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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

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 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

 

2


 

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.

3


 

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.

4


 

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.

5


 

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.

6


 

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

 

$

147

 

 

$

131

 

 

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

 

7


 

CABOT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

UNAUDITED

 

 

 

Common Stock, Net of Treasury Stock

 

 

Additional

Paid-in

 

 

Retained

 

 

Accumulated Other Comprehensive

 

 

Total Cabot Corporation Stockholders’

 

 

Noncontrolling

 

 

Total Stockholders’

 

 

 

Shares

 

 

Cost

 

 

Capital

 

 

Earnings

 

 

Income (Loss)