1
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
MARCH 31, 2001
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 of Incorporation) (I.R.S. Employer Identification No.)
TWO SEAPORT LANE 02210-2019
BOSTON, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (617) 345-0100
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, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
--------- ----------
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
AS OF MAY 1, 2001, THE COMPANY HAD 65,297,822 SHARES OF COMMON
STOCK, PAR VALUE $1 PER SHARE, OUTSTANDING.
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CABOT CORPORATION
INDEX
Part I. Financial Information Page
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Item 1. Financial Statements
Consolidated Statements of Income
Three Months Ended March 31, 2001 and 2000 3
Consolidated Statements of Income
Six Months Ended March 31, 2001 and 2000 4
Consolidated Balance Sheets
March 31, 2001 and September 30, 2000 5
Consolidated Statements of Cash Flows
Six Months Ended March 31, 2001 and 2000 7
Consolidated Statement of Changes in Stockholders' Equity
Six Months Ended March 31, 2001 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
Part II. Other Information
Item 4. Submission of Matters to a Vote of Stockholders 23
Item 6. Exhibits and Reports on Form 8-K 24
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31
(In millions, except per share amounts)
UNAUDITED
2001 2000
------ ------
Revenues:
Net sales and other operating revenues $ 458 $ 397
Interest and dividend income 7 1
------ ------
Total revenues 465 398
------ ------
Costs and expenses:
Cost of sales 339 291
Selling and administrative expenses 52 44
Research and technical service 12 11
Interest expense 9 9
Special item 17 --
------ ------
Total costs and expenses 429 355
------ ------
Income before income taxes 36 43
Provision for income taxes (10) (16)
Equity in net income of affiliated companies 4 2
Minority interest in net income (2) (1)
------ ------
Income from continuing operations 28 28
Discontinued Operations:
Income from operations of discontinued businesses, net of
income taxes -- 13
Gain on sale of businesses, net of income taxes 3 --
------ ------
Net income 31 41
Dividends on preferred stock, net of tax benefit (1) (1)
------ ------
Net income available to common shares $ 30 $ 40
====== ======
Weighted-average common shares outstanding:
Basic 63 64
====== ======
Diluted 76 73
====== ======
Income per common share
Basic:
Continuing operations $ 0.42 $ 0.43
Discontinued operations:
Income from operations of discontinued businesses -- 0.20
Gain on sale of business 0.05 --
------ ------
Net income $ 0.47 $ 0.63
====== ======
Diluted:
Continuing operations $ 0.36 $ 0.39
Discontinued operations:
Income from operations of discontinued businesses -- 0.18
Gain on sale of business 0.04 --
------ ------
Net income $ 0.40 $ 0.57
====== ======
Dividends per common share $ 0.11 $ 0.11
====== ======
The accompanying notes are an integral part of these financial statements.
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CABOT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended March 31
(In millions, except per share amounts)
UNAUDITED
2001 2000
------ ------
Revenues:
Net sales and other operating revenues $ 853 $ 774
Interest and dividend income 18 2
------ ------
Total revenues 871 776
------ ------
Costs and expenses:
Cost of sales 644 559
Selling and administrative expenses 97 85
Research and technical service 23 21
Interest expense 17 18
Special item 17 --
Other charges, net -- 1
------ ------
Total costs and expenses 798 684
------ ------
Income before income taxes 73 92
Provision for income taxes (21) (33)
Equity in net income of affiliated companies 8 3
Minority interest in net income (4) (3)
------ ------
Income from continuing operations 56 59
Discontinued Operations:
Income from operations of discontinued businesses, net of
income taxes -- 20
Gain on sale of businesses, net of income taxes 3 --
------ ------
Net income 59 79
Dividends on preferred stock, net of tax benefit (2) (2)
------ ------
Net income available to common shares $ 57 $ 77
====== ======
Weighted-average common shares outstanding:
Basic 64 64
====== ======
Diluted 76 73
====== ======
Income per common share
Basic:
Continuing operations $ 0.85 $ 0.89
Discontinued operations:
Income from operations of discontinued businesses -- 0.31
Gain on sale of business 0.05 --
------ ------
Net income $ 0.90 $ 1.20
====== ======
Diluted:
Continuing operations $ 0.73 $ 0.80
Discontinued operations:
Income from operations of discontinued businesses -- 0.27
Gain on sale of business 0.04 --
------ ------
Net income $ 0.77 $ 1.07
====== ======
Dividends per common share $ 0.22 $ 0.22
====== ======
The accompanying notes are an integral part of these financial statements.
