook
With respect to the future, Burnes said, "We continue to be pleased with the volume growth in our carbon black product lines and are confident in the underlying health of the business and our ability to restore carbon black margins once feedstock costs stabilize. However, the recent increases in feedstock costs and the impact that the time lag in the feedstock related pricing adjustments has on our quarterly results is likely to negatively affect rubber blacks and performance products results in the near term. We remain very cautious about the performance of the Supermetals Business in light of its decreased volumes and higher ore costs as well as the continued uncertainty over the strength of the electronics market for the remainder of the year. With regard to our new business development initiatives, although we remain concerned about the inkjet aftermarket, we continue to be encouraged about the potential of high-speed inkjet printing. The Specialty Fluids Business is continuing to experience significant positive momentum and we remain encouraged with the growth prospects in various parts of the world in 2008 and beyond. Finally, we are pleased with the progress towards commercialization of CEC after a number of years of development. We believe this business has the potential to create significant shareholder value."
For those interested in more detailed information regarding Cabot's third 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 in our carbon black product lines; raw material costs; performance in the Supermetals Business and profitability of that Business; markets for our inkjet products; growth prospects for our Specialty Fluids Business and the potential of our CEC product to create significant shareholder value. 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 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); a disruption or delay in the commercialization of our CEC product. 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.
CABOT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
Periods ended June 30
Dollars in millions,
except per share amounts (unaudited) Three Months Nine Months
2007 2006 2007 2006
Net sales and other operating revenues $649 $666 $1,941 $1,880
Cost of sales 543 551 1,547 1,574
Gross profit 106 115 394 306
Selling and administrative expenses 56 59 183 176
Research and technical expenses 17 14 49 41
Income from operations 33 42 162 89
Other income and expense
Interest and dividend income 3 - 8 3
Interest expense (8) (6) (26) (19)
Other income (expense) 3 (2) 4 -
Total other income and expense (2) (8) (14) (16)
Income from continuing operations
before income taxes 31 34 148 73
Provision for income taxes (9) (8) (40) (13)
Equity in net income of affiliated
companies, net of tax 3 1 9 8
Minority interest in net income,
net of tax (4) (2) (11) (9)
Net Income from continuing operations 21 25 106 59
Discontinued operations, net of tax (A) (1) - (1) -
Cumulative effect of an accounting
change, net of tax (B) - - - 2
Net income 20 25 105 61
Dividends on preferred stock,
net of tax benefit - (1) (1) (2)
Net income available to common shares $20 $24 $104 $59
Diluted earnings per share of common stock
Income from continuing operations $0.31 $0.37 $1.55 $0.85
Discontinued operations,
net of tax (A) (0.01) - (0.01) -
Cumulative effect of an
accounting change, net of tax (B) - - - 0.04
Net income $0.30 $0.37 $1.54 $0.89
Weighted average common shares outstanding
Diluted 68 69 68 69
(A) Amount relates to legal settlements in connection with our
discontinued operations, net of tax.
(B) Cumulative benefit of an accounting change for implementation
of FAS 123(R), net of tax.
CABOT CORPORATION SUMMARY RESULTS BY SEGMENTS
Periods ended June 30
Dollars in millions, Three Months Nine Months
except per share amounts (unaudited) 2007 2006 2007 2006
SALES
Carbon Black Business (A) $506 $514 $1,484 $1,409
Rubber blacks 351 367 1,048 1,011
Performance products 142 134 399 360
Inkjet colorants 13 12 36 35
Superior MicroPowders - 1 1 3
Metal Oxides Business 67 66 200 185
Fumed metal oxides 66 65 199 184
Aerogel 1 1 1 1
Supermetals Business 48 66 178 226
Specialty Fluids Business 16 12 42 33
Segment sales 637 658 1,904 1,853
Unallocated and other (B) 12 8 37 27
Net sales and other
operating revenues $649 $666 $1,941 $1,880
SEGMENT PROFIT
Carbon Black Business $25 $23 $136 $70
Metal Oxides Business 9 6 28 13
Supermetals Business - 9 14 32
Specialty Fluids Business 7 5 18 13
Total Segment Profit (C) 41 43 196 128
Interest expense (8) (6) (26) (19)
General unallocated income (expense) (D) 1 (2) (13) (28)
Less: Equity in net income of
affiliated companies, net of tax (3) (1) (9) (8)
Income from continuing operations
before income taxes 31 34 148 73
.
