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
JUNE 30, 2000
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 AUGUST 8, 2000, THE COMPANY HAD 66,321,829 SHARES OF COMMON
STOCK, PAR VALUE $1 PER SHARE, OUTSTANDING.
2
CABOT CORPORATION
INDEX
Part I. Financial Information PAGE
----
Item 1. Financial Statements
Consolidated Statements of Income
Three Months Ended June 30, 2000 and 1999 3
Consolidated Statements of Income
Nine Months Ended June 30, 2000 and 1999 4
Consolidated Balance Sheets
June 30, 2000 and September 30, 1999 5
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 2000 and 1999 7
Consolidated Statement of Changes in Stockholders' Equity
Nine Months Ended June 30, 2000 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 22
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 25
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30
(In millions, except per share amounts)
UNAUDITED
2000 1999
---- ----
Revenues:
Net sales and other operating revenues $ 398 $ 346
Interest and dividend income 1 1
----- -----
Total revenues 399 347
----- -----
Costs and other (income) expenses:
Cost of sales 294 235
Selling and administrative expenses 44 48
Research and technical service 11 14
Special items (Note B) (8) 16
Interest expense 7 10
Gain on sale of equity securities (Note F) -- (5)
Other charges, net (2) --
----- -----
Total costs and other (income) expenses 346 318
----- -----
Income from continuing operations before income taxes 53 29
Provision for income taxes (19) (11)
Equity in net income of affiliated companies 5 3
Minority interest in net income (1) (1)
----- -----
Income from continuing operations 38 20
Discontinued operations (Note C):
Income from operations of discontinued businesses, net of
income tax 8 2
----- -----
Net income 46 22
Dividends on preferred stock, net of tax benefit (1) --
----- -----
Net income available to common shares $ 45 $ 22
===== =====
Weighted-average common shares outstanding (Note K):
Basic 65 64
===== =====
Diluted 73 72
===== =====
Income per common share (Note K):
Basic
Continuing operations $0.56 $0.31
Discontinued operations 0.13 0.03
----- -----
Net income $0.69 $0.34
===== =====
Diluted
Continuing operations $0.51 $0.28
Discontinued operations 0.11 0.02
----- -----
Net income $0.62 $0.30
===== =====
Dividends per common share $0.11 $0.11
===== =====
The accompanying notes are an integral part of these financial statements.
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CABOT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended June 30
(In millions, except per share amounts)
UNAUDITED
2000 1999
---- ----
Revenues:
Net sales and other operating revenues $ 1,143 $ 1,013
Interest and dividend income 4 3
------- -------
Total revenues 1,147 1,016
------- -------
Costs and other (income) expenses:
Cost of sales 822 681
Selling and administrative expenses 131 143
Research and technical service 32 46
Special items (Note B) (8) 16
Interest expense 26 29
Gain on sale of equity securities (Note F) -- (10)
Other charges, net -- 4
------- -------
Total costs and other (income) expenses 1,003 909
------- -------
Income from continuing operations before income taxes 144 107
Provision for income taxes (52) (39)
Equity in net income of affiliated companies 8 9
Minority interest in net income (4) (3)
------- -------
Income from continuing operations 96 74
Discontinued operations (Note C):
Income from operations of discontinued businesses, net of
income tax 28 13
------- -------
Net income 124 87
Dividends on preferred stock, net of tax benefit (2) (2)
------- -------
Net income available to common shares $ 122 $ 85
======= =======
Weighted-average common shares outstanding (Note K):
Basic 65 65
======= =======
Diluted 73 73
======= =======
Income per common share (Note K):
Basic
Continuing operations $ 1.45 $ 1.11
Discontinued operations 0.43 0.20
------- -------
Net income $ 1.88 $ 1.31
======= =======
Diluted
Continuing operations $ 1.31 $ 1.00
Discontinued operations 0.38 0.18
------- -------
Net income $ 1.69 $ 1.18
======= =======
Dividends per common share $ 0.33 $ 0.33
======= =======
The accompanying notes are an integral part of these financial statements.
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CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 2000 and September 30, 1999
ASSETS
June 30 September 30
2000 1999
------- ------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 30 $ 35
Accounts and notes receivable (net of reserve for doubtful
accounts of $4 and $5) 302 321
Inventories:
Raw materials 69 72
Work in process 36 55
Finished goods 84 91
Other 33 41
------- -------
Total inventories 222 259
Prepaid expenses 30 27
Deferred income taxes 14 17
Net current assets of discontinued operations (Note C) 74
------- -------
Total current assets 672 659
------- -------
Investments:
Equity 70 72
Other 27 47
------- -------
Total investments 97 119
------- -------
Property, plant and equipment 1,828 2,039
Accumulated depreciation and amortization (1,002) (1,015)
------- -------
Net property, plant and equipment 826 1,024
------- -------
Other assets:
Intangible assets, net of amortization 22 20
Deferred income taxes 5 6
Other assets 14 14
------- -------
Total other assets 41 40
------- -------
Net non-current assets of discontinued operations (Note C) 197
------- -------
Total assets $ 1,833 $ 1,842
======= =======
The accompanying notes are an integral part of these financial statements.