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CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 2001 and September 30, 2000
(In millions)
ASSETS
March 31 September 30
2001 2000
---------- ----------
(Unaudited)
Current assets:
Cash and cash equivalents $ 444 $ 638
Accounts and notes receivable (net of reserve for doubtful
accounts of $3 and $3) 322 280
Inventories:
Raw materials 90 73
Work in process 48 45
Finished goods 107 83
Other 31 31
---------- ----------
Total inventories 276 232
Prepaid expenses 24 23
Deferred income taxes 15 17
---------- ----------
Total current assets 1,081 1,190
---------- ----------
Investments:
Equity 78 74
Other 39 27
---------- ----------
Total investments 117 101
Property, plant and equipment 1,797 1,794
Accumulated depreciation and amortization (1,024) (988)
---------- ----------
Net property, plant and equipment 773 806
Other assets:
Intangible assets, net of amortization 20 21
Deferred income taxes 2 2
Other assets 16 14
---------- ----------
Total other assets 38 37
---------- ----------
Total assets $ 2,009 $ 2,134
========== ==========
The accompanying notes are an integral part of these financial statements.
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CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 2001 and September 30, 2000
(In millions, except for share amounts)
LIABILITIES & STOCKHOLDERS' EQUITY
March 31 September 30
2001 2000
---------- ----------
(Unaudited)
Current liabilities:
Notes payable to banks $ 19 $ 20
Current portion of long-term debt 2 48
Accounts payable and accrued liabilities 254 425
Deferred income taxes 1 1
---------- ----------
Total current liabilities 276 494
---------- ----------
Long-term debt 443 329
Deferred income taxes 93 90
Other liabilities 143 143
Commitments and contingencies (Note E)
Minority interest 33 31
Stockholders' Equity:
Preferred Stock:
Authorized: 2,000,000 shares of $1 par value
Series A Junior Participating Preferred Stock
Issued and outstanding: none
Series B ESOP Convertible Preferred Stock 7.75% Cumulative 75 75
Issued: 75,336 shares, outstanding: 60,153 and 62,285 shares
(aggregate redemption value of $60 and $62)
Less cost of shares of preferred treasury stock (28) (24)
Common stock:
Authorized: 200,000,000 shares of $1 par value
Issued and outstanding:
65,338,730 and 67,700,060 shares 65 68
Additional paid-in capital 42 111
Retained earnings 1,083 1,040
Unearned compensation (25) (39)
Deferred employee benefits (55) (56)
Notes receivable for restricted stock (21) (27)
Accumulated other comprehensive loss (115) (101)
---------- ----------
Total stockholders' equity 1,021 1,047
---------- ----------
Total liabilities and stockholders' equity $ 2,009 $ 2,134
========== ==========
The accompanying notes are an integral part of these financial statements.
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CABOT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended March 31, 2001 and 2000
(In millions)
UNAUDITED
2001 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 59 $ 79
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 59 64
Deferred tax expense (benefit) (1) 7
Equity in income of affiliated companies,
net of dividends received (8) (2)
Special items 10 --
Gain on sale of business, net of income taxes (3) --
Non-cash compensation 11 8
Other, net 3 2
Changes in assets and liabilities, net of the effect of
the consolidation of equity affiliates:
Increase in accounts and notes receivable (45) (66)
(Increase) decrease in inventory (45) 7
Decrease in accounts payable and accrued liabilities (22) (13)
Increase in prepayments and other assets (3) (16)
Increase (decrease) in income taxes payable (156) 12
Decrease in other liabilities -- (12)
Other, net -- 2
-------- --------
Cash provided by (used in) operating activities (141) 72
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of business 5 --
Additions to property, plant and equipment (36) (53)
Purchase of investments (4) --
Proceeds from sale of property, plant and equipment 2 1
-------- --------
Cash used in investing activities (33) (52)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 129 17
Repayments of long-term debt (63) (7)
Increase (decrease) in short-term debt (1) 14
Purchases of preferred and common stock (77) (12)
Sales and issuances of preferred and common stock 3 3
Cash dividends paid to stockholders (16) (16)
Employee loan repayments 6 2
-------- --------
Cash provided by (used in) financing activities (19) 1
-------- --------
Effect of exchange rate changes on cash (1) (3)
-------- --------
Increase (decrease) in cash and cash equivalents (194) 18
Cash and cash equivalents at beginning of period 638 35
-------- --------
Cash and cash equivalents at end of period $ 444 $ 53
======== ========
The accompanying notes are an integral part of these financial statements.
