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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

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 56,616,500 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

 

2


 

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.

3


 

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.

4


 

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.

5


 

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.

6


 

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.

 

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, 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.

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, 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.

 

9


 

 

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.

 

 

 

10


 

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

 

 

$

 

 

$

1

 

Interest cost

 

 

 

 

 

1

 

 

 

1

 

 

 

1

 

Expected return on plan assets

 

 

 

 

 

(2

)

 

 

(1

)

 

 

(2

)

Amortization of actuarial loss

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Settlement charge

 

 

6

 

 

 

 

 

 

 

 

 

 

Net periodic benefit (credit) cost

 

$

6

 

 

$