Provision for income taxes (9) (8) (40) (13)
Equity in net income of affiliated
companies, net of tax 3 1 9 8
Minority interest in net income,
net of tax (4) (2) (11) (9)
Net Income from continuing operations 21 25 106 59
Discontinued operations, net of tax (E) (1) - (1) -
Cumulative effect of an accounting
change, net of tax (F) - - - 2
Net income 20 25 105 61
Dividends on preferred stock,
net of tax benefit - (1) (1) (2)
Net income available to common shares $20 $24 $104 $59
Diluted earnings per share
of common stock
Income from continuing operations $0.31 $0.37 $1.55 $0.85
Discontinued Operations,
net of tax (E) (0.01) - (0.01) -
Cumulative effect of an accounting
change, net of tax (F) - - - 0.04
Net income $0.30 $0.37 $1.54 $0.89
Weighted average common
shares outstanding
Diluted 68 69 68 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
affiliated 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. The amount for the nine months ended
June 30, 2006 also includes the $27 million settlement payment to the
Sons of Gwalia.
(E) Amount relates to legal settlements in connection with our
discontinued operations, net of tax.
(F) Cumulative benefit of an accounting change for implementation of
FAS 123 (R), net of tax.
CABOT CORPORATION CONDENSED CONSOLIDATED FINANCIAL POSITION
Dollars in millions, June 30, September 30,
except share and per share amounts 2007 2006
(unaudited) (audited)
Current assets:
Cash and cash equivalents $229 $189
Short-term marketable securities 11 1
Accounts and notes receivable, net of
reserve for doubtful accounts of $5 and $6 560 534
Inventories:
Raw materials 140 131
Work in process 93 109
Finished goods 158 139
Other 41 41
Total inventories 432 420
Prepaid expenses and other current assets 74 75
Deferred income taxes 34 36
Total current assets 1,340 1,255
Investments:
Equity affiliates 62 59
Long-term marketable securities
and cost investments 3 3
Total investments 65 62
Property, plant and equipment 2,677 2,531
Accumulated depreciation and amortization (1,713) (1,567)
Net property, plant and equipment 964 964
Other assets:
Goodwill 34 31
Intangible assets, net of accumulated
amortization of $11 and $10 4 5
Assets held for rent 42 40
Deferred income taxes 96 100
Other assets 83 77
Total other assets 259 253
Total assets $2,628 $2,534
CABOT CORPORATION CONDENSED CONSOLIDATED FINANCIAL POSITION
Dollars in millions, June 30, September 30,
except share and per share amounts 2007 2006
(unaudited) (audited)
Current liabilities:
Notes payable to banks $68 $58
Accounts payable and accrued liabilities 398 384
Income taxes payable 28 27
Deferred income taxes 2 2
Current portion of long-term debt 15 34
Total current liabilities 511 505
Long-term debt 437 459
Deferred income taxes 18 20
Other liabilities 295 286
Minority interest 70 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: 49,436 and 55,895 shares 49 56
Outstanding: 32,275 and 38,734 shares
(aggregate redemption value of
$32 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: 63,934,084 and 63,579,040 shares 64 64
Outstanding: 63,789,213 and 63,432,651 shares
Less cost of 144,871 and 146,389 shares
of common treasury stock (5) (5)
Additional paid-in capital 2 7
Retained earnings 1,230 1,160
Deferred employee benefits (35) (38)
Notes receivable for restricted stock (15) (20)
Accumulated other comprehensive income 45 10
Total stockholders' equity 1,297 1,196
Total liabilities and stockholders' equity $2,628 $2,534
CABOT CORPORATION
Fiscal 2006
In millions, except per share amounts
(unaudited) Dec. Q. Mar. Q. June Q. Sept 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
Interest expense (6) (7) (6) (8) (27)
General unallocated
income (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
Discontinued operations, net of tax
(F) - - - 2 2
Cumulative effect of accounting
changes, net of tax (G) 2 - - (4) (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
Discontinued operations,
net of tax (F) - - - 0.03 0.03
Cumulative effects of
accounting changes, net of tax (G) 0.04 - - (0.07) (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
CABOT CORPORATION
Fiscal 2007
In millions, except per share amounts
(unaudited) Dec. Q. Mar. Q. June Q. Sept Q. FY
Sales
Carbon Black Business (A) $485 $493 $506 $1,484
Rubber blacks 351 346 351 1,048
Performance products 123 134 142 399
Inkjet colorants 10 13 13 36
Superior MicroPowders 1 - - 1
Metal Oxides Business 65 68 67 200
Fumed metal oxides 65 68 66 199
Aerogel - - 1 1
Supermetals Business 77 53 48 178
Specialty Fluids Business 16 10 16 42
Segment Sales 643 624 637 1,904
Unallocated and other (B) 12 13 12 37
Net sales and other
operating revenues $655 $637 $649 $1,941
Segment Profit
Carbon Black Business(C) $54 $57 25 $136
Metal Oxides Business(C) 9 10 9 28
Supermetals Business 16 (2) - 14
Specialty Fluids Business 8 3 7 18
Total Segment Profit (D) 87 68 41 196
Interest expense (9) (9) (8) (26)
General unallocated
income (expense) (E) - (15) 1 (13)
Less: Equity in net income of
affiliated companies, net of tax (3) (3) (3) (9)
Income from continuing operations
before income taxes 75 41 31 148
(Provision) benefit for income taxes (19) (11) (9) (40)
Equity in net income of affiliated
companies, net of tax 3 3 3 9
Minority interest in net income,
net of tax (5) (2) (4) (11)
Net income from continuing operations 54 31 21 106
Discontinued operations,
net of tax (F) - - (1) (1)
Cumulative effect of accounting
changes, net of tax (G) - - - -
Net income 54 31 20 105
Dividends on preferred stock,
net of tax benefit - (1) - (1)
Net income available
to common shares $54 $30 $20 $104
Diluted earnings per share
of common stock
Net income from
continuing operations $0.79 $0.45 $0.31 $1.55
Discontinued operations,
net of tax (F) - - (0.01) (0.01)
Cumulative effects of accounting
changes, net of tax (G) - - - -
Net income $0.79 $0.45 $0.30 $1.54
Weighted average common
shares outstanding
Diluted 69 69 68 68
(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
affiliate 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. These amounts also include the $27 million
settlement payment to the Sons of Gwalia in the second quarter
of 2006.