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CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 2000 and September 30, 1999
LIABILITIES & STOCKHOLDERS' EQUITY
June 30 September 30
2000 1999
------- ------------
(Unaudited)
Current liabilities:
Notes payable to banks $ 109 $ 186
Current portion of long-term debt 56 11
Accounts payable and accrued liabilities 224 252
Deferred income taxes 1 1
------- -------
Total current liabilities 390 450
------- -------
Long-term debt 348 419
Deferred income taxes 73 68
Other liabilities 152 167
Commitments and contingencies (Note E)
Minority interest 46 32
Stockholders' Equity (Note I):
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 75 75
Issued: 75,336 shares (aggregate redemption value of $63 and $65)
Less cost of shares of preferred treasury stock (22) (17)
Common stock:
Authorized: 200,000,000 shares of $1 par value
Issued: 66,193,462 and 67,123,892 shares 66 67
Additional paid-in capital 70 5
Retained earnings 811 734
Unearned compensation (21) (30)
Deferred employee benefits (57) (59)
Notes receivable for restricted stock (21) (25)
Accumulated other comprehensive loss (Note J) (77) (44)
------- -------
Total stockholders' equity 824 706
------- -------
Total liabilities and stockholders' equity $ 1,833 $ 1,842
======= =======
The accompanying notes are an integral part of these financial statements.
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CABOT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended June 30, 2000 and 1999
(In millions)
UNAUDITED
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 124 $ 87
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 96 93
Deferred tax benefit 5 (7)
Equity in income of affiliated companies,
net of dividends received (2) (1)
Special charges -- 16
Gain on sale of equity securities -- (10)
Other, net 15 12
Changes in assets and liabilities, net of the effect of
the consolidation of equity affiliates:
Increase in accounts receivable (61) (45)
(Increase) decrease in inventory 11 (14)
Decrease in accounts payable and accruals (17) (72)
Increase in prepayments and intangible assets (6) --
Increase in income taxes payable 29 1
Increase (decrease) in other liabilities (14) 10
Other, net 1 (3)
----- -----
Cash provided by operating activities 181 67
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (87) (118)
Investments -- (5)
Cash from consolidation of equity affiliates -- 8
Acquisition of remaining interest in affiliate (14) --
Proceeds from sale of equity securities -- 20
Proceeds from sale of property, plant and equipment 2 --
----- -----
Cash used in investing activities (99) (95)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 17 102
Repayments of long-term debt (37) (8)
Decrease in short-term debt (76) (12)
Proceeds from initial public offering of Cabot Microelectronics Corporation 83 --
Purchases of preferred and common stock (45) (44)
Sales and issuances of preferred and common stock 9 9
Cash dividends paid to stockholders (24) (24)
Repayment (issuance) of notes receivable for restricted stock 4 (18)
----- -----
Cash provided by (used in) financing activities (69) 5
----- -----
Effect of exchange rate changes on cash (4) 2
----- -----
Increase (decrease) in cash and cash equivalents 9 (21)
Cash and cash equivalents at beginning of period 35 40
----- -----
Cash and cash equivalents at end of period $ 44 $ 19
===== =====
The accompanying notes are an integral part of these financial statements.
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CABOT CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Nine Months Ended June 30, 2000
(In millions)
UNAUDITED
------------------------------------------------------------------------------------------------
Accumulated
Preferred Additional Other
Preferred Treasury Common Paid-in Retained Comprehensive Unearned
Stock Stock Stock Capital Earnings Loss Compensation
------------------------------------------------------------------------------------------------
Balance at September 30, 1999 $ 75 $(17) $ 67 $ 5 $734 $(44) $(30)
------------------------------------------------------------------------------------------------
Net income 124
Foreign currency translation
adjustments (35)
Change in unrealized gain on
available-for-sale securities 2
------------------------------------------------------------------------------------------------
Total comprehensive income
------------------------------------------------------------------------------------------------
Common dividends paid (22)
Issuance of stock under employee
compensation plans 1 8 (2)
Issuance of common stock to CRISP 2
Purchase and retirement of common
stock (2) (15) (23)
Purchase of treasury stock -
preferred (5)
Preferred dividends paid to
Employee Stock Ownership Plan,
net of tax (2)
Principal payment by Employee
Stock Ownership Plan under
guaranteed loan
Proceeds from initial public
offering - Cabot Microelectronics
Corporation 83
Minority interest recorded related
to Cabot Microelectronics
Corporation (13)
Amortization of unearned
compensation 11
Notes receivable - vesting and
forfeitures, net
------------------------------------------------------------------------------------------------
Balance at June 30, 2000 $ 75 $ (22) $ 66 $ 70 $ 811 $ (77) $ (21)
================================================================================================
-------------------------------------------------------------
Notes
Deferred Receivable Total Total
Employee for Restricted Stockholders' Comprehensive
Benefits Stock Equity Income
-------------------------------------------------------------
Balance at September 30, 1999 $ (59) $(25) $706
------------------------------------------------------------
Net income $ 124
Foreign currency translation
adjustments (35)
Change in unrealized gain on
available-for-sale securities 2
------------------------------------------------------------
Total comprehensive income $ 91
---------------------------------------------===============
Common dividends paid
Issuance of stock under employee
compensation plans
Issuance of common stock to CRISP
Purchase and retirement of common
stock
Purchase of treasury stock -
preferred
Preferred dividends paid to
Employee Stock Ownership Plan,
net of tax
Principal payment by Employee
Stock Ownership Plan under
guaranteed loan 2
Proceeds from initial public
offering - Cabot Microelectronics
Corporation
Minority interest recorded related
to Cabot Microelectronics
Corporation
Amortization of unearned
compensation
Notes receivable - vesting and
forfeitures, net 4
---------------------------------------------
Balance at June 30, 2000 $ (57) $(21) $824
=============================================
The accompanying notes are an integral part of these financial statements.
