SEC Filing | Cabot Corporation

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cbt-10q_20190630.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

☐	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 or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

Two Seaport Lane

Boston, Massachusetts

02210-2019

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (617) 345-0100

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $1 par value per share	CBT	The New York Stock Exchange

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The Company had 57,782,998 shares of common stock, $1.00 par value per share, outstanding as of August 6, 2019.

INDEX

Part I.	Financial Information

	Item 1.	Financial Statements (unaudited)
		Consolidated Statements of Operations	3
		Consolidated Statements of Comprehensive Income	4
		Consolidated Balance Sheets	5
		Consolidated Statements of Cash Flows	7
		Consolidated Statements of Changes in Stockholders’ Equity	8
		Notes to the Consolidated Financial Statements	10

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
	Item 4.	Controls and Procedures	44

Part II.	Other Information
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
	Item 6.	Exhibits	46

Part I. Financial Information

Item 1.

Financial Statements

CABOT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

	Three Months Ended June 30						Nine Months Ended June 30
	2019			2018			2019			2018
	(In millions, except per share amounts)
Net sales and other operating revenues	$	845		$	854		$	2,510		$	2,392
Cost of sales		675			657			1,996			1,831
Gross profit		170			197			514			561
Selling and administrative expenses		65			74			208			223
Research and technical expenses		16			17			47			48
Specialty Fluids loss on sale and asset impairment (Note D)		8			—			28			—
Purification Solutions long-lived assets impairment (Note F)		—			—			—			162
Purification Solutions goodwill impairment (Note F)		—			—			—			92
Income (loss) from operations		81			106			231			36
Interest and dividend income		2			2			6			8
Interest expense		(14	)		(14	)		(43	)		(41	)
Other income (expense)		—			1			(6	)		13
Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies		69			95			188			16
(Provision) benefit for income taxes		(30	)		4			(43	)		(194	)
Equity in earnings of affiliated companies, net of tax		1			—			1			2
Net income (loss)		40			99			146			(176	)
Net income (loss) attributable to noncontrolling interests, net of tax		8			11			22			31
Net income (loss) attributable to Cabot Corporation	$	32		$	88		$	124		$	(207	)

Weighted-average common shares outstanding:
Basic		58.2			61.8			59.1			61.8
Diluted		58.4			62.3			59.2			61.8

Earnings per common share:
Basic	$	0.55		$	1.41		$	2.08		$	(3.36	)
Diluted	$	0.55		$	1.40		$	2.08		$	(3.36	)

Dividends per common share	$	0.35		$	0.33		$	1.01		$	0.96

The accompanying notes are an integral part of these consolidated financial statements.

CABOT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

UNAUDITED

	Three Months Ended June 30						Nine Months Ended June 30
	2019			2018			2019			2018
	(In millions)
Net income (loss)	$	40		$	99		$	146		$	(176	)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment, net of tax (provision) benefit of $—, $(2), $(3) and $2		1			(109	)		(15	)		(50	)
Unrealized holding gains (losses) arising during the period, net of tax (provision) benefit of $—, $—, $— and $—		—			(1	)		—			(1	)
Derivatives: net investment hedges
(Gains) losses reclassified to interest expense, net of tax provision (benefit) of $—, $1, $1 and $1		(1	)		(1	)		(3	)		(3	)
(Gains) losses excluded from effectiveness testing and amortized to interest expense, net of tax provision (benefit) of $1, $—, $— and $—		1			—			1			—
Pension and other postretirement benefit liability adjustments
Pension and other postretirement benefit liability adjustments arising during the period, net of tax		1			—			23			—
Other comprehensive income (loss)		2			(111	)		6			(54	)
Comprehensive income (loss)		42			(12	)		152			(230	)
Net income (loss) attributable to noncontrolling interests, net of tax		8			11			22			31
Foreign currency translation adjustment attributable to noncontrolling interests, net of tax		(2	)		(7	)		—			—
Comprehensive income (loss) attributable to noncontrolling interests, net of tax		6			4			22			31
Comprehensive income (loss) attributable to Cabot Corporation	$	36		$	(16	)	$	130		$	(261	)

The accompanying notes are an integral part of these consolidated financial statements.

