SEC Filing | Cabot Corporation

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cbt-10q_20211231.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 December 31, 2021

☐	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 56,586,811 shares of common stock, $1.00 par value per share, outstanding as of February 2, 2022.

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	23
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
	Item 4.	Controls and Procedures	31

Part II.	Other Information
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
	Item 6.	Exhibits	33

Part I. Financial Information

Item 1.

Financial Statements

CABOT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

	Three Months Ended December 31
	2021			2020
	(In millions, except per share amounts)
Net sales and other operating revenues	$	968		$	746
Cost of sales		770			553
Gross profit		198			193
Selling and administrative expenses		71			61
Research and technical expenses		13			14
Purification Solutions assets held for sale impairment charge (Note D)		197			—
Income (loss) from operations		(83	)		118
Interest and dividend income		3			2
Interest expense		(12	)		(12	)
Other income (expense)		(1	)		(9	)
Income (loss) before income taxes and equity in earnings of affiliated companies		(93	)		99
(Provision) benefit for income taxes		12			(29	)
Equity in earnings of affiliated companies, net of tax		1			—
Net income (loss)		(80	)		70
Net income (loss) attributable to noncontrolling interests, net of tax		9			10
Net income (loss) attributable to Cabot Corporation	$	(89	)	$	60

Weighted-average common shares outstanding:
Basic		56.8			56.5
Diluted		56.8			56.6

Earnings (loss) per common share:
Basic	$	(1.57	)	$	1.06
Diluted	$	(1.57	)	$	1.06

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
	2021			2020
	(In millions)
Net income (loss)	$	(80	)	$	70
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment, net of tax		(28	)		94
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		1			3
Other comprehensive income (loss), net of tax of $— and $(3)		(28	)		96
Comprehensive income (loss)		(108	)		166
Net income (loss) attributable to noncontrolling interests, net of tax		9			10
Foreign currency translation adjustment attributable to noncontrolling interests, net of tax		2			7
Comprehensive income (loss) attributable to noncontrolling interests		11			17
Comprehensive income (loss) attributable to Cabot Corporation	$	(119	)	$	149

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

CABOT CORPORATION

CONSOLIDATED BALANCE SHEETS

ASSETS

UNAUDITED

	December 31, 2021		September 30, 2021
	(In millions)
Current assets:
Cash and cash equivalents	$	179	$	168
Accounts and notes receivable, net of reserve for doubtful accounts of $4 and $4		660		645
Inventories:
Raw materials		154		168
Finished goods		341		300
Other		51		55
Total inventories		546		523
Prepaid expenses and other current assets		113		89
Assets held for sale		111		—
Total current assets		1,609		1,425
Property, plant and equipment, net		1,267		1,376
Goodwill		140		140
Equity affiliates		14		40
Intangible assets, net		70		100
Deferred income taxes		57		53
Other assets		158		172
Total assets	$	3,315	$	3,306

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

CABOT CORPORATION

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS’ EQUITY

UNAUDITED

	December 31, 2021			September 30, 2021
	(In millions, except share
	and per share amounts)
Current liabilities:
Short-term borrowings	$	226		$	72
Accounts payable and accrued liabilities		620			667
Income taxes payable		37			35
Current portion of long-term debt		373			373
Liabilities held for sale		71			—
Total current liabilities		1,327			1,147
Long-term debt		714			717
Deferred income taxes		73			73
Other liabilities		253			279
Contingencies (Note H)
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: 56,723,411 and 56,870,237 shares, Outstanding: 56,579,992 and 56,726,818 shares		57			57
Less cost of 143,419 and 143,419 shares of common treasury stock		(4	)		(4	)
Additional paid-in capital		11			24
Retained earnings		1,049			1,159
Accumulated other comprehensive income (loss)		(319	)		(289	)
Total Cabot Corporation stockholders' equity		794			947
Noncontrolling interests		154			143
Total stockholders' equity		948			1,090
Total liabilities and stockholders' equity	$	3,315		$	3,306

