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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, 2023

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, Suite 1400

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 55,430,710 shares of common stock, $1.00 par value per share, outstanding as of February 6, 2024.

 

 


 

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

19

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

 

Item 4.

Controls and Procedures

26

 

 

 

Part II.

Other Information

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 6.

Exhibits

27

 

2


 

Part I. Financial Information

Item 1. Financial Statements

CABOT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

 

 

 

Three Months Ended December 31

 

 

 

2023

 

 

2022

 

 

 

(In millions, except per share amounts)

 

Net sales and other operating revenues

 

$

958

 

 

$

965

 

Cost of sales

 

 

740

 

 

 

784

 

Gross profit

 

 

218

 

 

 

181

 

Selling and administrative expenses

 

 

67

 

 

 

60

 

Research and technical expenses

 

 

15

 

 

 

13

 

Loss on sale of business

 

 

 

 

 

3

 

Income (loss) from operations

 

 

136

 

 

 

105

 

Interest and dividend income

 

 

9

 

 

 

6

 

Interest expense

 

 

(22

)

 

 

(22

)

Other income (expense)

 

 

(29

)

 

 

(5

)

Income (loss) from operations before income taxes
   and equity in earnings of affiliated companies

 

 

94

 

 

 

84

 

(Provision) benefit for income taxes

 

 

(34

)

 

 

(20

)

Equity in earnings of affiliated companies, net of tax

 

 

1

 

 

 

2

 

Net income (loss)

 

 

61

 

 

 

66

 

Net income (loss) attributable to noncontrolling interests, net
   of tax

 

 

11

 

 

 

12

 

Net income (loss) attributable to Cabot Corporation

 

$

50

 

 

$

54

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

Basic

 

 

55.3

 

 

 

56.3

 

Diluted

 

 

55.8

 

 

 

56.7

 

 

 

 

 

 

 

 

Earnings (loss) per common share:

 

 

 

 

 

 

Basic

 

$

0.88

 

 

$

0.94

 

Diluted

 

$

0.88

 

 

$

0.93

 

 

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

 

 

 

2023

 

 

2022

 

 

 

(In millions)

 

Net income (loss)

 

$

61

 

 

$

66

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

Foreign currency translation adjustment, net of tax

 

 

62

 

 

 

88

 

Derivatives: net investment hedges

 

 

 

 

 

 

(Gains) losses reclassified to interest expense, net of tax

 

 

(1

)

 

 

(1

)

Other comprehensive income (loss), net of tax of $ 1 and $ —

 

 

61

 

 

 

87

 

Comprehensive income (loss)

 

 

122

 

 

 

153

 

Net income (loss) attributable to noncontrolling interests, net
   of tax

 

 

11

 

 

 

12

 

Foreign currency translation adjustment attributable to
   noncontrolling interests, net of tax

 

 

4

 

 

 

6

 

Comprehensive income (loss) attributable to noncontrolling interests

 

 

15

 

 

 

18

 

Comprehensive income (loss) attributable to Cabot Corporation

 

$

107

 

 

$

135

 

 

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

4


 

CABOT CORPORATION

CONSOLIDATED BALANCE SHEETS

ASSETS

UNAUDITED

 

 

 

December 31, 2023

 

 

September 30, 2023

 

 

 

(In millions)

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

244

 

 

$

238

 

Accounts and notes receivable, net of reserve for doubtful
   accounts of $
3 and $2

 

 

726

 

 

 

695

 

Inventories:

 

 

 

 

 

 

     Raw materials

 

 

154

 

 

 

148

 

     Finished goods

 

 

398

 

 

 

374

 

     Other

 

 

65

 

 

 

63

 

Total inventories

 

 

617

 

 

 

585

 

Prepaid expenses and other current assets

 

 

105

 

 

 

108

 

Total current assets

 

 

1,692

 

 

 

1,626

 

Property, plant and equipment

 

 

3,936

 

 

 

3,827

 

Accumulated depreciation

 

 

(2,492

)

 

 

(2,415

)

Net property, plant and equipment

 

 

1,444

 

 

 

1,412

 

Goodwill

 

 

138

 

 

 

134

 

Equity affiliates

 

 

21

 

 

 

20

 

Intangible assets, net

 

 

61

 

 

 

60

 

Deferred income taxes

 

 

166

 

 

 

180

 

Other assets

 

 