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CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
UNAUDITED
A. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Cabot
Corporation and majority-owned and controlled U.S. and non-U.S.
subsidiaries (Cabot). Investments in 20 to 50 percent owned affiliates are
accounted for on the equity method. Intercompany transactions have been
eliminated.
The unaudited consolidated 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 Cabot's Form 10-K for the year ended September
30, 1999.
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 June 30, 2000
and 1999. 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.
B. SPECIAL ITEMS AND BUSINESS DEVELOPMENTS
During the third quarter of fiscal 1999, Cabot began implementation of
initiatives to reduce costs and improve operating efficiencies. In
connection with these efforts, in fiscal 1999 Cabot recorded a $26 million
charge for capacity utilization and cost reduction initiatives. These
Chemical Businesses charges included $16 million for severance and
termination benefits for approximately 265 employees, of which $7 million
was paid out in 1999, and a charge of $10 million for the retirement of
certain long-lived plant assets, primarily at the Australian carbon black
facility and European plastics masterbatch operations. An additional $8
million for severance and termination benefits was paid out during the
first three quarters of fiscal 2000. Cabot expects these initiatives to be
substantially completed by the end of fiscal 2000.
During the third quarter of fiscal 2000, Cabot received an $8 million
pre-tax settlement of insurance litigation.
During 1996, Cabot acquired an 80% ownership interest in P.T. Continental
Carbon Indonesia (PTCCI), an Indonesian carbon black plant located in
Merak, Indonesia. During 1998, the financial and economic circumstances in
Indonesia and the region resulted in a significant decline in demand for
carbon black. As a result, management halted production at this plant.
Cabot maintained the idled facility and, in February 2000, the facility
began to operate on a limited basis and commenced normal operations in the
third quarter of fiscal 2000.
On March 17, 2000, Cabot signed a preliminary agreement to acquire the
remaining interest in a joint venture for approximately $14 million. The
acquisition closed in the third quarter of fiscal 2000, and was accounted
for using the purchase method of accounting. Accordingly, the purchase
price was allocated to the net assets acquired based on their estimated
fair values. The excess of the purchase price over fair value of net assets
acquired of approximately $7 million was recorded as goodwill and will be
amortized over 10 years.
C. DISCONTINUED OPERATIONS
On July 13, 2000, Cabot entered into an agreement to sell for cash
its Liquefied Natural Gas (LNG) segment for $680 million. The sale includes
Cabot's LNG terminal in Everett, Massachusetts, its LNG tanker, the
Matthew, and its equity interest in the Atlantic LNG liquefaction plant in
Trinidad. The transaction is expected to close during the fourth quarter of
fiscal 2000.
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CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2000
UNAUDITED
The estimated gain on the sale of the LNG segment is approximately $317
million, net of tax.
On April 4, 2000, Cabot Microelectronics Corporation (CMC), a subsidiary of
Cabot Corporation (Cabot), sold 4.6 million shares of its common stock in
an initial public offering (IPO). The 4.6 million shares represented
approximately 19.5% of CMC. The net proceeds from the IPO were
approximately $83 million. Cabot received an aggregate of approximately $81
million in dividends from CMC.
On July 26, 2000, Cabot voted to spin-off its remaining 80.5% equity
interest in CMC by distributing a special dividend of its remaining
interest in CMC to its common stockholders of record as of the close of
regular trading on the New York Stock Exchange on September 13, 2000. The
tax-free distribution will take place on September 29, 2000. Cabot
currently owns 18,989,744 shares of common stock of CMC.
The operating results of Cabot's LNG and CMC segments have been segregated
from continuing operations and reported as a separate item on the
consolidated statements of income.
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CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2000
UNAUDITED
(In millions)
C. DISCONTINUED OPERATIONS - (CONTINUED)
Summary statements of income for the Liquefied Natural Gas (LNG) segment
are as follows:
Three Months Nine Months
ended June 30 ended June 30
2000 1999 2000 1999
---- ---- ---- ----
Net sales and other operating revenues $ 81 $ 58 $ 304 $ 200
====== ===== ===== =====
Operating income (loss) -- (1) 12 6
Provision for income taxes -- -- (4) (2)
------ ----- ----- -----
Income (loss) from operations of discontinued business $ -- $ (1) $ 8 $ 4
====== ===== ===== =====
At June 30, 2000, assets of the LNG segment amounted to $190 million. These
assets consisted of current assets of $57 million, primarily accounts
receivable and inventories, and non-current assets of $133 million,
primarily investments and property, plant and equipment. Liabilities of $23
million consisted primarily of accounts payable and accruals.
