1
FORM 10-Q
____________________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
DECEMBER 31, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
COMMISSION FILE NUMBER 1-5667
CABOT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-2271897
(State of Incorporation) (I.R.S. Employer Identification No.)
75 STATE STREET 02109-1806
BOSTON, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (617) 345-0100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------------------------- --------------------
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
AS OF DECEMBER 31, 1994, THE COMPANY HAD 38,076,856 SHARES OF COMMON
STOCK, PAR VALUE $1 PER SHARE, OUTSTANDING.
-1-
2
CABOT CORPORATION
INDEX
Part I. Financial Information Page No.
--------
Item 1. Financial Statements
Consolidated Statements of Income
Three Months Ended December 31, 1994 and 1993 3
Consolidated Balance Sheets
December 31, 1994 and September 30, 1994 4
Consolidated Statements of Cash Flows
Three Months Ended December 31, 1994 and 1993 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
-2-
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended December 31, 1994 and 1993
(Dollars in thousands, except per share amounts)
UNAUDITED
1994 1993
---- ----
Revenues:
Net sales and other operating revenues $427,960 $398,475
Interest and dividend income 2,535 978
------- -------
Total revenues 430,495 399,453
Costs and expenses:
Cost of sales 296,829 296,750
Selling and administrative expenses 55,568 52,329
Research and technical service 12,839 11,721
Interest expense 10,036 10,259
Other (income) expense, net 4,166 2,359
------- -------
Total costs and expenses 379,438 373,418
------- -------
Income before income taxes 51,057 26,035
Provision for income taxes (18,832) (10,414)
Equity in net income of affiliated companies 1,683 337
------- -------
Net income 33,908 15,958
------- -------
Dividends on preferred stock, net of tax
benefit of $479 and $484, respectively (890) (899)
------- -------
Income applicable to primary common shares $ 33,018 $ 15,059
======== ========
Weighted average common shares outstanding (000):
Primary 38,619 38,158
Fully diluted (Note A) 41,740 41,282
Income per common share:
Primary $ 0.85 $ 0.39
Fully diluted (Note A) $ 0.80 $ 0.37
Dividends per common share $ 0.14 $ 0.13
======== ========
The accompanying notes are an integral part of these financial statements.
-3-
4
CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and September 30, 1994
(Dollars in thousands)
ASSETS
December 31 September 30
1994 1994
(Unaudited)
---------- ----------
Current assets:
Cash and cash equivalents $ 29,522 $ 80,917
Accounts and notes receivable
(net of reserve for doubtful
accounts of $7,955 and $7,697) 285,569 272,787
Inventories:
Raw materials 58,362 52,564
Work in process 33,821 33,139
Finished goods 115,014 94,363
Other 36,854 36,816
---------- ----------
Total inventories 244,051 216,882
Prepaid expenses 13,547 13,293
Deferred income taxes 22,040 22,509
---------- ----------
Total current assets 594,729 606,388
---------- ----------
Investments:
Equity 85,735 86,164
Other 105,155 115,768
---------- ----------
Total investments 190,890 201,932
---------- ----------
Property, plant and equipment:
At cost 1,399,601 1,381,576
Accumulated depreciation and amortization 705,341 687,068
----------- ----------
Net property, plant and equipment 694,260 694,508
Other assets:
Intangible assets, net of amortization 72,128 74,089
Deferred income taxes 6,581 6,722
Other assets 33,909 33,117
---------- ----------
Total other assets 112,618 113,928
---------- ----------
Total assets $1,592,497 $1,616,756
========== ==========
The accompanying notes are an integral part of these financial statements.