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CABOT CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Six Months Ended March 31, 2001
(In millions)
UNAUDITED
Accumulated
Preferred Additional Other
Preferred Treasury Common Paid-in Retained Comprehensive
Stock Stock Stock Capital Earnings Loss
----------------------------------------------------------------------
Balance at September 30, 2000 $ 75 $ (24) $ 68 $ 111 $ 1,040 $ (101)
------- ------- ----- -------- ------- --------
Net income 59
Foreign currency translation adjustments (20)
Change in unrealized gain on available-for-
sale securities 6
Total comprehensive income
Common dividends paid (15)
Issuance of stock under employee
compensation plans, net of tax benefit 3
Issuance of common stock to CRISP 1
Purchase and retirement of common stock (3) (80)
Purchase of treasury stock - preferred (4)
Preferred dividends paid to Employee
Stock Ownership Plan, net of tax (1)
Principal payment by Employee Stock
Ownership Plan under guaranteed loan
Amortization of unearned compensation 7
Note Receivable - issuances, payments and
forfeitures
------- ------- ----- -------- ------- --------
Balance at March 31, 2001 $ 75 $ (28) $ 65 $ 42 $ 1,083 $ (115)
======= ======= ===== ======== ======= ========
Notes
Deferred Receivable Total Total
Unearned Employee for Restricted Stockholders' Comprehensive
Compensation Benefits Stock Equity Income
------------------------------------------------------------------------
Balance at September 30, 2000 $ (39) $ (56) $ (27) $ 1,047
------- ------- ----- --- ---------
Net income $ 59
Foreign currency translation adjustments (20)
Change in unrealized gain on available-for-
sale securities 6
--------
Total comprehensive income $ 45
========
Common dividends paid
Issuance of stock under employee
compensation plans, net of tax benefit
Issuance of common stock to CRISP
Purchase and retirement of common stock
Purchase of treasury stock - preferred
Preferred dividends paid to Employee
Stock Ownership Plan, net of tax
Principal payment by Employee Stock
Ownership Plan under guaranteed loan 1
Amortization of unearned compensation 14
Note Receivable - issuances, payments and
forfeitures 6
-------- ----- --------- ---------
Balance at March 31, 2001 $ (25) $ (55) $ (21) $ 1,021
======== ===== ========= =========
The accompanying notes are an integral part of these financial statements.
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CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
UNAUDITED
A. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Cabot
Corporation and majority-owned and controlled U.S. and non-U.S.
subsidiaries (Cabot). Investments in 20 to 50 percent owned affiliates
are accounted for on the equity method. Intercompany transactions have
been eliminated.
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 Form 10-K for the year ended
September 30, 2000.
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
March 31, 2001 and 2000. 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. SPECIAL ITEMS AND BUSINESS DEVELOPMENTS
During the quarter a $17 million charge was recorded, related to the
retirement of Cabot's Chief Executive Officer. Included in the charge is
a $10 million non-cash charge to accelerate the vesting of common stock
issued under the company's long term incentive compensation plan and an
accrual for a $7 million cash payment. The cash payment was made during
the third quarter.
On March 16, 2001, Cabot UK Holdings Limited, a wholly owned subsidiary
of Cabot Corporation, announced an open offer for approximately 3.5
million shares of Cabot India Limited, at 100 Rupees per share. Cabot
India Limited is a majority owned subsidiary of Cabot Corporation and its
shares are traded on the Mumbai Stock Exchange and the National Stock
Exchange of India. The tender offer is for the 40% ownership of Cabot
India Limited currently held by minority interest shareholders. The offer
period is expected to end on June 16, 2001.
In March, 2001 Cabot exercised an option to purchase 1 million shares of
Angus & Ross Plc common stock. In May, 2001 Cabot concluded an agreement
to purchase an additional 4 million shares of Angus & Ross Plc common
stock. The total purchase price of the 5 million shares was approximately
$1 million. The purchase of the additional 4 million shares increased
Cabot's ownership in Angus & Ross Plc to approximately 21%. The
investment will be accounted for under the equity method starting in the
third quarter of fiscal 2001. As part of the agreement, Cabot received an
option to purchase an additional 5 million shares of common stock. The
option has not yet been exercised.
During fiscal 2000, Cabot approved plans to close several plants. In
relation to the plant closings, Cabot recorded an $18 million charge.
Included in the charge were accruals of $2 million for severance and
termination benefits for approximately 40 employees of the Chemical and
Performance Materials Businesses and $7 million for facility closing
costs, of which none were paid out in fiscal 2000. The remainder of the
charge included $9 million for the impairment of long-lived assets. As of
March 31, 2001, $8 million remains in the accrual, of which $2 million
relates to severance and $6 million to other facility closing costs. Most
of the accrual will be expended during fiscal 2001.
During 1999, Cabot began implementation of initiatives to reduce costs
and improve operating efficiencies. In connection with these efforts,
Cabot recorded a $26 million charge for capacity utilization and cost
reduction initiatives. These initiatives included $16 million for
severance and termination benefits for approximately 265 employees, of
which $15 million has been paid out as of March 31, 2001. The remaining
$1 million is expected to be expended in fiscal 2001.