Summary statements of income for the Cabot Microelectronics Corporation
(CMC) segment are as follows:
Three Months Nine Months
ended June 30 ended June 30
2000 1999 2000 1999
---- ---- ---- ----
Net sales and other operating revenues $ 50 $ 23 $ 123 $ 65
===== ===== ===== =====
Operating income 14 4 33 14
Provision for income taxes (6) (1) (13) (5)
----- ----- ----- -----
Income from operations of discontinued business $ 8 $ 3 $ 20 $ 9
===== ===== ===== =====
At June 30, 2000, assets of the CMC segment amounted to $119 million. These
assets consisted of current assets of $51 million, primarily time deposits,
accounts receivables and inventories, and non-current assets of $68
million, primarily property, plant and equipment. Liabilities of $15
million consisted primarily of accounts payable and accruals and deferred
income taxes.
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CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2000
UNAUDITED
D. RECLASSIFICATION
Certain amounts were reclassified in fiscal 1999 to reflect changes in
Cabot's organization during the year and to conform to the fiscal 2000
presentation.
E. COMMITMENTS AND CONTINGENCIES
During January 2000, Cabot entered into a sales agreement to provide
natural gas to a customer in North America. The contract is designed to
provide the customer with 70 billion cubic feet of vaporized natural gas
per year at prevailing market prices expiring in 2020.
On March 20, 2000, Cabot entered into a forward agreement with an
investment bank to repurchase Cabot common stock on the open market. On
June 29, 2000, Cabot settled the forward contract to purchase 1 million
shares of Cabot common stock at an average price of $23.74 per share.
F. INVESTMENTS
During each of the second and third quarters of fiscal 1999, Cabot sold 0.5
million shares of its investment in K N Energy, Inc. In the second quarter,
Cabot received cash proceeds of $9 million and recorded a gain of $5
million. In the third quarter, Cabot received cash proceeds of $11 million
and recorded a gain of $5 million.
G. LNG COMMODITIES
Cabot is exposed to natural gas price fluctuations that can affect its
sales revenues and supply costs. Cabot, from time to time, enters into
commodity futures contracts, commodity price swaps, and/or option contracts
to hedge a portion of firmly committed and anticipated transactions against
such natural gas price fluctuations. Cabot monitors its exposure to ensure
overall effectiveness of its hedge positions.
As of June 30, 2000, the notional principal amount for the commodity
futures contracts, commodity price swaps, and option contracts was $31
million, maturing through August 2000. For the nine months ended June 30,
2000, Cabot realized losses associated with the hedging activity of $7
million, of which $6 million was realized during the third quarter of
fiscal 2000.
H. INTEREST RATE SWAPS
Cabot maintains a percentage of fixed and variable rate debt within defined
parameters. Cabot used interest rate swaps to hedge its exposure on fixed
and variable rate debt positions through January 2000.
During the first quarter of fiscal 2000, Cabot settled one of its remaining
two interest rate swap agreements with a $50 million notional principal
amount. The cost associated with this settlement was approximately $1
million and will be amortized over the remaining eight year life of the
hedged debt positions. As of December 31, 1999, the notional principal
amount of the remaining interest rate swap agreement was $50 million,
expiring in 2007. In January 2000, Cabot settled the remaining interest
rate swap agreement. The cost associated with this settlement was
immaterial. For the first nine months of fiscal 2000, the gains or losses
in interest income or expense associated with these agreements was
immaterial.
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CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2000
(Preferred shares in thousands and common shares in millions)
UNAUDITED
I. STOCKHOLDERS' EQUITY
The following table summarizes the changes in shares of stock for the three
months ended June 30:
2000
----
PREFERRED STOCK
Balance at March 31, 2000 75
===
Balance at June 30, 2000 75
===
PREFERRED TREASURY STOCK
Balance at March 31, 2000 11
Purchased preferred treasury stock 1
---
Balance at June 30, 2000 12
===
COMMON STOCK
Balance at March 31, 2000 67
Issued common stock --
Purchased and retired common stock (1)
---
Balance at June 30, 2000 66
===
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CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2000
(Preferred shares in thousands and common shares in millions)
UNAUDITED
I. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes the changes in shares of stock for the nine
months ended June 30:
2000
----
PREFERRED STOCK
Balance at September 30, 1999 75
===
Balance at June 30, 2000 75
===
PREFERRED TREASURY STOCK
Balance at September 30, 1999 10
Purchased preferred treasury stock 2
---
Balance at June 30, 2000 12
===
COMMON STOCK
Balance at September 30, 1999 67
Issued common stock 1
Purchased and retired common stock (2)
---
Balance at June 30, 2000 66
===
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CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2000
(In millions)
UNAUDITED
J. COMPREHENSIVE INCOME
The pre-tax, tax, and after-tax effects of the components of other
comprehensive loss for the three months ended June 30 are shown below:
Pre-tax Tax After-tax
------- --- ---------
2000
Foreign currency translation adjustments $ (9) $ -- $ (9)
Unrealized holding gain arising during period on
marketable equity securities 1 -- 1
----- ---- ------
Other comprehensive loss $ (8) $ -- $ (8)
===== ==== ======
Pre-tax Tax After-tax
------- --- ---------
1999
Foreign currency translation adjustments $ (6) $ -- $ (6)
Unrealized holding loss arising during period on
marketable equity securities (6) -- (6)
----- ---- ------
Other comprehensive loss $ (12) $ -- $ (12)
===== ==== ======
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CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2000
(In millions)
UNAUDITED
J. COMPREHENSIVE INCOME (CONTINUED)
The pre-tax, tax, and after-tax effects of the components of other