-4-
5
CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and September 30, 1994
(Dollars in thousands)
LIABILITIES & STOCKHOLDERS' EQUITY
December 31 September 30
1994 1994
(Unaudited)
---------- ----------
Current liabilities:
Notes payable to banks $ 145,526 $ 26,480
Current portion of long-term debt 15,238 159,724
Accounts payable and accrued liabilities 261,295 281,342
U.S. and foreign income taxes payable 11,133 3,626
Deferred income taxes 3,860 3,943
--------- ----------
Total current liabilities 437,052 475,115
Long-term debt 301,753 307,828
Deferred income taxes 121,694 124,286
Other liabilities 147,985 147,038
Commitments and contingencies (Note B)
Stockholders' Equity: (Note C)
Preferred stock:
Authorized: 2,000,000 shares of $1 par value
Series A Junior Participating Preferred Stock
Issued and outstanding: none
Series B ESOP Convertible Preferred Stock 7.75% Cumulative
Issued: 75,336 shares (aggregate redemption value
$73,198 and $73,577) 75,336 75,336
Less cost of shares of preferred treasury stock (4,205) (4,003)
Common stock:
Authorized: 80,000,000 shares of $1 par value
Issued: 67,774,968 shares 67,775 67,775
Additional paid-in capital 6,195 3,783
Retained earnings 944,639 916,942
Less cost of common treasury stock
(including unearned amounts of $6,484 and $7,884) (473,876) (475,055)
Deferred employee benefits (67,040) (67,403)
Unrealized gain on marketable securities 22,393 28,787
Foreign currency translation adjustments 12,796 16,327
---------- ----------
Total stockholders' equity 584,013 562,489
---------- ----------
Total liabilities and stockholders' equity $1,592,497 $1,616,756
========== ==========
The accompanying notes are an integral part of these financial statements.
-5-
6
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended December 31, 1994 and 1993
(Dollars in thousands)
UNAUDITED
1994 1993
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 33,908 $ 15,958
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 23,417 21,004
Deferred tax provision 1,579 4,934
Equity in net income of affiliated companies,
net of dividends received (423) 1,891
Other, net 1,585 734
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (13,825) 9,515
Increase in inventory (27,437) (16,881)
Decrease in accounts payable and accruals (17,689) (58,716)
Increase in prepayments and intangible assets (1,235) (3,209)
Other, net 9,692 (10,033)
--------- --------
Cash provided (used) by operating activities 9,572 (34,803)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (24,288) (13,183)
Investments (20) -
Sales of investments and property, plant and equipment 33 29
--------- ---------
Cash used by investing activities (24,275) (13,154)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (151,411) (20,468)
Net increase in short-term debt 119,046 65,322
Sales of treasury stock, net 1,989 2,130
Cash dividends paid to stockholders (6,211) (5,775)
-------- ---------
Cash (used) provided by financing activities (36,587) 41,209
Effect of exchange rate changes on cash (105) (200)
-------- ---------
Decrease in cash and cash equivalents (51,395) (6,948)
Cash and cash equivalents at beginning of period 80,917 40,267
-------- --------
Cash and cash equivalents at end of period $ 29,522 $ 33,319
======== ========
The accompanying notes are an integral part of these financial statements.
-6-
7
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
A. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Cabot
Corporation and majority-owned and controlled domestic and foreign
subsidiaries. Investments in majority-owned affiliates where control
does not exist and investments in 20 percent to 50 percent-owned
affiliates are accounted for on the equity method. Intercompany
transactions have been eliminated.
The financial statements have been prepared in accordance with the
requirements of Form 10-Q and consequently do not include all
disclosures required by Form 10-K. Additional information may be
obtained by referring to the Company's Form 10-K for the year ended
September 30, 1994.
The financial information submitted herewith is unaudited and reflects
all adjustments which are, in the opinion of management, necessary to
provide a fair statement of the results for the interim periods ended
December 31, 1994 and 1993. All such adjustments are of a normal
recurring nature. The results for interim periods are not necessarily
indicative of the results to be expected for the fiscal year.
On August 17, 1994, a two-for-one stock split in the form of a stock
dividend was effected. Common share and per share amounts from the
first quarter of fiscal 1994 have been restated to reflect the split.
Earnings Per Share
The computation of fully diluted earnings per share considers the
conversion of the Company's Series B ESOP Convertible Preferred Stock
held by the Company's Employee Stock Ownership Plan, and also includes
the potentially dilutive effects of the Company's Equity Incentive
Plan.
Reclassification
Certain amounts in fiscal 1994 have been reclassified to conform to the
fiscal 1995 presentation.
