SEC Filing | Cabot Corporation

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cbt-10q_20200331.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 March 31, 2020


☐	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 56,453,481 shares of common stock, $1.00 par value per share, outstanding as of May 6, 2020.

INDEX

Part I.	Financial Information

	Item 1.	Financial Statements (unaudited)
		Consolidated Statements of Operations	3
		Consolidated Statements of Comprehensive Income (Loss)	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	27
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
	Item 4.	Controls and Procedures	38

Part II.	Other Information
	Item 1.	Legal Proceedings	39
	Item 1A.	Risk Factors	39
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
	Item 6.	Exhibits	40

Part I. Financial Information

Item 1.

Financial Statements

CABOT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

	Three Months Ended March 31						Six Months Ended March 31
	2020			2019			2020			2019
	(In millions, except per share amounts)
Net sales and other operating revenues	$	710		$	844		$	1,437		$	1,665
Cost of sales		557			666			1,143			1,321
Gross profit		153			178			294			344
Selling and administrative expenses		114			70			178			143
Research and technical expenses		14			15			28			31
Specialty Fluids loss on sale and asset impairment		1			20			1			20
Income (loss) from operations		24			73			87			150
Interest and dividend income		3			2			6			4
Interest expense		(14	)		(14	)		(28	)		(29	)
Other income (expense)		(1	)		(12	)		(3	)		(6	)
Income (loss) before income taxes and equity in earnings of affiliated companies		12			49			62			119
(Provision) benefit for income taxes		(10	)		(20	)		(14	)		(13	)
Equity in earnings of affiliated companies, net of tax		1			—			1			—
Net income (loss)		3			29			49			106
Net income (loss) attributable to noncontrolling interests, net of tax		4			6			9			14
Net income (loss) attributable to Cabot Corporation	$	(1	)	$	23		$	40		$	92

Weighted-average common shares outstanding:
Basic		56.6			59.1			56.7			59.5
Diluted		56.6			59.3			56.8			59.7

Earnings per common share:
Basic	$	(0.01	)	$	0.39		$	0.70		$	1.53
Diluted	$	(0.01	)	$	0.39		$	0.70		$	1.53

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

CABOT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

UNAUDITED

	Three Months Ended March 31						Six Months Ended March 31
	2020			2019			2020			2019
	(In millions)
Net income (loss)	$	3		$	29		$	49		$	106
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment, net of tax		(78	)		8			(35	)		(16	)
Derivatives: net investment hedges
(Gains) losses reclassified to interest expense, net of tax		(1	)		(1	)		(2	)		(2	)
(Gains) losses excluded from effectiveness testing and amortized to interest expense, net of tax		1			—			1			—
Pension and other postretirement benefit liability adjustments, net of tax		—			—			1			22
Other comprehensive income (loss)		(78	)		7			(35	)		4
Comprehensive income (loss)		(75	)		36			14			110
Net income (loss) attributable to noncontrolling interests, net of tax		4			6			9			14
Foreign currency translation adjustment attributable to noncontrolling interests, net of tax		(3	)		2			—			2
Comprehensive income (loss) attributable to noncontrolling interests, net of tax		1			8			9			16
Comprehensive income (loss) attributable to Cabot Corporation	$	(76	)	$	28		$	5		$	94

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

CABOT CORPORATION

CONSOLIDATED BALANCE SHEETS

ASSETS

UNAUDITED

	March 31, 2020		September 30, 2019
	(In millions)
Current assets:
Cash and cash equivalents	$	142	$	169
Accounts and notes receivable, net of reserve for doubtful accounts of $3 and $3		462		530
Inventories:
Raw materials		103		107
Finished goods		312		305
Other		54		54
Total inventories		469		466
Prepaid expenses and other current assets		98		45
Total current assets		1,171		1,210
Property, plant and equipment, net		1,369		1,348
Goodwill		82		90
Equity affiliates		36		39
Intangible assets, net		87		96
Deferred income taxes		181		163
Other assets		171		58
Total assets	$	3,097	$	3,004