comprehensive loss for the nine months ended June 30 are shown below:
Pre-tax Tax After-tax
------- --- ---------
2000
Foreign currency translation adjustments $ (35) $ -- $ (35)
Unrealized holding gain (loss) arising during period on
marketable equity securities 3 (1) 2
----- --- ------
Other comprehensive loss $ (32) $ (1) $ (33)
===== ==== ======
Pre-tax Tax After-tax
------- --- ---------
1999
Foreign currency translation adjustments $ (35) $ -- $ (35)
Unrealized holding gain (loss) arising during period
on marketable equity securities (22) 5 (17)
----- --- ------
Other comprehensive income (loss) $ (57) $ 5 $ (52)
===== ==== ======
The balance of related after-tax components comprising accumulated other
comprehensive loss as of June 30 is summarized below:
2000 1999
---- ----
Foreign currency translation adjustment $(82) $(65)
Unrealized gain on marketable equity securities 5 --
---- ----
Accumulated other comprehensive loss $(77) $(65)
==== ====
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CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2000
(In millions, except per share amounts)
UNAUDITED
K. EARNINGS PER SHARE
Three Months Ended June 30
2000 1999
---- ----
Basic and diluted earnings per share (EPS) were calculated as follows:
BASIC EPS
Income available to common shares (numerator) $ 45 $ 22
===== =====
Weighted-average common shares outstanding 67 66
Less: Contingently issuable shares (2) (2)
----- -----
Adjusted weighted-average shares (denominator) 65 64
===== =====
Basic EPS $0.69 $0.34
===== =====
DILUTED EPS
Income available to common shares $ 45 $ 22
Dividends on preferred stock 1 --
Less: Income effect of assumed conversion of preferred stock (1) --
----- -----
Income available to common shares plus assumed conversions (numerator) $ 45 $ 22
===== =====
Weighted-average common shares outstanding 67 66
Effect of dilutive securities: stock-based compensation(1) 6 6
----- -----
Adjusted weighted-average shares (denominator) 73 72
===== =====
Diluted EPS $0.62 $0.30
===== =====
(1) Of the options to purchase shares of common stock outstanding at June 30,
0.2 million and 0.3 million shares were not included in the computation of
diluted EPS because those options' exercise price was greater than the
average market price of the common shares for 2000 and 1999, respectively.
17
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CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2000
(In millions, except per share amounts)
UNAUDITED
K. EARNINGS PER SHARE (CONTINUED)
Nine Months Ended June 30
2000 1999
---- ----
Basic and diluted earnings per share (EPS) were calculated as follows:
BASIC EPS
Income available to common shares (numerator) $ 122 $ 85
===== =====
Weighted-average common shares outstanding 67 67
Less: Contingently issuable shares (2) (2)
----- -----
Adjusted weighted-average shares (denominator) 65 65
===== =====
Basic EPS $1.88 $1.31
===== =====
DILUTED EPS
Income available to common shares $ 122 $ 85
Dividends on preferred stock 2 2
Less: Income effect of assumed conversion of preferred stock (1) (1)
----- -----
Income available to common shares plus assumed conversions (numerator) $ 123 $ 86
===== =====
Weighted-average common shares outstanding 67 67
Effect of dilutive securities: stock-based compensation(1) 6 6
----- -----
Adjusted weighted-average shares (denominator) 73 73
===== =====
Diluted EPS $1.69 $1.18
===== =====
(1) Of the options to purchase shares of common stock outstanding at June 30,
0.3 million and 0.3 million shares were not included in the computation of
diluted EPS because those options' exercise price was greater than the
average market price of the common shares for 2000 and 1999, respectively.
18
19
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2000
(In millions)
UNAUDITED
L. FINANCIAL INFORMATION BY SEGMENT
The framework for segment reporting is intended to give analysts and other
financial statement users a view of Cabot "through the eyes of management".
It designates Cabot's internal management reporting structure as the basis
for determining Cabot's reportable segments, as well as the basis for
determining the information to be disclosed for those segments. The
following table provides financial information by segment for the three
months ended June 30:
- ------------------------------------------------------------------------------------------------------------------------------------
CHEMICAL PERFORMANCE SPECIALTY SEGMENT UNALLOCATED CONSOLIDATED
BUSINESSES MATERIALS FLUIDS TOTAL AND OTHER TOTAL(6)
---------- ----------- --------- ------- ----------- ------------
2000
Net sales and other operating revenues(1)(2) $357 $ 56 $ 6 $419 $(21) $398
Profit (loss) before taxes(3) $ 48 $ 10 $ -- $ 58 $ (5) $ 53
- ------------------------------------------------------------------------------------------------------------------------------------
1999
Net sales and other operating revenues(1)(2) $309 $ 51 $ 3 $363 $(17) $346
Profit (loss) before taxes(3) $ 44 $ 11 $ (1) $ 54 $(25) $ 29
------------------------------------------------------------------------------------------------------------------------------
Unallocated and other net sales and other operating revenues includes the
following:
------------------------------------------------------------------
2000 1999
---- ----
Equity affiliate sales $(20) $(18)
Royalties paid by equity affiliates 2 2
Interoperating segment revenues (3) (1)
---- ----
Total $(21) $(17)
==== ====
------------------------------------------------------------------
Unallocated and other profit (loss) before taxes includes the following:
- -----------------------------------------------------------------------------
2000 1999
---- ----
Interest expense $ (7) $(10)
Gain on sale of equity securities -- 5
General unallocated income (expense)(4) (1) (1)
Special items(5) 8 (16)
Equity in net income of affiliated companies (5) (3)
---- ----
Total $ (5) $(25)
==== ====
- -----------------------------------------------------------------------------
(1) Net sales for certain operating segments include 100% of equity affiliate
sales and transfers of materials at cost and market-based prices.