B. CONTINGENCIES
The Company has various lawsuits, claims and contingent liabilities.
In the opinion of the Company, although final disposition of all of
its suits and claims may impact the Company's financial statements in
a particular period, they should not, in the aggregate, have a
material adverse effect on the Company's financial position.
-7-
8
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1994
UNAUDITED
C. STOCKHOLDERS' EQUITY
The following table summarizes the changes in stockholders' equity for
the three months ended December 31, 1994.
(Dollars in thousands)
Preferred Stock Common Stock
-------------- Preferred -------------- Additional
Shares Treasury Stock Shares Paid-In Retained
Issued Value Shares Cost Issued Value Capital Earnings
------ ------- ----- ------- ---------- ------- ------ --------
Balance at September 30, 1994 75,336 $75,336 4,504 $(4,003) 67,774,968 $67,775 $3,783 $916,942
Net income 33,908
Common stock dividends paid (5,321)
Issuance of treasury stock
under employee compen-
sation plans 6
Purchase of treasury stock -
common
Purchase of treasury stock -
preferred 165 (202)
Sale of treasury stock to
Cabot Retirement
Incentive Savings Plan 2,406
Preferred stock dividends
paid to Employee Stock
Ownership Plan, net of
tax (890)
Principal payment by Employee
Stock Ownership Plan
under guaranteed loan
Amortization of unearned
compensation
Unrealized gain/(loss), net
of deferred tax
Foreign currency translation
adjustments
------ ------- ----- ------- ---------- ------- ------ --------
Balance at December 31, 1994 75,336 $75,336 4,669 $(4,205) 67,774,968 $67,775 $6,195 $944,639
====== ======= ===== ======= ========== ======= ====== ========
Common Unrealized Foreign Total
Treasury Stock Deferred Gain/(Loss) Currency Stock-
-------------- Unearned Employee Marketable Translation holders'
Shares Cost Compensation Benefits Securities Adjustments Equity
---------- ---------- ------------- --------- ---------- ----------- --------
Balance at September 30, 1994 29,783,722 $(467,171) $(7,884) $(67,403) $28,787 $16,327 $562,489
Net Income 33,908
Common Stock dividends paid (5,321)
Issuance of treasury stock
under employee compen-
sation plans (13,874) 219 225
Purchase of treasury stock-
common 147,200 (3,894) (3,894)
Purchase of treasury stock-
preferred (202)
Sale of treasury stock to
Cabot Retirement
Incentive Savings Plan (218,936) 3,454 5,860
Preferred stock dividends
paid to Employee Stock
Ownership Plan net of
tax (890)
Principal payment by Employee
Stock Ownership under
guaranteed loan 363 363
Amortization of unearned
compensation 1,400 1,400
Unrealized gain/(loss), net of
deferred tax (6,394) (6,394)
Foreign currency translation
adjustments (3,531) (3,531)
---------- --------- ------- -------- ------- ------- --------
Balance at December 31, 1994 29,698,112 $(467,392) $(6,484) $(67,040) $22,393 $12,796 $584,013
========== ========= ======= ======== ======= ======= ========
-8-
9
CABOT CORPORATION
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
I. RESULTS OF OPERATIONS
Sales and operating profit by industry segment are shown in the
accompanying table on page 11.
Three Months Ended December 31, 1994 versus
Three Months Ended December 31, 1993
Net income for the first quarter of fiscal year 1995 was $33.9 million ($0.85
per primary common share), compared with net income of $16.0 million ($0.39 per
primary common share) in the same quarter a year ago. Net sales and other
operating revenues increased 7.4% to $428.0 million from $398.5 million. Total
operating profit improved 60% to $66.7 million from $41.6 million, reflecting
gains in both the Specialty Chemicals and Materials, and Energy Groups.
In the Specialty Chemicals and Materials Group, sales increased 25.7% to $349.8
million from $278.2 million last year. Operating profit improved 67.8% to
$60.4 million from $36.0 million last year. The strong quarterly results can
be primarily attributed to a 16% overall volume improvement across all regions
and businesses. The most significant volume gains were seen in the Specialty
Chemicals and Materials Group's European businesses. In addition, the Group
benefited from higher margins in the quarter due to improved pricing and higher
capacity utilization.