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CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
March 31, 2000
UNAUDITED
C. DISCONTINUED OPERATIONS
On September 19, 2000, Cabot completed a transaction to sell its
liquefied natural gas (LNG) business for approximately $688 million cash.
The sale included Cabot's LNG terminal in Everett, Massachusetts, its LNG
tanker, the Matthew, and its equity interest in the Atlantic LNG
liquefaction plant in Trinidad. The gain on the sale of the LNG business
recorded in the fourth quarter of fiscal 2000, was approximately $309
million, net of taxes of $178 million.
In February, 2001, Cabot received additional cash proceeds of $5 million
from the sale. The receipt, net of taxes, is classified as a gain on the
sale of LNG in the Consolidated Statement of Income.
On April 4, 2000, Cabot Microelectronics Corporation, then a subsidiary
of Cabot, sold 4.6 million shares of its common stock in an initial
public offering (IPO). The 4.6 million shares represented approximately
19.5% of Cabot Microelectronics. The net proceeds from the IPO were
approximately $83 million. Cabot received an aggregate of approximately
$81 million in dividends from Cabot Microelectronics.
On July 25, 2000, a committee of Cabot's Board of Directors voted to spin
off its remaining 80.5% equity interest in Cabot Microelectronics by
distributing a special dividend of its remaining interest in Cabot
Microelectronics to its common stockholders of record as of the close of
regular trading on the New York Stock Exchange on September 13, 2000. The
tax-free distribution took place on September 29, 2000.
Operating results for fiscal 2000 have been reclassified to present these
businesses as discontinued operations.
D. RECLASSIFICATION
Certain amounts were reclassified in fiscal 2000 to conform to the fiscal
2001 presentation.
E. COMMITMENTS AND CONTINGENCIES
Cabot is a defendant, or potentially responsible party, in various
lawsuits and environmental proceedings wherein substantial amounts are
claimed or at issue.
As of March 31, 2001, Cabot has approximately $36 million reserved for
environmental matters, primarily related to divested businesses. The
amount represents Cabot's current best estimate of its share of costs
likely to be incurred at those sites where costs are reasonably estimable
based on its analysis of the extent of cleanup required, alternative
cleanup methods available, abilities of other responsible parties to
contribute, and its interpretation of applicable laws and regulations at
each site. Cabot reviews the adequacy of this reserve as circumstances
change at individual sites. Cabot is unable to reasonably estimate the
amount of possible loss in excess of the accrued amount.
In the opinion of Cabot, although final disposition of these suits and
claims may impact Cabot's financial statements in a particular period,
they will not, in the aggregate, have a material adverse effect on
Cabot's financial position.
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CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
March 31, 2001
(Preferred shares in thousands and common shares in millions)
UNAUDITED
F. STOCKHOLDERS' EQUITY
The following table summarizes the changes in shares of stock for the
three months ended March 31:
2001
----
PREFERRED STOCK
Balance at December 31, 2000 75
====
Balance at March 31, 2001 75
====
PREFERRED TREASURY STOCK
Balance at December 31, 2000 14
Purchased preferred treasury stock 1
----
Balance at March 31, 2001 15
====
COMMON STOCK
Balance at December 31, 2000 66
Purchased and retired common stock (1)
----
Balance at March 31, 2001 65
====
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CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
March 31, 2001
(Preferred shares in thousands and common shares in millions)
UNAUDITED
F. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes the changes in shares of stock for the six
months ended March 31:
2001
----
PREFERRED STOCK
Balance at September 30, 2000 75
====
Balance at March 31, 2001 75
====
PREFERRED TREASURY STOCK
Balance at September 30, 2000 13
Purchased preferred treasury stock 2
----
Balance at March 31, 2001 15
====
COMMON STOCK
Balance at September 30, 2000 68
Purchased and retired common stock (3)
----
Balance at March 31, 2001 65
====
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CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
March 31, 2001
(In millions)
UNAUDITED
G. COMPREHENSIVE INCOME
The pre-tax, tax, and after-tax effects of the components of other
comprehensive loss for the three months ended March 31 are shown below:
Pre-tax Tax After-tax
------- ----- ---------
2001
Foreign currency translation adjustments $(21) $ -- $(21)
Unrealized holding gain arising during period on
marketable equity securities 7 (3) 4
---- ---- ----
Other comprehensive loss $(14) $ (3) $(17)
==== ==== ====