(2) Unallocated and other reflects an adjustment for equity affiliate sales and
interoperating segment revenues and includes royalties paid by equity
affiliates.
(3) Segment profit is a measure used by Cabot's chief operating decision-makers
to measure consolidated operating results and assess segment performance.
It includes equity in net income of affiliated companies, royalties paid by
equity affiliates, minority interest, and corporate governance costs, and
excludes foreign currency transaction gains (losses), interest income
(expense) and dividend income.
(4) General unallocated income (expense) includes foreign currency transaction
gains (losses), interest income (expense), dividend income, and adjustments
for minority interest, as well as timing adjustments between Cabot and its
segments and corporate allocations previously allocated to discontinued
segments.
(5) Special items include a $8 million pre-tax settlement of insurance
litigation for fiscal 2000 and a $16 million charge for cost reduction
initiatives for fiscal 1999.
(6) The consolidated total presents the results of Cabot's continuing
operations. The results of the Liquefied Natural Gas and Microelectronics
segments are presented as discontinued operations.
19
20
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2000
(In millions)
UNAUDITED
L. FINANCIAL INFORMATION BY SEGMENT (CONTINUED)
The framework for segment reporting is intended to give analysts and other
financial statement users a view of Cabot "through the eyes of management".
It designates Cabot's internal management reporting structure as the basis
for determining Cabot's reportable segments, as well as the basis for
determining the information to be disclosed for those segments. The
following table provides financial information by segment for the nine
months ended June 30:
- ------------------------------------------------------------------------------------------------------------------------------------
CHEMICAL PERFORMANCE SPECIALTY SEGMENT UNALLOCATED CONSOLIDATED
BUSINESSES MATERIALS FLUIDS TOTAL AND OTHER TOTAL(6)
---------- ----------- --------- ------- ----------- ------------
2000
Net sales and other operating revenues (1) (2) $1,029 $ 161 $ 15 $1,205 $ (62) $1,143
Profit (loss) before taxes(3) $ 150 $ 26 $ (3) $ 173 $ (29) $ 144
- ------------------------------------------------------------------------------------------------------------------------------------
1999
Net sales and other operating revenues (1) (2) $ 919 $ 134 $ 9 $1,062 $ (49) $1,013
Profit (loss) before taxes (3) $ 139 $ 20 $ (2) $ 157 $ (50) $ 107
------------------------------------------------------------------------------------------------------------------------------
Unallocated and other net sales and other operating revenues includes the
following:
------------------------------------------------------------------
2000 1999
---- ----
Equity affiliate sales $(61) $(49)
Royalties paid by equity affiliates 6 5
Interoperating segment revenues (7) (5)
---- ----
Total $(62) $(49)
==== ====
------------------------------------------------------------------
Unallocated and other profit (loss) before taxes includes the following:
- ---------------------------------------------------------------------------
2000 1999
---- ----
Interest expense $ (26) $ (29)
Gain on sale of equity securities - 10
General unallocated income (expense) (4) (3) (6)
Special items (5) 8 (16)
Equity in net income of affiliated companies (8) (9)
----- -----
Total $ (29) $ (50)
===== =====
- ---------------------------------------------------------------------------
(1) Net sales for certain operating segments include 100% of equity affiliate
sales and transfers of materials at cost and market-based prices.
(2) Unallocated and other reflects an adjustment for equity affiliate sales and
interoperating segment revenues and includes royalties paid by equity
affiliates.
(3) Segment profit is a measure used by Cabot's chief operating decision-makers
to measure consolidated operating results and assess segment performance.
It includes equity in net income of affiliated companies, royalties paid by
equity affiliates, minority interest, and corporate governance costs, and
excludes foreign currency transaction gains (losses), interest income
(expense) and dividend income.
(4) General unallocated income (expense) includes foreign currency transaction
gains (losses), interest income (expense), dividend income, and adjustments
for minority interest, as well as timing adjustments between Cabot and its
segments and corporate allocations previously allocated to discontinued
segments.
(5) Special items include a $8 million pre-tax settlement of insurance
litigation for fiscal 2000 and a $16 million charge for cost reduction
initiatives for fiscal 1999.
(6) The consolidated total presents the results of Cabot's continuing
operations. The results of the Liquefied Natural Gas and Microelectronics
segments are presented as discontinued operations.
20
21
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 2000
UNAUDITED
M. RECENT ACCOUNTING DEVELOPMENTS
In December 1999, the Securities and Exchange Commission (SEC), released
Staff Accounting Bulletin No. 101 (SAB 101), which provides guidance on
the recognition, presentation, and disclosure of revenue in financial
statements filed with the SEC. In June 2000, the SEC released SAB 101B,
which postponed the effective date SAB 101 to the fourth quarter of fiscal
years beginning after December 15, 1999. Cabot will be required to be in
conformity with the provisions of SAB 101 in the fourth quarter of fiscal
2001. Cabot is currently evaluating the impact that SAB 101 will have on
its financial condition and results of operations.