In the Energy Group, sales dropped 35% from $120.3 million to $78.2 million.
As expected, in the Company's LNG business, supplies have been significantly
reduced due to the refurbishment of the liquefaction facilities of the
Company's Algerian supplier. In addition, an unseasonably warm winter in the
Northeastern United States has also reduced demand. Operating profit for the
Group increased 12.5% to $6.3 million from $5.6 million in last year's first
quarter. This increase is primarily a result of the pricing structure used by
the Company's LNG business which includes revenues that are fixed and
independent of volumes sold. LNG supply curtailments are expected to
continue. The Company expects the reduced supply to negatively impact the
Energy Group's performance in the usually strong second quarter, and for the
fiscal year. The extent of the impact will depend on the number and timing of
LNG shipments received, weather patterns and other factors. Other gas supply
opportunities continue to be explored. The Company also cannot predict, at this
time, what, if any, impact the political instability in Algeria may have on the
deliveries of LNG to Cabot from its supplier.
Interest expense of $10.0 million remained relatively flat with last year's
$10.3 million. The Company expects to have lower interest expense during the
remainder of the year due to lower total debt and the replacement of $115
million of the fixed-rate high coupon debt, which matured in December 1994,
with short-term floating-rate debt currently at lower interest rates.
The Company's effective tax rate was reduced to 37% due primarily to the
reduction of trapped foreign losses and research and development tax credits.
During the quarter, the Company's operating performance benefited from
favorable currency translations, mostly a result of the relative strength of
European currencies. The recent devaluation of the Mexican Peso has not had a
material impact on the Company's results. At this time, the Company does not
believe that further economic difficulties in Mexico are likely to have a
material adverse impact on the Company's results.
The Company continues actively to consider various transaction opportunities
which would result in Cabot Safety Corporation, a wholly-owned subsidiary,
being deconsolidated.
-9-
10
CABOT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
II. CASH FLOWS AND LIQUIDITY
During the quarter, the Company's operations provided $9.6 million of cash as a
result of the higher income generated in the quarter, partially offset by the
continued rebuilding of inventories, particularly by the Company's TUCO
business, a decrease in accounts payable, and an increase in accounts
receivable as a result of the increased sales in the quarter.
The Company decreased its borrowings by $32.4 million during the quarter and
refinanced $115.0 million of the 9.875% coupon debt at more favorable
short-term floating rates.
The Company expects capital expenditures, which were $24.3 million in the
quarter, to continue at a similar or slightly higher rate for the remainder of
the fiscal year.
During the quarter, the Company purchased approximately 147,000 shares of its
common stock in the open market to replace, in part, shares issued for employee
incentive programs. The Company intends to purchase additional shares from
time to time based on market conditions.
Management expects cash from operations and present financing arrangements,
including the Company's unused line of credit of $250 million, to be sufficient
to meet the Company's cash requirements for the foreseeable future.
-10-
11
CABOT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
UNAUDITED
Three Months Ended
------------------
12/31/94 12/31/93
--------- ---------
Dollars in millions,
except per share amounts
------------------------
Industry Segment Data
- ---------------------
Sales:
Specialty Chemicals and Materials $349.8 $278.2
Energy 78.2 120.3
------ ------
Net Sales $428.0 $398.5
====== ======
Operating Profit:
Specialty Chemicals and Materials $ 60.4 $ 36.0
Energy 6.3 5.6
------ ------
Total operating profit 66.7 41.6
Interest expense (10.0) (10.3)
General corporate expense (5.7) (5.3)
------- ------
Income before income taxes 51.0 26.0
Provision for income taxes (18.8) (10.4)
Equity in net income of affiliated companies 1.7 0.4
------ ------
Net income 33.9 16.0
Dividends on preferred stock (0.9) (0.9)
------- ------
Income applicable to primary common shares $ 33.0 $ 15.1
======= ======
Income per common share:
Primary $ 0.85 $ 0.39
Fully Diluted $ 0.80 $ 0.37
-11-
12
Part II. Other Information
Item 1. Legal Proceedings
- -------------------------
On December 14, 1994, the U.S. Environmental Protection Agency ("EPA")
issued a Unilateral Administrative Order to the Company and 11 other
respondents pursuant to section 106 of the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 with respect to the
Revere Chemical Site (a/k/a Echo Site) in Nockamixon Township, Bucks
County, Pennsylvania (the "Site"). The Order requires the respondents
to design and implement several remedial measures at the Site,
estimated to cost approximately $15 million. Cabot's portion of that
cost, if any, has not yet been determined. Cabot has responded to the
EPA's Order by indicating that it should not have been named as a
respondent and by raising several objections to the Order.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
The exhibit numbers in the following list correspond to the
number assigned to such exhibits in the Exhibit Table of Item 601 of
Regulation S-K.