Pre-tax Tax After-tax
------- ----- ---------
2000
Foreign currency translation adjustments $(13) $ -- $(13)
---- ---- ----
Other comprehensive loss $(13) $ -- $(13)
==== ==== ====
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CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
March 31, 2001
(In millions)
UNAUDITED
G. COMPREHENSIVE INCOME (CONTINUED)
The pre-tax, tax, and after-tax effects of the components of other
comprehensive loss for the six months ended March 31 are shown below:
Pre-tax Tax After-tax
------- ------ ---------
2001
Foreign currency translation adjustments $ (20) $ -- $ (20)
Unrealized holding gain arising during period on
marketable equity securities 11 (5) 6
------ ------ ------
Other comprehensive loss $ (9) $ (5) $ (14)
====== ====== ======
Pre-tax Tax After-tax
------- ------ ---------
2000
Foreign currency translation adjustments $ (26) $ -- $ (26)
Unrealized holding gain arising during period on
marketable equity securities 2 (1) 1
------ ------ ------
Other comprehensive loss $ (24) $ (1) $ (25)
====== ====== ======
The balance of related after-tax components comprising accumulated other
comprehensive loss is summarized below:
March 31, September 30,
2001 2000
------ ------
Foreign currency translation adjustment $ (125) $ (105)
Unrealized gain on marketable equity securities 10 4
------ ------
Accumulated other comprehensive loss $ (115) $ (101)
====== ======
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CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
March 31, 2001
(In millions, except per share amounts)
UNAUDITED
H. EARNINGS PER SHARE
Basic and diluted earnings per share ("EPS") were calculated for the
three months ended March 31 as follows:
2001 2000
------ ------
BASIC EPS
Income available to common shares (numerator) $ 30 $ 40
====== ======
Weighted-average common shares outstanding 66 67
Less: Contingently issuable shares(1) (3) (3)
------ ------
Adjusted weighted-average shares (denominator) 63 64
====== ======
Basic EPS $ 0.47 $ 0.63
====== ======
DILUTED EPS
Income available to common shares $ 30 $ 40
Dividends on preferred stock 1 1
Less: Income effect of assumed conversion of preferred stock -- --
------ ------
Income available to common shares plus assumed conversions (numerator) $ 31 $ 41
====== ======
Weighted-average common shares outstanding 66 67
Effect of dilutive securities:
Conversion of preferred stock 9 6
Conversion of incentive stock options(2) 1 --
------ ------
Adjusted weighted-average shares (denominator) 76 73
====== ======
Diluted EPS $ 0.40 $ 0.57
====== ======
(1) Represents restricted stock issued under Cabot Equity Incentive
Plans.
(2) Of the options to purchase shares of common stock outstanding at
March 31, 2000 1 million shares were not included in the
computation of diluted EPS because those options' exercise price
was greater than the average market price of the common shares
for 2000. As of March 31, 2001, the average fair value of Cabot's
stock price exceeds the exercise price of all options
outstanding. As such, all options outstanding have been included
in the calculation of fully diluted earnings per share.
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CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
March 31, 2001
(In millions, except per share amounts)
UNAUDITED
H. EARNINGS PER SHARE (CONTINUED)
Basic and diluted earnings per share ("EPS") were calculated for the six
months ended March 31 as follows:
2001 2000
------ ------
BASIC EPS
Income available to common shares (numerator) $ 57 $ 77
====== ======
Weighted-average common shares outstanding 67 67
Less: Contingently issuable shares(1) (3) (3)
------ ------
Adjusted weighted-average shares (denominator) 64 64
====== ======
Basic EPS $ 0.90 $ 1.20
====== ======
DILUTED EPS
Income available to common shares $ 57 $ 77
Dividends on preferred stock 2 2
Less: Income effect of assumed conversion of preferred stock -- (1)
------ ------
Income available to common shares plus assumed conversions (numerator) $ 59 $ 78
====== ======
Weighted-average common shares outstanding 67 67
Effect of dilutive securities
Conversion of preferred stock 9 6
Conversion of incentive stock options(2) -- --
------ ------
Adjusted weighted-average shares (denominator) 76 73
====== ======
Diluted EPS $ 0.77 $ 1.07
====== ======
(1) Represents restricted stock issued under Cabot Equity Incentive
Plans.
(2) Of the options to purchase shares of common stock outstanding at
March 31, 2000 1 million shares were not included in the
computation of diluted EPS because those options' exercise price
was greater than the average market price of the common shares
for 2000. As of March 31, 2001, the average fair value of Cabot's
stock price exceeds the exercise price of all options
outstanding. As such, all options outstanding have been included
in the calculation of fully diluted earnings per share.