173

 

 

 

172

 

Total assets

 

$

3,695

 

 

$

3,604

 

 

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, 2023

 

 

September 30, 2023

 

 

 

(In millions, except share

 

 

 

and per share amounts)

 

Current liabilities:

 

 

 

 

 

 

Short-term borrowings

 

$

206

 

 

$

174

 

Accounts payable and accrued liabilities

 

 

585

 

 

 

600

 

Income taxes payable

 

 

31

 

 

 

40

 

Current portion of long-term debt

 

 

8

 

 

 

8

 

Total current liabilities

 

 

830

 

 

 

822

 

Long-term debt

 

 

1,098

 

 

 

1,094

 

Deferred income taxes

 

 

51

 

 

 

50

 

Other liabilities

 

 

241

 

 

 

231

 

Contingencies (Note E)

 

 

 

 

 

 

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: 55,560,648 and 55,379,636 shares, Outstanding: 55,424,816 and 55,243,804 shares

 

 

55

 

 

 

55

 

Less cost of 135,832 and 135,832 shares of common treasury stock

 

 

(3

)

 

 

(3

)

Additional paid-in capital

 

 

 

 

 

 

Retained earnings

 

 

1,582

 

 

 

1,574

 

Accumulated other comprehensive income (loss)

 

 

(305

)

 

 

(362

)

Total Cabot Corporation stockholders' equity

 

 

1,329

 

 

 

1,264

 

Noncontrolling interests

 

 

146

 

 

 

143

 

Total stockholders' equity

 

 

1,475

 

 

 

1,407

 

Total liabilities and stockholders' equity

 

$

3,695

 

 

$

3,604

 

 

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

 

 

 

2023

 

 

2022

 

 

 

(In millions)

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

Net income (loss)

 

$

61

 

 

$

66

 

Adjustments to reconcile net income (loss) to cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

41

 

 

 

35

 

Loss on sale of business

 

 

 

 

 

3

 

Gain on sale of land

 

 

 

 

 

(1

)

Deferred tax provision (benefit)

 

 

7

 

 

 

 

Equity in earnings of affiliated companies

 

 

(1

)

 

 

(2

)

Share-based compensation

 

 

6

 

 

 

6

 

Other non-cash (income) expense

 

 

37

 

 

 

(4

)

Cash dividends received from equity affiliates

 

 

1

 

 

 

2

 

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts and notes receivable

 

 

(7

)

 

 

80

 

Inventories

 

 

(19

)

 

 

(14

)

Prepaid expenses and other assets

 

 

(2

)

 

 

(12

)

Accounts payable and accrued liabilities

 

 

(20

)

 

 

(100

)

Income taxes payable

 

 

(10

)

 

 

(10

)

Other liabilities

 

 

11

 

 

 

3

 

Cash provided by (used in) operating activities

 

 

105

 

 

 

52

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(54

)

 

 

(35

)

Proceeds from sale of land

 

 

 

 

 

7

 

Proceeds from sale of business

 

 

 

 

 

6

 

Other

 

 

 

 

 

5

 

Cash provided by (used in) investing activities

 

 

(54

)

 

 

(17

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

Proceeds from short-term borrowings

 

 

 

 

 

11

 

Proceeds from issuance (repayments) of commercial paper, net

 

 

32

 

 

 

(48

)

Repayments of long-term debt

 

 

(1

)

 

 

(6

)

Purchases of common stock

 

 

(33

)

 

 

(17

)

Proceeds from sales of common stock

 

 

7

 

 

 

3

 

Cash dividends paid to noncontrolling interests

 

 

(12

)

 

 

(14

)

Cash dividends paid to common stockholders

 

 

(22

)

 

 

(21

)

Cash provided by (used in) financing activities

 

 

(29

)

 

 

(92

)

Effects of exchange rate changes on cash

 

 

(16

)

 

 

41

 

Increase (decrease) in cash and cash equivalents

 

 

6

 

 

 

(16

)

Cash and cash equivalents at beginning of period

 

 

238

 

 

 

206

 

Cash and cash equivalents at end of period

 

$

244

 

 

$

190

 

 

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, 2023

 

 

55,244

 

 

$

52

 

 

$

 

 

$

1,574

 

 

$

(362

)

 

$

1,264

 

 

$

143

 

 

$

1,407

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

50

 

 

 

 

 

 