21
22
CABOT CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In July 2000, Cabot Corporation (Cabot) announced plans to divest itself of its
microelectronics segment and its liquefied natural gas (LNG) segment. Cabot will
spin-off its remaining 80.5% equity interest in Cabot Microelectronics
Corporation (CMC) by distribution of a special dividend. The dividend will
reflect Cabot's remaining interest in CMC and will be distributed to Cabot's
shareholders of record as of the close of regular trading on the New York Stock
Exchange on September 13, 2000. While the exact distribution ratio will not be
known until the record date, it is anticipated that each shareholder of Cabot
common stock will receive approximately 0.28 shares of CMC for each share of
Cabot owned. In addition, Cabot has agreed to sell its LNG segment to Tractebel,
Inc. The $680 million cash deal includes Cabot's LNG terminal in Everett,
Massachusetts, its LNG tanker, the Matthew, and its equity interest in the
Atlantic LNG liquefaction plant in Trinidad. The sale is expected to close in
the fourth quarter of fiscal 2000. Cabot's consolidated financial statements for
all periods present CMC and LNG as discontinued operations in accordance with
Accounting Principles Board Opinion No. 30. For further information regarding
these discontinued operations, see Note C of the consolidated financial
statements. Unless otherwise indicated, the following discussion relates to
Cabot's continuing operations.
I. RESULTS OF OPERATIONS
Sales and operating profit by segment are shown in Note L to the Consolidated
Financial Statements.
THREE MONTHS ENDED JUNE 30, 2000 VERSUS
THREE MONTHS ENDED JUNE 30, 1999
Net income for the third quarter of fiscal 2000 was $46 million ($0.62 per
diluted common share) compared to $22 million ($0.30 per diluted common share)
in the same quarter a year ago. Included in this year's results is a $0.07 per
diluted share special item benefit from the settlement of insurance litigation.
Included in last year's results was a charge from the incurrence of cost
reduction initiatives which were offset by a gain on a sale of equity securities
resulting in a net ($0.10) per diluted share special item charge. Earnings per
diluted share of $0.55 (exclusive of the $0.07 special item) may be attributed
$0.44 and $0.11 to continuing operations and discontinued operations,
respectively.
Strong volumes and an economic recovery in some overseas markets increased sales
by $52 million from $346 million last year to $398 million this year. Operating
profit before special items increased 7% to $58 million from $54 million last
year. Increased volumes in all businesses and significant cost reductions more
than offset the effects of higher carbon black feedstock costs and unfavorable
currency fluctuations.
Sales for the Chemicals Businesses increased 16% to $357 million this year from
$309 million last year. Higher volumes and selling prices increased sales 7% and
12%, respectively. However, sales were reduced by the negative impact of a
weakened Euro. Operating profit increased from $44 million to $48 million. This
9% increase in profit is primarily attributed to increased volume, increased
pricing, and a noticeable reduction in manufacturing and overhead costs.
For the third quarter of fiscal 2000, carbon black sales increased 14%. Higher
volumes and modest price increases were partially offset by negative foreign
exchange effects in Europe. Volumes in Cabot's carbon black business were very
strong. Record sales volumes were achieved in North and South America with a
marked improvement in Asia Pacific. Overall, volumes improved 11% this quarter
versus the third quarter of last year. Significant increases in oil prices
caused average feedstock costs to increase approximately 39%, or $37 million, in
the third quarter of fiscal 2000 versus the third quarter last year. Carbon
black has not been able to fully recover the lost margin resulting from
increases in its feedstock costs. However, carbon black benefited from
reductions in selling and administrative, conversion, and research and
development costs which caused a $6 million improvement in operating profit.
Overall, operating profit improved 18%.
22
23
CABOT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Fumed metal oxides, including fumed silica, sales increased 11% and volumes
increased 9%. Volume improvements, driven mainly by increased sales to Dow
Corning and CMC, were offset by increased operating costs related to Cabot's new
fumed metal oxides plant in Midland, Michigan, resulting in $2 million lower
operating profit compared with last year's third quarter.
Cabot's inkjet colorants business reported $1 million in operating profit which
marks the business' first profitable quarter ever.
Performance Materials sales were $56 million in the third quarter of fiscal 2000
compared with $51 million in 1999. However, increased volumes were offset by a
rise in raw material costs (tantalum) and onetime labor related costs, which,
resulted in a $1 million decrease in operating profit.
Specialty Fluids sales in the third quarter were $6 million versus $3 million
last year. This business focuses on commercializing cesium formate drilling and
completion fluids for oil and gas wells. Sales to date have been generated from
the production and sale of cesium formate fluids as well as spodumene and
tantalum. During the third quarter, cesium formate was used successfully in six
additional North Sea completion operations. Increased revenue together with
reduced costs have resulted in this business' first breakeven quarter ever.
Research and technical service spending was $11 million for the third quarter,
down 21% from $14 million in the third quarter of last year. The decrease
reflected reduced spending in Performance Materials and the Chemical Businesses.
Selling and administrative expenses were $44 million for the third quarter, down
8% from $48 million in the third quarter of last year. Selling and
administrative expenses were 11% of sales in the current quarter compared with
14% a year ago.