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CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
March 31, 2001
(In millions)
UNAUDITED
I. FINANCIAL INFORMATION BY SEGMENT
The framework for segment reporting is intended to give analysts and
other financial statement users a view of Cabot "through the eyes of
management". It designates Cabot's internal management reporting
structure as the basis for determining Cabot's reportable segments, as
well as the basis for determining the information to be disclosed for
those segments. The following table provides financial information by
segment for the three months ended March 31:
CHEMICAL PERFORMANCE SPECIALTY SEGMENT UNALLOCATED CONSOLIDATED
BUSINESSES MATERIALS FLUIDS TOTAL AND OTHER TOTAL
---------- --------- ------ ----- --------- -----
2001
Net sales and other operating revenues(1)(2) $ 357 $ 103 $ 5 $ 465 $ (7) $ 458
Profit (loss) before taxes(3) $ 35 $ 26 $ (1) $ 60 $ (24) $ 36
2000
Net sales and other operating revenues(1)(2) $ 339 $ 54 $ 6 $ 399 $ (2) $ 397
Profit (loss) before taxes(3) $ 49 $ 8 $ (1) $ 56 $ (13) $ 43
Unallocated and other net sales and other operating revenues includes the
following:
2001 2000
------ ------
Equity affiliate sales $ (16) $ (16)
Royalties paid by equity affiliates 1 2
Interoperating segment revenues (2) (3)
Shipping and handling fees 10 15
------ ------
Total $ (7) $ (2)
====== ======
Unallocated and other profit (loss) before taxes includes the following:
2001 2000
------ ------
Interest expense $ (9) $ (9)
General unallocated income (expense)(4) 6 (2)
Equity in net income of affiliated companies (4) (2)
Special item (5) (17) --
------ ------
Total $ (24) $ (13)
====== ======
(1) Segment sales for certain operating segments within Chemical
Businesses include 100% of equity affiliate sales and transfers of
materials at cost and market-based prices.
(2) Unallocated and other reflects an adjustment for equity affiliate
sales and interoperating segment revenues and includes royalties
paid by equity affiliates offset by external shipping and handling
costs.
(3) Segment profit is a measure used by Cabot's chief operating
decision-makers to measure consolidated operating results and
assess segment performance. It includes equity in net income of
affiliated companies, royalties paid by equity affiliates,
minority interest, and corporate governance costs, and excludes
foreign currency transaction gains (losses), interest income
(expense) and dividend income.
(4) General unallocated income (expense) includes foreign currency
transaction gains (losses), interest income, dividend income, and
corporate allocations previously allocated to discontinued
segments.
(5) Results for the second quarter of fiscal 2001 include a charge
related to the retirement of the Chief Executive Officer. Included
in the charge is $10 million relating to the accelerated vesting
of shares issued under the Long Term Incentive Compensation Plan
and a $7 million cash payment.
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CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
March 31, 2001
(In millions)
UNAUDITED
I. FINANCIAL INFORMATION BY SEGMENT (CONTINUED)
The framework for segment reporting is intended to give analysts and
other financial statement users a view of Cabot "through the eyes of
management". It designates Cabot's internal management reporting
structure as the basis for determining Cabot's reportable segments, as
well as the basis for determining the information to be disclosed for
those segments. The following table provides financial information by
segment for the six months ended March 31:
CHEMICAL PERFORMANCE SPECIALTY SEGMENT UNALLOCATED CONSOLIDATED
BUSINESSES MATERIALS FLUIDS TOTAL AND OTHER TOTAL
---------- --------- ------ ----- --------- -----
2001
Net sales and other operating revenues(1)(2) $ 691 $ 159 $ 12 $ 862 $ (9) $ 853
Profit (loss) before taxes(3) $ 76 $ 23 $ -- $ 99 $ (26) $ 73
2000
Net sales and other operating revenues(1)(2) $ 669 $ 105 $ 10 $ 784 $ (10) $ 774
Profit (loss) before taxes(3) $ 102 $ 16 $ (3) $ 115 $ (23) $ 92
Unallocated and other net sales and other operating revenues includes the
following:
2001 2000
------ ------
Equity affiliate sales $ (31) $ (36)
Royalties paid by equity affiliates 3 3
Interoperating segment revenues (3) (5)
Shipping and handling fees 22 28
------ ------
Total $ (9) $ (10)
====== ======
Unallocated and other profit (loss) before taxes includes the following:
2001 2000
------ ------
Interest expense $ (17) $ (18)
General unallocated income (expense)(4) 16 (2)
Equity in net income of affiliated companies (8) (3)
Special item (5) (17) --
------ ------
Total $ (26) $ (23)
====== ======
(1) Segment sales for certain operating segments within Chemical
Businesses include 100% of equity affiliate sales and transfers of
materials at cost and market-based prices.
(2) Unallocated and other reflects an adjustment for equity affiliate
sales and interoperating segment revenues and includes royalties
paid by equity affiliates offset by external shipping and handling
costs.
