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Ay

 

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

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 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

 

2


 

 

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.

3


 

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.

4


 

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.

5


 

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.

6


 

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.

 

 

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)

 

 

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.

8


 

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.

 

9


 

 

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.

10


 

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