50

 

 

 

11

 

 

 

61

 

Total other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

57

 

 

 

57

 

 

 

4

 

 

 

61

 

Cash dividends paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.40 per share

 

 

 

 

 

 

 

 

 

 

 

(22

)

 

 

 

 

 

(22

)

 

 

 

 

 

(22

)

Cash dividends declared to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

(12

)

Issuance of stock under equity compensation plans

 

 

441

 

 

 

 

 

 

7

 

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

7

 

Share-based compensation

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

6

 

Purchase and retirement of common stock

 

 

(260

)

 

 

 

 

 

(13

)

 

 

(20

)

 

 

 

 

 

(33

)

 

 

 

 

 

(33

)

Balance at December 31, 2023

 

 

55,425

 

 

$

52

 

 

$

-

 

 

$

1,582

 

 

$

(305

)

 

$

1,329

 

 

$

146

 

 

$

1,475

 

 

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, 2022

 

 

56,249

 

 

$

52

 

 

$

1

 

 

$

1,284

 

 

$

(439

)

 

$

898

 

 

$

134

 

 

$

1,032

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

54

 

 

 

 

 

 

54

 

 

 

12

 

 

 

66

 

Total other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

81

 

 

 

81

 

 

 

6

 

 

 

87

 

Cash dividends paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.37 per share

 

 

 

 

 

 

 

 

 

 

 

(21

)

 

 

 

 

 

(21

)

 

 

 

 

 

(21

)

Cash dividends declared to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

(2

)

Issuance of stock under equity compensation plans

 

 

309

 

 

 

1

 

 

 

2

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Share-based compensation

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

11

 

Purchase and retirement of common stock

 

 

(242

)

 

 

 

 

 

(14

)

 

 

(3

)

 

 

 

 

 

(17

)

 

 

 

 

 

(17

)

Balance at December 31, 2022

 

 

56,316

 

 

$

53

 

 

$

 

 

$

1,314

 

 

$

(358

)

 

$

1,009

 

 

$

150

 

 

$

1,159

 

 

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

9


 

CABOT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2023

UNAUDITED

A. Basis of Presentation

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S.”) (“GAAP”) 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, 2023 (the “2023 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, 2023 and 2022. 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

Full detail on the Company’s significant accounting policies may be obtained by referring to Note A in the 2023 10-K.

Argentina Devaluation

The Company’s wholly-owned Argentinian subsidiary operates in a highly inflationary economy and, as a result, the functional currency of the subsidiary is Cabot’s reporting currency, the U.S. dollar. During the three months ended December 31, 2023, the Company recorded foreign exchange losses of $40 million related to the revaluation of non-functional currency denominated monetary asset and liability balances, of which $33 million related to a single devaluation action by the newly elected Argentine government. The Company invests cash in money market funds and recorded investment income of $12 million for the three months ended December 31, 2023. The foreign exchange losses and investment gains are recorded in Other income (expense) in the Consolidated Statement of Operations.

Recently Adopted Accounting Standards

In November 2022, the FASB issued a new standard on the disclosure of supplier financing programs. The new standard requires qualitative and quantitative disclosures as to the nature and potential magnitude of such programs in addition to program activity and changes for the periods presented. The Company adopted this standard on October 1, 2023. See Note J for disclosures related to the Company's supplier financing programs. The adoption of this standard did not have a material impact on the Company's Consolidated Financial Statements.

Recent Accounting Pronouncements

In November 2023, the FASB issued a new standard, Improvement to Reportable Segment Disclosures. The new guidance enhances the disclosure of significant reportable segment expenses. The new standard is effective for fiscal years beginning after December 15, 2023, and early adoption is permitted. The Company is currently evaluating the timing of adoption and the impact of the adoption of this standard on the Company’s Consolidated Financial Statements.

In December 2023, the FASB issued a new standard, Improvements to Income Tax Disclosures. The new guidance requires additional disclosures primarily related to the income tax rate reconciliation and income taxes paid. The new standard is effective for fiscal years beginning after December 15, 2024, and early adoption is permitted. The Company is currently evaluating the timing of adoption and the impact of the adoption of this standard on the Company’s Consolidated Financial Statements.