(F) For the third quarter of fiscal 2007 the amount relates to legal
settlements in connection with our discontinued operations.
For the fourth quarter and fiscal year 2006 the amount relates to a
favorable tax settlement recognized during the period from our
discontinued liquified natural gas business.
(G) 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).
CABOT CORPORATION CERTAIN ITEMS - Exhibit I
Periods ended June 30 Three Months
Dollars in millions, except per
share amounts (unaudited) 2007 2007 2006 2006
$ per share $ per share
(A) (A)
Certain items before income taxes
Environmental reserves/settlement $(1) $(0.01) $- $-
Restructuring initiatives - Global - - - -
Restructuring initiatives - Altona - - (1) (0.01)
Cost reduction initiatives - - (1) (0.01)
Restructuring - North America (3) (0.03) - -
Carbon Black antitrust litigation - - - -
Gwalia settlement payment - - - -
Total certain items (4) (0.04) (2) (0.02)
Cumulative effect of an
accounting change (B) - - - -
Discontinued operations (C) (1) (0.01) - -
Total certain items, cumulative
effect of an accounting change
and discontinued operations (5) (0.05) (2) (0.02)
Tax impact of certain items,
cumulative effect of an accounting
change and discontinued operations 2 - - -
Total certain items, cumulative
effect of an accounting change
and discontinued operations,
after tax $(3) $(0.05) $(2) $(0.02)
CABOT CORPORATION CERTAIN ITEMS - Exhibit I
Periods ended June 30 Nine Months
Dollars in millions, except per
share amounts (unaudited) 2007 2007 2006 2006
$ per share $ per share
(A) (A)
Certain items before income taxes
Environmental reserves/settlement $(6) $(0.07) $- $-
Restructuring initiatives - Global (4) (0.04) - -
Restructuring initiatives - Altona (1) (0.01) (4) (0.04)
Cost reduction initiatives - - (4) (0.04)
Restructuring - North America (3) (0.03) - -
Carbon Black antitrust litigation (10) (0.09) - -
Gwalia settlement payment - - (27) (0.25)
Total certain items (24) (0.24) (35) (0.33)
Cumulative effect of an
accounting change (B) - - 4 0.04
Discontinued operations (C) (1) (0.01) - -
Total certain items, cumulative
effect of an accounting change
and discontinued operations (25) (0.25) (31) (0.29)
Tax impact of certain items,
cumulative effect of an accounting
change
and discontinued operations 8 - 10 -
Total certain items, cumulative
effect of an accounting change and
discontinued operations, after tax $(17) $(0.25) $(21) $(0.29)
Periods ended June 30 Three Months Nine Months
Dollars in millions
(unaudited) 2007 2006 2007 2006
Statement of Operations Line Item
Net sales and other operating revenues $ - $ - $ - $ 1
Cost of sales (3) (1) (11) (31)
Selling and administrative expenses (1) (1) (13) (5)
Total certain items $ (4) $ (2) $(24) $(35)
Certain items by Segment
Carbon Black Business $ (3) $ (1) $(20) $ (4)
Supermetals Business - (1) (2) (31)
Other (1) - (2) -
Total certain items $ (4) $ (2) $(24) $(35)
(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) Amount relates to legal settlements in connection with our
discontinued operations.
Click here for supplemental business information
Downloadable Earnings Tables
Contact: Susannah R. Robinson
Director, Investor Relations
(617) 342-6129
To access a copy of the Supplemental Business Information for this quarter please Click here.