CABOT CORPORATION

CONSOLIDATED BALANCE SHEETS

ASSETS

UNAUDITED

	June 30, 2019		September 30, 2018
	(In millions)
Current assets:
Cash and cash equivalents	$	147	$	175
Accounts and notes receivable, net of reserve for doubtful accounts of $4 and $7		611		637
Inventories:
Raw materials		125		129
Work in process		—		3
Finished goods		340		329
Other		53		50
Total inventories		518		511
Prepaid expenses and other current assets		59		63
Total current assets		1,335		1,386
Property, plant and equipment, net		1,336		1,296
Goodwill		92		93
Equity affiliates		39		52
Intangible assets, net		100		98
Assets held for rent		—		118
Deferred income taxes		146		134
Other assets		71		67
Total assets	$	3,119	$	3,244

The accompanying notes are an integral part of these consolidated financial statements.

CABOT CORPORATION

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS’ EQUITY

UNAUDITED

	June 30, 2019			September 30, 2018
	(In millions, except share
	and per share amounts)
Current liabilities:
Short-term borrowings	$	84		$	249
Accounts payable and accrued liabilities		553			613
Income taxes payable		3			29
Current portion of long-term debt		5			35
Redeemable preferred stock		—			26
Total current liabilities		645			952
Long-term debt		1,017			719
Deferred income taxes		40			42
Other liabilities		191			252
Commitments and contingencies (Note I)
Stockholders' equity:
Preferred stock:
Authorized: 2,000,000 shares of $1 par value		—			—
Issued and Outstanding: None and none
Common stock:
Authorized: 200,000,000 shares of $1 par value
Issued: 57,952,863 and 60,566,375 shares
Outstanding: 57,758,660 and 60,366,569 shares		58			61
Less cost of 194,203 and 199,806 shares of common treasury stock		(6	)		(7	)
Additional paid-in capital		—			—
Retained earnings		1,351			1,417
Accumulated other comprehensive income (loss)		(311	)		(317	)
Total Cabot Corporation stockholders' equity		1,092			1,154
Noncontrolling interests		134			125
Total stockholders' equity		1,226			1,279
Total liabilities and stockholders' equity	$	3,119		$	3,244

The accompanying notes are an integral part of these consolidated financial statements.

CABOT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

	Nine Months Ended June 30
	2019			2018
	(In millions)
Cash Flows from Operating Activities:
Net income (loss)	$	146		$	(176	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization		110			117
Specialty Fluids loss on sale and asset impairment		28			—
Impairment of investment in equity affiliate		11			—
Long-lived assets impairment charge		—			162
Goodwill impairment charge		—			92
Deferred tax provision (benefit)		(20	)		131
Gain on sale of investments		—			(10	)
Employee benefit plan settlement		6			—
Gain on sale of land		—			(11	)
Equity in net income of affiliated companies		(1	)		(2	)
Non-cash compensation		11			16
Other non-cash (income) expense		(2	)		14
Changes in assets and liabilities:
Accounts and notes receivable		6			(151	)
Inventories		(14	)		(77	)
Prepaid expenses and other current assets		(1	)		(6	)
Accounts payable and accrued liabilities		(65	)		40
Income taxes payable		(24	)		2
Other liabilities		(27	)		(6	)
Cash dividends received from equity affiliates		2			8
Cash provided (used) by operating activities		166			143

Cash Flows from Investing Activities:
Additions to property, plant and equipment		(155	)		(167	)
Proceeds from sale of business, net of cash held in escrow of $5 and $—		130			—
Cash paid for acquisition of business, net of cash acquired of $— and $1		(3	)		(64	)
Proceeds from sale of investments		—			11
Proceeds from sale of land		—			13
Change in assets held for rent		(8	)		(5	)
Other		3			1
Cash provided (used) by investing activities		(33	)		(211	)

Cash Flows from Financing Activities:
Borrowings under financing arrangements		29			—
Repayments under financing arrangements		(18	)		(1	)
Increase in short-term borrowings, net		—			2
Proceeds from (repayments of) issuance of commercial paper, net		(176	)		303
Proceeds from long-term debt, net of issuance costs		344			—
Repayments of long-term debt		(75	)		(251	)
Repayments of redeemable preferred stock		(25	)		—
Purchases of common stock		(144	)		(59	)
Proceeds from sales of common stock		2			18
Cash dividends paid to noncontrolling interests		(23	)		(21	)
Cash dividends paid to common stockholders		(60	)		(60	)
Cash provided (used) by financing activities		(146	)		(69	)
Effects of exchange rate changes on cash		(15	)		(12	)
Increase (decrease) in cash and cash equivalents		(28	)		(149	)
Cash and cash equivalents at beginning of period		175			280
Cash and cash equivalents at end of period