10


 

C. Goodwill and Intangible Assets

The carrying amount of goodwill attributable to each reportable segment and the changes in those balances during the three months ended December 31, 2023 are as follows:

 

 

 

Reinforcement
Materials

 

 

Performance
Chemicals

 

 

Total

 

 

 

(In millions)

 

Balance at September 30, 2023

 

$

51

 

 

$

83

 

 

$

134

 

Foreign currency impact

 

 

2

 

 

 

2

 

 

 

4

 

Balance at December 31, 2023

 

$

53

 

 

$

85

 

 

$

138

 

 

The following table provides information regarding the Company’s intangible assets:

 

 

 

December 31, 2023

 

 

September 30, 2023

 

 

 

Gross
Carrying
Value

 

 

Accumulated
Amortization

 

 

Net
Intangible
Assets

 

 

Gross
Carrying
Value

 

 

Accumulated
Amortization

 

 

Net
Intangible
Assets

 

 

 

(In millions)

 

Intangible assets with finite lives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Developed technologies

 

$

35

 

 

$

(11

)

 

 

24

 

 

$

34

 

 

$

(10

)

 

$

24

 

Trademarks

 

 

2

 

 

 

(1

)

 

 

1

 

 

 

2

 

 

 

(1

)

 

 

1

 

Customer relationships

 

 

67

 

 

 

(31

)

 

 

36

 

 

 

65

 

 

 

(30

)

 

 

35

 

Total intangible assets

 

$

104

 

 

$

(43

)

 

$

61

 

 

$

101

 

 

$

(41

)

 

$

60

 

 

Intangible assets are amortized over their estimated useful lives, which range between ten and twenty-five years, with a weighted average amortization period of approximately seventeen years. Amortization expense was $1 million for both the three months ended December 31, 2023 and 2022. Amortization expense is included in Cost of sales, Selling and administrative expenses and Research and technical expenses in the Consolidated Statements of Operations. Total amortization expense is estimated to be approximately $6 million each year for the next five fiscal years.

D. Accumulated Other Comprehensive Income (Loss) (“AOCI”)

Comprehensive income combines net income (loss) and other comprehensive income items, which are reported as components of stockholders’ equity in the accompanying Consolidated Balance Sheets.

Changes in each component of AOCI, net of tax, were as follows:

 

 

 

Currency
Translation
Adjustment

 

 

Pension and Other
Postretirement
Benefit Liability
Adjustments

 

 

Total

 

 

 

(In millions)

 

Balance at September 30, 2023, attributable to Cabot Corporation

 

$

(353

)

 

$

(9

)

 

$

(362

)

Other comprehensive income (loss) before reclassifications

 

 

62

 

 

 

 

 

 

62

 

Amounts reclassified from AOCI

 

 

(1

)

 

 

 

 

 

(1

)

Less: Other comprehensive income (loss) attributable to
   noncontrolling interests

 

 

4

 

 

 

 

 

 

4

 

Balance at December 31, 2023, attributable to Cabot Corporation

 

$

(296

)

 

$

(9

)

 

$

(305

)

 

 

 

 

11


 

 

 

Currency
Translation
Adjustment

 

 

Pension and Other
Postretirement
Benefit Liability
Adjustments

 

 

Total

 

 

 

(In millions)

 

Balance at September 30, 2022, attributable to Cabot Corporation

 

$

(429

)

 

$

(10

)

 

$

(439

)

Other comprehensive income (loss) before reclassifications

 

 

88

 

 

 

 

 

 

88

 

Amounts reclassified from AOCI

 

 

(1

)

 

 

 

 

 

(1

)

Less: Other comprehensive income (loss) attributable to
   noncontrolling interests

 

 

6

 

 

 

 

 

 

6

 

Balance at December 31, 2022, attributable to Cabot Corporation

 

$

(348

)

 

$

(10

)

 

$

(358

)

 

For both the three months ended December 31, 2023 and 2022, the Company reclassified $1 million of gain associated with net investment hedges out of AOCI and into interest expense on the Consolidated Statements of Operations.