(3) Segment profit is a measure used by Cabot's chief operating
decision-makers to measure consolidated operating results and
assess segment performance. It includes equity in net income of
affiliated companies, royalties paid by equity affiliates,
minority interest, and corporate governance costs, and excludes
foreign currency transaction gains (losses), interest income
(expense) and dividend income.
(4) General unallocated income (expense) includes foreign currency
transaction gains (losses), interest income, dividend income, and
corporate allocations previously allocated to discontinued
segments.
(5) Results for the second quarter of fiscal 2001 include a charge
related to the retirement of the Chief Executive Officer. Included
in the charge is $10 million relating to the accelerated vesting
of shares issued under the Long Term Incentive Compensation Plan
and a $7 million cash payment.
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CABOT CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
I. RESULTS OF OPERATIONS
Net sales and operating profit before taxes by segment are shown in Note I to
the Consolidated Financial Statements.
THREE MONTHS ENDED MARCH 31, 2001 VERSUS
THREE MONTHS ENDED MARCH 31, 2000
Net income from continuing operations for the second quarter of fiscal 2001 was
$28 million ($0.36 per diluted common share) compared to $28 million ($0.39 per
diluted common share) in the same quarter a year ago. Included in this quarter's
results is a $17 million ($0.16 per diluted share) special charge related to the
retirement of Cabot's Chief Executive Officer, consisting of a $10 million
non-cash charge to accelerate the vesting of stock issued under the Company's
long term incentive compensation plan and an accrual for a $7 million cash
payment.
Companywide sales increased 15% from $397 million last year to $458 million
this year due to higher prices in the Chemical Businesses and higher volumes and
prices in the Performance Materials segment. Overall operating profit before
taxes and the special charge of $17 million increased 23% from $43 million in
the second quarter of fiscal 2000 to $53 million in the second quarter of fiscal
2001. Higher prices and lower production costs in the Chemical Businesses
absorbed the effects of higher feedstock costs and resulted in improved margins.
In addition, the Company benefited from higher tantalum margins resulting from
customer contracts entered into in the second quarter of fiscal 2001.
Sales for the Chemical Businesses increased to $357 million. Operating profit
decreased from $49 million to $35 million. The $14 million, or 29%, decrease in
profitability is primarily attributed to slower industrial growth in North
America, increased carbon black feedstock costs, higher natural gas costs, and
unfavorable currency movements.
For the second quarter of fiscal 2001, global carbon black volumes decreased 6%
versus the second quarter of last year. Sales volumes were flat in both South
America and Europe though a weaker North American economy led to a 16% decrease
in volumes in that region. Similarly, Asia Pacific experienced a 3% decrease in
volumes. Carbon black was negatively impacted by increased feedstock costs.
Feedstock costs were 25% higher in the second quarter of this year versus the
same quarter a year ago due to increases in oil and natural gas prices.
Overall volumes in the Fumed Metal Oxides business declined by 8% due to
decreased demand from traditional markets including the silicone rubber and
construction industries. However, higher prices offset lower volumes resulting
in a 9% increase in sales year over year. Results were negatively impacted by
higher energy prices and manufacturing costs in North America.
Cabot's inkjet colorants business continues to gain commercial acceptance of a
variety of products. Accordingly, the business reported a $1 million improvement
in operating profit in the second quarter of 2001.
Performance Materials sales were $103 million in the second quarter of fiscal
2001 compared with $54 million in fiscal 2000. Demand for tantalum products
continues to remain strong. Volumes of tantalum sold were 26% higher in the
second quarter of 2001 than in the same quarter a year ago. As a result of the
customer contracts entered into during the second fiscal quarter of 2001,
average prices increased approximately 56% year over year. At the same time,
total costs increased approximately 67% due to higher volumes and higher ore
costs. It is anticipated that Cabot's earnings in the tantalum
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CABOT CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
business will increase by approximately 50% in fiscal 2001, year over year. In
fiscal 2002, Cabot expects earnings from the tantalum business to increase by
approximately three times over estimates for fiscal 2001.
Specialty Fluids sales in the second quarter were $5 million versus $6 million
last year. Lower volumes and prices were offset by lower operating costs
resulting in flat operating results in the second quarter of fiscal 2001 versus
the same quarter in 2000. Sales to date have been generated from the production
and sale of cesium formate as well as spodumene, tantalum and fine cesium
chemicals. During the second quarter, cesium formate was used in two successful
drill-in applications involving challenging high pressure, high temperature
wells in the North Sea. It is anticipated that these wells will undergo
production flow tests in the near future.
Interest income in the second quarter of this year was $6 million higher than in
the same quarter last year due to an increase in Cabot's cash position related
to the sales proceeds of the Liquefied Natural Gas business.