Exhibit
Number Description
------ -----------
11 Statement Regarding Computation of
Per Share Earnings, filed herewith.
12 Statement Regarding Computation of
Ratio of Earnings to Fixed Charges,
filed herewith.
27 Financial Data Schedule, filed
herewith. (Not included with printed
copy of the Form 10-Q).
(b) Reports on Form 8-K
-------------------
No report on Form 8-K was filed by the Company during the
three months ended December 31, 1994.
-12-
13
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CABOT CORPORATION
Date: February 10, 1995 /s/ John G.L. Cabot
-----------------------------------
John G.L. Cabot.
Vice Chairman and Chief Financial
Officer
Date: February 10, 1995 /s/ William R. Thompson
-----------------------------------
William R. Thompson
Vice President and Controller
(Chief Accounting Officer)
-13-
1
EXHIBIT 11
CABOT CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
For The Three Month
Period Ended December 31, 1994
(In thousands, except per share amounts)
Primary Fully Diluted
------- -------------
Shares of common stock outstanding at October 1, 1994,
less treasury stock 37,991 37,991
Plus net weighted shares of treasury stock issued 8 8
Plus common stock equivalents:
Effect of convertible preferred stock conversion - 3,091
Effect of equity incentive awards 620 650
---------- ----------
Weighted average shares outstanding 38,619 41,740
========== ==========
Income applicable to common shares $33,018 $33,018
Dividends on preferred stock - 890
Preferred stock conversion compensation shortfall - (600)
---------- ----------
Earnings applicable to common shares $33,018 $33,308
========== ===========
Earnings per common share $ 0.85 $ 0.80
========== ===========
1
EXHIBIT 12
CABOT CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
Three Months
Ended
December 31 Years ended September 30
--------------------------------------------------
1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ----
Earnings:
Pre-tax income from continuing operations $33,908 $118,325 $ 67,900 $116,599 $ 62,362 $ 63,983
Distributed income of affiliated companies 2,572 5,638 5,988 5,766 4,688 3,607
Add fixed charges:
Interest on indebtedness 10,036 41,668 44,043 41,714 38,661 41,145
Portion of rents representative of
the interest factor 1,337 5,879 4,838 4,933 5,715 5,226
-------- --------- --------- --------- --------- ---------
Income as adjusted $47,853 $171,510 $122,769 $169,012 $111,426 $113,961
Fixed charges:
Interest on indebtedness $10,036 $ 41,668 $ 44,043 $ 41,714 $ 38,661 $ 41,145
Capitalized interest - - - 3,963 8,745 -
Portion of rents representative of
the interest factor 1,337 5,879 4,838 4,933 5,715 5,226
-------- --------- --------- --------- -------- ---------
Total fixed charges $11,373 $ 47,547 $ 48,881 $ 50,610 $ 53,121 $ 46,371
Ratio of earnings to fixed charges 4.21 3.61 2.51 3.34 2.10 2.46
======== ========= ========= ========= ========= =========
5
1,000
US DOLLARS
3-MOS
SEP-30-1995
OCT-01-1994
DEC-31-1994
1
29,522
0
293,524
7,955
244,051
594,729
1,399,601
705,341
1,592,497
437,052
301,753
67,775
0
75,336
950,834
1,592,497
427,960
430,495
296,829
296,829
17,005
0
10,036
51,057
18,832
33,908
0
0
0
33,908
0.85
0.80