 

E. Contingencies

Respirator Liabilities

Cabot has exposure in connection with a safety respiratory products business that a subsidiary acquired from American Optical Corporation (“AO”) in an April 1990 asset purchase transaction. The subsidiary manufactured respirators under the AO brand and disposed of that business in July 1995. In connection with its acquisition of the business, the subsidiary agreed, in certain circumstances, to assume a portion of AO’s liabilities, including costs of legal fees together with amounts paid in settlements and judgments, allocable to AO respiratory products used prior to the 1990 purchase by the Cabot subsidiary. In exchange for the subsidiary’s assumption of certain of AO’s respirator liabilities, AO agreed to provide to the subsidiary the benefits of: (i) AO’s insurance coverage for the period prior to the 1990 acquisition and (ii) a former owner’s indemnity of AO holding it harmless from any liability allocable to AO respiratory products used prior to May 1982. As more fully described in the 2023 10-K, the respirator liabilities generally involve claims for personal injury, including asbestosis, silicosis and coal worker’s pneumoconiosis, allegedly resulting from the use of respirators that are alleged to have been negligently designed and/or labeled. At no time did this respiratory product line represent a significant portion of the respirator market. In addition to Cabot’s subsidiary, other parties are responsible for significant portions of the costs of these respirator liabilities (as defined in the 2023 10-K, the “Payor Group”).

Cabot has a reserve to cover its expected share of liabilities for pending and future respirator liability claims, which is included in Other liabilities and Accounts payable and accrued liabilities on the Consolidated Balance Sheets. The Company expects these liabilities to be incurred over a number of years. The reserve balance was $38 million at both December 31, 2023 and September 30, 2023.

The Company’s current estimate of the cost of its share of pending and future respirator liability claims is based on facts and circumstances existing at this time, including the number and nature of the remaining claims. Developments that could affect the Company’s estimate include, but are not limited to, (i) significant changes in the number of future claims, (ii) changes in the rate of dismissals without payment of pending claims, (iii) significant changes in the average cost of resolving claims, including potential settlements of groups of claims, (iv) significant changes in the legal costs of defending these claims, (v) changes in the nature of claims received or changes in our assessment of the viability of these claims, (vi) trial and appellate outcomes, (vii) changes in the law and procedure applicable to these claims, (viii) the financial viability of the parties that contribute to the payment of respirator claims, (ix) exhaustion or changes in the recoverability of the insurance coverage maintained by certain members of the Payor Group, or a change in the availability of the indemnity provided by a former owner of AO, (x) changes in the allocation of costs among the various parties paying legal and settlement costs, and (xi) a determination that the assumptions that were used to estimate Cabot’s share of liability are no longer reasonable. The Company cannot determine the impact of these potential developments on its current estimate of its share of liability for existing and future claims. Because reserves are limited to amounts that are probable and estimable as of a relevant measurement date, and there is inherent difficulty in projecting the impact of potential developments on Cabot’s share of liability for these existing and future claims, it is reasonably possible that the liabilities for existing and future claims could change in the near term and that change could be material.

 

 

 

 

 

 

12


 

Other Matters

The Company has various other lawsuits, claims and contingent liabilities arising in the ordinary course of its business and with respect to its divested businesses. The Company does not believe that any of these matters will have a material adverse effect on its financial position; however, litigation is inherently unpredictable. Cabot could incur judgments, enter into settlements or revise its expectations regarding the outcome of certain matters, and such developments could have a material impact on its results of operations in the period in which the amounts are accrued or its cash flows in the period in which the amounts are paid.

F. Income Tax

Effective Tax Rate

 

 

 

Three Months Ended December 31

 

 

 

2023

 

 

2022

 

 

 

(Dollars in millions)

 

(Provision) benefit for income taxes

 

$

(34

)

 

$

(20

)

Effective tax rate

 

 

36

%

 

 

24

%

 

For the three months ended December 31, 2023 and 2022, the (Provision) benefit for income taxes included a net discrete tax expense of $7 million and $3 million, respectively.

Income tax in Interim Periods

The Company records its tax provision or benefit on an interim basis using an estimated annual effective tax rate. This rate is applied to the current period ordinary income or loss to determine the income tax provision or benefit allocated to the interim period. The income tax effects of unusual or infrequent items are excluded from the estimated annual effective tax rate and are recognized in the impacted interim period. Losses from jurisdictions for which no benefit can be recognized are excluded from the overall computations of the estimated annual effective tax rate and a separate estimated annual effective tax rate is computed and applied to ordinary income or loss in the loss jurisdiction.

Valuation allowances are provided against the future tax benefits that arise from the deferred tax assets in jurisdictions for which the Company expects that no benefit can be recognized. The estimated annual effective tax rate may be significantly impacted by nondeductible expenses and the Company’s projected earnings mix by tax jurisdiction. Adjustments to the estimated annual effective income tax rate are recognized in the period when such estimates are revised.

