SEC Filing | Cabot Corporation

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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 December 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 56,616,500 shares of common stock, $1.00 par value per share, outstanding as of February 2, 2021.

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	22
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
	Item 4.	Controls and Procedures	31

Part II.	Other Information
	Item 6.	Exhibits	32

Part I. Financial Information

Item 1.

Financial Statements

CABOT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

	Three Months Ended December 31
	2020			2019
	(In millions, except per share amounts)
Net sales and other operating revenues	$	746		$	727
Cost of sales		553			586
Gross profit		193			141
Selling and administrative expenses		61			64
Research and technical expenses		14			14
Income (loss) from operations		118			63
Interest and dividend income		2			3
Interest expense		(12	)		(14	)
Other income (expense)		(9	)		(2	)
Income (loss) before income taxes and equity in earnings of affiliated companies		99			50
(Provision) benefit for income taxes		(29	)		(4	)
Equity in earnings of affiliated companies, net of tax		—			—
Net income (loss)		70			46
Net income (loss) attributable to noncontrolling interests, net of tax		10			5
Net income (loss) attributable to Cabot Corporation	$	60		$	41

Weighted-average common shares outstanding:
Basic		56.5			56.9
Diluted		56.6			57.0

Earnings (loss) per common share:
Basic	$	1.06		$	0.71
Diluted	$	1.06		$	0.70

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

CABOT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

UNAUDITED

	Three Months Ended December 31
	2020			2019
	(In millions)
Net income (loss)	$	70		$	46
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment, net of tax		94			43
Derivatives: net investment hedges
(Gains) losses reclassified to interest expense, net of tax		(1	)		(1	)
Pension and other postretirement benefit liability adjustments, net of tax		3			1
Other comprehensive income (loss)		96			43
Comprehensive income (loss)		166			89
Net income (loss) attributable to noncontrolling interests, net of tax		10			5
Foreign currency translation adjustment attributable to noncontrolling interests, net of tax		7			3
Comprehensive income (loss) attributable to noncontrolling interests, net of tax		17			8
Comprehensive income (loss) attributable to Cabot Corporation	$	149		$	81

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

CABOT CORPORATION

CONSOLIDATED BALANCE SHEETS

ASSETS

UNAUDITED

	December 31, 2020		September 30, 2020
	(In millions)
Current assets:
Cash and cash equivalents	$	147	$	151
Accounts and notes receivable, net of reserve for doubtful accounts of $3 and $2		513		418
Inventories:
Raw materials		107		82
Finished goods		247		225
Other		49		52
Total inventories		403		359
Prepaid expenses and other current assets		62		50
Total current assets		1,125		978
Property, plant and equipment, net		1,353		1,314
Goodwill		142		134
Equity affiliates		41		39
Intangible assets, net		107		103
Deferred income taxes		51		53
Other assets		161		160
Total assets	$	2,980	$	2,781

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

CABOT CORPORATION

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS’ EQUITY

UNAUDITED

	December 31, 2020			September 30, 2020
	(In millions, except share
	and per share amounts)
Current liabilities:
Short-term borrowings	$	13		$	14
Accounts payable and accrued liabilities		521			488
Income taxes payable		28			20
Current portion of long-term debt		8			7
Total current liabilities		570			529
Long-term debt		1,085			1,094
Deferred income taxes		58			58
Other liabilities		305			286
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: 56,752,165 and 56,616,030 shares, Outstanding: 56,606,215 and 56,466,638 shares		57			57
Less cost of 145,950 and 149,392 shares of common treasury stock		(4	)		(4	)
Retained earnings		1,032			989
Accumulated other comprehensive income (loss)		(262	)		(351	)
Total Cabot Corporation stockholders' equity		823			691
Noncontrolling interests		139			123
Total stockholders' equity		962			814
Total liabilities and stockholders' equity	$	2,980		$	2,781

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

CABOT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

	Three Months Ended December 31
	2020			2019
	(In millions)
Cash Flows from Operating Activities:
Net income (loss)	$	70		$	46
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization		39			39
Deferred tax provision (benefit)		(2	)		(6	)
Employee benefit plan settlement		6			—
Non-cash compensation		4			1
Other non-cash (income) expense		5			—
Cash dividends received from equity affiliates		—			1
Changes in assets and liabilities:
Accounts and notes receivable		(76	)		54
Inventories		(37	)		(7	)
Prepaid expenses and other assets		(10	)		(21	)
Accounts payable and accrued liabilities		14			3
Income taxes payable		7			(3	)
Other liabilities		1			(2	)
Cash provided (used) by operating activities		21			105
Cash Flows from Investing Activities:
Additions to property, plant and equipment		(29	)		(68	)
Cash paid for acquisition of businesses		—			(8	)
Other		—			(1	)
Cash provided (used) by investing activities		(29	)		(77	)
Cash Flows from Financing Activities:
Proceeds from issuance (repayments) of commercial paper, net		—			(29	)
Proceeds from long-term debt		50			97
Repayments of long-term debt		(66	)		(48	)
Purchases of common stock		(2	)		(34	)
Proceeds from sales of common stock		1			1
Cash dividends paid to noncontrolling interests		(1	)		(11	)
Cash dividends paid to common stockholders		(20	)		(20	)
Cash provided (used) by financing activities		(38	)		(44	)
Effects of exchange rate changes on cash		42			20
Increase (decrease) in cash and cash equivalents		(4	)		4
Cash and cash equivalents at beginning of period		151			169
Cash and cash equivalents at end of period	$	147		$	173