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

CABOT CORPORATION

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS’ EQUITY

UNAUDITED

	March 31, 2020			September 30, 2019
	(In millions, except share
	and per share amounts)
Current liabilities:
Short-term borrowings	$	—		$	33
Accounts payable and accrued liabilities		530			537
Income taxes payable		26			22
Current portion of long-term debt		7			7
Total current liabilities		563			599
Long-term debt		1,190			1,024
Deferred income taxes		41			41
Other liabilities		268			206
Commitments and contingencies (Note G)
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: 56,598,515 and 57,250,454 shares
Outstanding: 56,444,288 and 57,080,589 shares		56			57
Less cost of 154,227 and 169,865 shares of common treasury stock		(4	)		(5	)
Retained earnings		1,302			1,337
Accumulated other comprehensive income (loss)		(429	)		(391	)
Total Cabot Corporation stockholders' equity		925			998
Noncontrolling interests		110			136
Total stockholders' equity		1,035			1,134
Total liabilities and stockholders' equity	$	3,097		$	3,004

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

CABOT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

	Six Months Ended March 31
	2020			2019
	(In millions)
Cash Flows from Operating Activities:
Net income (loss)	$	49		$	106
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization		78			73
Impairment of held for sale assets		—			20
Impairment of investment in equity affiliate		—			11
Deferred tax provision (benefit)		(23	)		(29	)
Employee benefit plan settlement		—			6
Equity in earnings of affiliated companies		(1	)		—
Non-cash compensation		3			7
Other non-cash (income) expense		4			(1	)
Changes in assets and liabilities:
Accounts and notes receivable		56			39
Inventories		(8	)		(51	)
Prepaid expenses and other current assets		(33	)		(7	)
Accounts payable and accrued liabilities		4			(77	)
Income taxes payable		5			(21	)
Other liabilities		(6	)		(27	)
Cash dividends received from equity affiliates		1			2
Cash provided (used) by operating activities		129			51
Cash Flows from Investing Activities:
Additions to property, plant and equipment		(119	)		(97	)
Acquisition of business		(8	)		—
Other		1			(1	)
Cash provided (used) by investing activities		(126	)		(98	)
Cash Flows from Financing Activities:
Borrowings under financing arrangements		—			29
Proceeds from issuance (repayments) of commercial paper, net		(33	)		297
Proceeds from long-term debt		197			—
Repayments of long-term debt		(50	)		(75	)
Repayments of redeemable preferred stock		—			(25	)
Purchases of common stock		(44	)		(112	)
Proceeds from sales of common stock		3			1
Cash dividends paid to noncontrolling interests		(23	)		(17	)
Cash dividends paid to common stockholders		(40	)		(40	)
Cash provided (used) by financing activities		10			58
Effects of exchange rate changes on cash		(5	)		(10	)
Increase (decrease) in cash, cash equivalents and restricted cash		8			1
Cash, cash equivalents and restricted cash at beginning of period		169			175
Cash, cash equivalents and restricted cash at end of period	$	177		$	176

The following table presents the Company’s cash, cash equivalents and restricted cash by category within the Consolidated Balance Sheets:

	March 31, 2020		March 31, 2019
	(In millions)
Cash and cash equivalents	$	142	$	176
Restricted cash classified within Prepaid expenses and other current assets		35		—
Cash, cash equivalents and restricted cash	$	177	$	176

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

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)			Equity			Interests		Equity
	(In millions, except share amounts)
Balance at September 30, 2019		57,081	$	52	$	—	$	1,337		$	(391	)	$	998		$	136	$	1,134
Adoption of accounting standards								3		$	(3	)		—					—
Net income (loss)								41						41			5		46
Total other comprehensive income (loss)											40			40			3		43
Cash dividends paid:
Common stock, $0.35 per share								(20	)					(20	)				(20