Cabot's effective tax rate was 36% for the quarters ended June 30, 2000 and
1999.
NINE MONTHS ENDED JUNE 30, 2000 VERSUS
NINE MONTHS ENDED JUNE 30, 1999
Net income for the first nine months of fiscal 2000 was $124 million compared
with $87 for the first nine months of fiscal 1999. Similarly, operating profit
before special items increased 10% to $173 million from $157 million.
In the Chemical Businesses, sales increased 12% to $1,029 million from $919
million last year. Operating profit increased 8% to $150 million from $139
million. This increase was primarily driven by larger volumes, higher prices,
and significant cost reductions. These factors offset increased carbon black
feedstock costs and the impact of negative foreign currency trends, primarily in
Europe.
Performance Materials sales were $161 million, up 20% from the first nine months
of fiscal 1999. Operating profit increased to $26 million from $20 million due
to an increased demand for tantalum capacitors from the wireless
telecommunications and electronics industries.
Specialty Fluids reported a loss of $3 million for the nine month period ended
June 30, 2000 versus a $2 million loss last year. As of June 30, 2000, cesium
formate fluids were used successfully in 13 North Sea completion operations.
23
24
CABOT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
II. CASH FLOWS AND LIQUIDITY
During the first nine months of the year, Cabot's operations provided $181
million of cash compared to $67 million of cash last year.
Capital spending for the first nine months of the year was $101 million. The
major components of the fiscal 2000 capital program include maintenance and
replacement projects, CMC plant expansion, and expansion of vaporization
capacity at the LNG terminal in Everett, Massachusetts. Cabot plans to make
approximately $170 million of capital expenditures during the fiscal year.
On January 14, 2000, Cabot's Board of Directors authorized the repurchase of 4
million shares of Cabot's common stock, superceding prior authorizations. During
the first nine months of fiscal 2000, Cabot purchased approximately 1.5 million
shares of common stock. At June 30, 2000, approximately 2.5 million shares
remained under the January 2000 authorization.
On March 20, 2000, Cabot entered into a forward agreement with an investment
bank to repurchase Cabot common stock on the open market. The agreement provided
for the purchase of 1 million shares at an average price of $23.74 per share.
Cabot settled the contract on June 29, 2000.
On April 4, 2000, CMC, a subsidiary of Cabot, sold 4.6 million shares of its
common stock in an initial public offering (IPO). The 4.6 million shares
represented approximately 19.5% of CMC. The net proceeds from the IPO were
approximately $83 million. Cabot received an aggregate of approximately $81
million in dividends from CMC.
On May 18, 2000, Cabot repurchased $16 million in 8.36% Cabot Medium Term Notes.
The notes were due to mature August 17, 2022.
Cabot's ratio of total debt (including short-term debt net of cash) to capital
decreased to 35% at June 30, 2000 from 49% at the end of the third quarter of
fiscal 1999.
Cabot maintains a credit agreement under which it may, under certain conditions,
borrow up to $300 million at floating rates. The facility is available through
January 3, 2002. As of June 30, 2000, Cabot had no borrowing outstanding under
this arrangement. Management expects cash from operations and present financing
arrangements, including Cabot's unused line of credit and shelf registration for
debt securities, to be sufficient to meet Cabot's cash requirements for the
foreseeable future.
Cabot has concluded discussions with a major Asia Pacific customer regarding
delinquent outstanding trade receivables. Extended terms have been granted to
the customer and Cabot believes the probability of collection is high.
FORWARD LOOKING INFORMATION
Included herein are statements relating to management's projections of future
profits, the possible achievement of Cabot's financial goals and objectives, and
management's expectations for Cabot's product development program. Actual
results may differ materially from the results anticipated in the statements
included herein due to a variety of factors, including market supply and demand
conditions, fluctuations in currency exchange rates, cost of raw materials,
patent rights of others, demand for Cabot's customers' products, and
competitors' reactions to market conditions. Timely commercialization of
products under development by Cabot may be disrupted or delayed by technical
difficulties, market acceptance or competitors' new products, as well as
difficulties in moving from the experimental stage to the production stage.
24
25
PART II. OTHER INFORMATION
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
------- -----------
27.1 Financial Data Schedule for the period
ended June 30, 2000, filed herewith.
(Not included with printed copy of Form 10-Q.)
27.2 Restated Financial Data Schedule for the
period ended June 30, 1999, filed herewith.
(Not included with printed copy of 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 June 30, 2000.
25
26
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: August 14, 2000 /s/ Robert L. Culver
--------------------------------
Robert L. Culver
Executive Vice President and
Chief Financial Officer
Date: August 14, 2000 /s/ William T. Anderson
--------------------------------
William T. Anderson
Vice President and Controller
(Chief Accounting Officer)
26
5
9-MOS
SEP-30-2000
JUN-30-2000
30
0
306
4
222
672
1,828
1,002
1,833
390
348
0
53
66
705
1,833
1,143
1,147
822
822
24
0
26
144
52
96
28
0
0
124
1.88
1.69
5
9-MOS
SEP-30-1999
JUN-30-1999
19
0
332
5
263
655
1,988
990
1,818
475
422
0
59
66
548
1,818
1,013
1,016
681
681
56
0
29
107
39
74
13
0
0
87
1.31
1.18