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
	2021			2020
	(In millions)
Cash Flows from Operating Activities:
Net income (loss)	$	(80	)	$	70
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization		39			39
Purification Solutions assets held for sale impairment charge		197			—
Deferred tax provision (benefit)		(36	)		(2	)
Employee benefit plan settlement		—			6
Equity in earnings of affiliated companies		(1	)		—
Non-cash compensation		6			4
Other non-cash (income) expense		5			5
Changes in assets and liabilities:
Accounts and notes receivable		(57	)		(76	)
Inventories		(95	)		(37	)
Prepaid expenses and other assets		(27	)		(10	)
Accounts payable and accrued liabilities		9			14
Income taxes payable		3			7
Other liabilities		(12	)		1
Cash provided (used) by operating activities		(49	)		21
Cash Flows from Investing Activities:
Additions to property, plant and equipment		(30	)		(29	)
Other		1			—
Cash provided (used) by investing activities		(29	)		(29	)
Cash Flows from Financing Activities:
Proceeds from issuance (repayments) of commercial paper, net		156			—
Proceeds from long-term debt		—			50
Repayments of long-term debt		(5	)		(66	)
Purchases of common stock		(19	)		(2	)
Proceeds from sales of common stock		—			1
Cash dividends paid to noncontrolling interests		(8	)		(1	)
Cash dividends paid to common stockholders		(21	)		(20	)
Cash provided (used) by financing activities		103			(38	)
Effects of exchange rate changes on cash		(15	)		42
Increase (decrease) in cash, cash equivalents and restricted cash		10			(4	)
Cash, cash equivalents and restricted cash at beginning of period		170			151
Cash, cash equivalents and restricted cash at end of period	$	180		$	147

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

	December 31, 2021		December 31, 2020
	(In millions)
Cash and cash equivalents	$	179	$	147
Restricted cash classified within Prepaid expenses and other current assets		1		—
Cash, cash equivalents and restricted cash	$	180	$	147

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, 2021		56,727		$	53	$	24		$	1,159		$	(289	)	$	947		$	143	$	1,090
Net income (loss)										(89	)					(89	)		9		(80	)
Total other comprehensive income (loss)													(30	)		(30	)		2		(28	)
Cash dividends paid:
Common stock, $0.37 per share										(21	)					(21	)				(21	)
Issuance of stock under equity compensation plans		202			—		—									—					—
Amortization of share-based compensation							6									6					6
Purchase and retirement of common stock		(349	)		—		(19	)		—						(19	)				(19	)
Balance at December 31, 2021		56,580		$	53	$	11		$	1,049		$	(319	)	$	794		$	154	$	948

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2021

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, 2021 (“2021 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, 2021 and 2020. 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

Recently Adopted Accounting Standards

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 that reduces complexity in certain areas. The new standard is effective for fiscal years beginning after December 15, 2020. The Company adopted this standard on October 1, 2021. 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.

C. Acquisitions

Tokai Carbon (Tianjin) Co.

In November 2021, Cabot entered into an agreement with Tokai Carbon Group to purchase its carbon black manufacturing facility in Tianjin, China, Tokai Carbon (Tianjin) Co., for approximately $9 million, which is subject to the satisfaction or waiver of customary closing adjustments. The purchase is expected to close in the second quarter of fiscal 2022.

D. Divestiture

Pending Sale of Purification Solutions Business

In November 2021, the Company and an affiliate of funds advised by One Equity Partners (“OEP”) entered into a Share Purchase Agreement (the “Agreement”) for the sale of Cabot’s Purification Solutions business (the “Business”), a reporting segment of the Company, subject to the satisfaction or waiver of the conditions set forth in the Agreement.

Under the terms of the Agreement, OEP will acquire the Business on a cash-free and debt-free basis in a transaction valued at approximately $111 million, subject to certain debt-like and other closing adjustments, including a customary working capital adjustment. The net cash proceeds from the transaction are expected to be approximately $80 million, to be paid at the closing. The transaction is expected to close in the second quarter of fiscal 2022.

During the first quarter of fiscal 2022, the assets and liabilities of the Business met the criteria for assets held for sale. The sale of the Business does not meet the criteria to be reported as a discontinued operation as it does not constitute a significant strategic business shift that will have a major effect on the Company’s operations and financial results.

In addition, based on the carrying value of the Business as of December 31, 2021 and an estimate of its fair value less costs to sell, Cabot recorded a pre-tax impairment charge of $197 million ($160 million after-tax) in the first quarter of fiscal 2022.

The following table summarizes the carrying amounts of the major classes of assets and liabilities of the Business classified as held for sale as of December 31, 2021, and the associated impairment charge:

	(In millions)
Assets
Accounts and notes receivable, net of reserve for doubtful accounts	$	37
Inventories		67
Prepaid expenses and other current assets		2
Property, plant and equipment, net		106
Equity affiliates		28
Intangible assets, net		27
Deferred income taxes		31
Other assets		10
Total assets held for sale		308
Impairment of assets held for sale		(197	)
Adjusted assets held for sale	$	111

Liabilities
Short-term borrowings	$	(2	)
Accounts payable and accrued liabilities		(51	)
Income taxes payable		(1	)
Long-term debt		(17	)
Total liabilities assumed		(71	)
Total net assets