Uncertainties

Cabot and certain subsidiaries are under audit in a number of jurisdictions. In addition, certain statutes of limitations are scheduled to expire in the near future. It is reasonably possible that a change in the unrecognized tax benefits may also occur within the next twelve months related to the settlement of one or more of these audits or the lapse of applicable statutes of limitations. However, an estimated range of the impact on the unrecognized tax benefits cannot be quantified at this time.

Cabot files U.S. federal and state and non-U.S. income tax returns in jurisdictions with varying statutes of limitations. The 2020 through 2022 tax years generally remain subject to examination by the IRS and various tax years from 2016 through 2022 remain subject to examination by the respective state tax authorities. In foreign jurisdictions, various tax years from 2006 through 2022 remain subject to examination by their respective tax authorities.

During each of the three months ended December 31, 2023 and 2022, Cabot released uncertain tax positions of $1 million due to the expiration of statutes of limitations in various jurisdictions.

13


 

G. Earnings Per Share

The following tables summarize the components of the basic and diluted earnings (loss) per common share (“EPS”) computations:

 

 

 

Three Months Ended December 31

 

 

 

2023

 

 

2022

 

 

 

(In millions, except per share amounts)

 

Basic EPS:

 

 

 

 

 

 

Net income (loss) attributable to Cabot
   Corporation

 

$

50

 

 

$

54

 

Less: Dividends and dividend equivalents
   to participating securities

 

 

 

 

 

 

Less: Undistributed earnings allocated to
   participating securities
(1)

 

 

1

 

 

 

1

 

Earnings (loss) allocated to common
   stockholders (numerator)

 

$

49

 

 

$

53

 

 

 

 

 

 

 

 

Weighted average common shares and
   participating securities outstanding

 

 

56.4

 

 

 

57.6

 

Less: Participating securities(1)

 

 

1.1

 

 

 

1.3

 

Adjusted weighted average common
   shares (denominator)

 

 

55.3

 

 

 

56.3

 

 

 

 

 

 

 

 

Earnings (loss) per common share - basic:

 

$

0.88

 

 

$

0.94

 

 

 

 

 

 

 

 

Diluted EPS:

 

 

 

 

 

 

Earnings (loss) allocated to common
   stockholders

 

$

49

 

 

$

53

 

Plus: Earnings allocated to
   participating securities

 

 

1

 

 

 

1

 

Less: Adjusted earnings allocated to
   participating securities
(2)

 

 

1

 

 

 

1

 

Earnings (loss) allocated to common
   stockholders (numerator)

 

$

49

 

 

$

53

 

 

 

 

 

 

 

 

Adjusted weighted average common
   shares outstanding

 

 

55.3

 

 

 

56.3

 

Effect of dilutive securities:

 

 

 

 

 

 

Common shares issuable(3)

 

 

0.5

 

 

 

0.4

 

Adjusted weighted average common
   shares (denominator)

 

 

55.8

 

 

 

56.7

 

 

 

 

 

 

 

 

Earnings (loss) per common share - diluted:

 

$

0.88

 

 

$

0.93

 

 

(1)
Participating securities consist of shares underlying unvested time-based restricted stock units (the "TSUs"), earned and unvested performance-based restricted stock units (the "PSUs", and referred to in this note collectively with the TSUs as the "RSUs"), stock units accounted for under the Supplemental 401(k) Plan portion of the Company’s Deferred Compensation and Supplemental Retirement Plan, and stock units and phantom stock units accounted for under the Company’s Non-Employee Directors’ Deferral Plan. The holders of RSUs are entitled to receive dividend equivalents, payable in cash, to the extent dividends are paid on the outstanding shares of Common Stock, and equal in value to the dividends that would have been paid in respect of the Common Stock underlying the RSU. The accounts of holders of stock units and phantom stock units are credited with dividend equivalents, which are payable, in stock or cash, as the case may be, with the distribution of account balances.

14


 

Undistributed earnings are the earnings which remain after dividends declared during the period are assumed to be distributed to the common and participating stockholders. Undistributed earnings are allocated to common and participating stockholders on the same basis as dividend distributions. The calculation of undistributed earnings is as follows:

 

 

 

Three Months Ended December 31

 

 

 

2023

 

 

2022