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, 2020		56,467		$	53	$	—		$	989		$	(351	)	$	691		$	123		$	814
Net income (loss)										60						60			10			70
Total other comprehensive income (loss)													89			89			7			96
Cash dividends paid:
Common stock, $0.35 per share										(20	)					(20	)					(20	)
Cash dividends declared to noncontrolling interests																			(1	)		(1	)
Issuance of stock under equity compensation plans		192			—		1									1						1
Amortization of share-based compensation							4									4						4
Purchase and retirement of common stock		(53	)		—		(2	)								(2	)					(2	)
Amount reclassified to retained earnings in excess of additional paid in capital							(3	)		3						—						—
Balance at December 31, 2020		56,606		$	53	$	-		$	1,032		$	(262	)	$	823		$	139		$	962

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	)
Cash dividend declared to noncontrolling interests																			(19	)		(19	)
Issuance of stock under equity compensation plans		273			—		1									1						1
Amortization of share-based compensation							1									1						1
Purchase and retirement of common stock		(699	)		—		(2	)		(32	)					(34	)					(34	)
Balance at December 31, 2019		56,655		$	52	$	-		$	1,329		$	(354	)	$	1,027		$	125		$	1,152

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

CABOT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020

UNAUDITED

A. Basis of Presentation

The consolidated financial statements have been prepared in conformity with accounting policies generally accepted in the United States (“U.S.”) and include the accounts of Cabot Corporation (“Cabot” or the “Company”) and its wholly owned subsidiaries and majority-owned and controlled U.S. and non-U.S. subsidiaries. Additionally, Cabot considers consolidation of entities over which control is achieved through means other than voting rights. Intercompany transactions have been eliminated in consolidation.

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 Annual Report on Form 10-K for its fiscal year ended September 30, 2020 (“2020 10-K”).

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, 2020 and 2019. 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. Significant Accounting Policies

Cabot’s significant accounting policies have not materially changed from those described in the 2020 Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on November 25, 2020.

Recently Adopted Accounting Standards

In June 2016, the FASB issued a new standard on measurement of credit losses. The standard introduces a new "expected loss" impairment model that applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables and other financial assets. Entities are required to estimate expected credit losses over the life of financial assets and record an allowance against the assets’ amortized cost basis to present them at the amount expected to be collected. The Company adopted this standard on October 1, 2020. The adoption of this standard did not materially impact the Company’s consolidated financial statements.

Recent Accounting Pronouncements

In March 2020, the FASB issued a new standard on Reference Rate Reform, which provides temporary optional expedients and exceptions to the existing guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The standard was effective upon issuance and may generally be applied through December 31, 2022 to any new or amended contracts, hedging relationships, and other transactions that reference LIBOR. The Company is currently evaluating the timing of adoption and the impact of the adoption of this standard on its consolidated financial statements.

In December 2019, the FASB issued a new standard Simplifying the Accounting for Income Taxes. The new guidance simplifies the accounting for income taxes by removing several exceptions in the current standard and adding guidance to reduce complexity in certain areas. The new standard is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted. The Company is currently evaluating the timing of adoption and the impact of the adoption of this standard on its consolidated financial statements.

C. Acquisitions

Shenzhen Sanshun Nano New Materials Co., Ltd

On April 1, 2020, the Company purchased Shenzhen Sanshun Nano New Materials Co., Ltd (SUSN), a leading carbon nanotube producer, for an estimated purchase price of $100 million, consisting of: (i) cash consideration of $84 million, net of $1 million acquired (ii) contingent consideration of $3 million to be paid over the two-year period ending March 31, 2022 upon the satisfaction of certain milestones, and (iii) the assumed debt of $13 million. The debt the Company assumed in the transaction was repaid in June 2020. The operating results of SUSN were included in the results of the Company's Performance Chemicals segment beginning in the third quarter of fiscal 2020.

D. Employee Benefit Plans

Net periodic defined benefit pension costs include the following:

	Three Months Ended December 31
	2020				2019
	Pension Benefits
	U.S.		Foreign		U.S.		Foreign
	(In millions)
Service cost	$	—	$	1	$	—