Research and technical service spending was $12 million for the second quarter
versus $11 million for the second quarter of last year. Selling and
administrative expenses were $52 million for the second quarter of fiscal 2001,
an 18% increase from $44 million spent last year. The increase is largely due to
non-capitalized expenses associated with the development and implementation of
our Enterprise Resource Planning system, accounting for stock-based incentive
compensation and our e-commerce initiative which has been expanded this year.
Selling and administrative expenses and research and technical service spending
remained flat as a percentage of sales. They represented 11% and 3%,
respectively, of sales in both the current quarter and corresponding quarter of
fiscal 2000.
In February 2001, Cabot received $3 million, net of tax, ($0.04 per diluted
common share) of additional proceeds from the September 2000 sale of the
Liquefied Natural Gas business.
In fiscal 2000, Cabot initiated a reorganization of its international legal
entity structure. As a result of the reorganization, Cabot's overall effective
income tax rate decreased from 36% in fiscal 2000 to 29% in fiscal 2001.
During fiscal 2000, Cabot approved plans to close several plants. In relation to
the plant closings, Cabot recorded an $18 million charge. Included in the charge
were accruals of $2 million for severance and termination benefits and $7
million for facility closing costs. As of March 31, 2001, $8 million is accrued,
of which $2 million relates to severance and the remaining $6 million to
facility closing costs. Most of the $8 million will be expended during fiscal
2001.
During 1999, Cabot began implementation of initiatives to reduce costs and
improve operating efficiencies. In connection with these efforts, Cabot recorded
a $26 million charge for capacity utilization and cost reduction initiatives.
These initiatives included $16 million for severance and termination benefits
for approximately 265 employees, of which $15 million has been paid out as of
March 31, 2001. The remaining $1 million is expected to be expended during
fiscal 2001.
SIX MONTHS ENDED MARCH 31, 2001 VERSUS
SIX MONTHS ENDED MARCH 31, 2000
Net income from continuing operations for the first six months of fiscal 2001
was $56 million compared to $59 million for the first half of fiscal 2000.
Included in these results from operations for the first half of fiscal 2001 is a
$17 million special charge related to the retirement of Cabot's Chief Executive
Officer.
Sales increased 10% from $774 million last year to $853 million this year due to
strong volumes and pricing in the Performance Materials segment and higher
prices in the carbon black business. However, operating profit before taxes and
a special charge of $17 million decreased slightly from $92 million in the first
half of fiscal 2000 to $90 million in the first half of fiscal 2001. Increased
feedstock costs in the Chemical Businesses and higher raw material costs in the
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CABOT CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Performance Materials business were the primary drivers behind the decrease in
profitability. Increased pricing in the Performance Materials business did not
begin to offset higher ore costs until the second quarter of fiscal 2001.
Sales for the Chemical Businesses increased to $691 million. Operating profit
decreased from $102 million to $76 million. The $26 million, or 25%, decrease in
profitability is primarily attributed to slower industrial growth in North
America, increased oil-based feedstock and natural gas costs, and unfavorable
currency trends.
Performance Materials sales were $159 million, a 51% increase from $105 million
in the first six months of fiscal 2000. Operating profit increased 44% from $16
million in the first six months of last year to $23 million in the first two
quarters of this year driven by higher volumes and higher prices.
Specialty Fluids realized a $2 million improvement in sales for the six-month
period ended March 31, 2001. Sales increased from $10 million last year to $12
million this year. Similarly, Specialty Fluids realized a $3 million improvement
in profitability for the first half of fiscal 2001, largely as a result of
improved pricing and increased volumes.
In February 2001, Cabot received $3 million, net of tax, ($0.04 per diluted
common share) of additional proceeds from the September 2000 sale of the
Liquefied Natural Gas business.
II. CASH FLOW AND LIQUIDITY
During the first six months of the fiscal year, cash used in operating
activities totaled $131 million as compared to cash provided by operating
activities of $72 million for the same period last year. The uses of cash during
the first quarter of fiscal 2001 included a tax payment related to the September
2000 disposition of the Liquefied Natural Gas business.
Capital spending for the first six months of the year was $36 million. The
majority of capital spending related to maintaining existing assets. Cabot plans
to spend approximately $160 million on capital expenditures during the fiscal
year.
Cash used by financing activities was $29 million in the first half of fiscal
2001 as compared to $1 million provided by financing activities for the same
period last year. The key components of the charge in net cash from financing
activities were the acquisition of a 3-year EURO note for $129 million, the
repayment of $63 million in long-term debt, and the repurchase of $83 million of
common stock.
In November 2000, a Cabot subsidiary borrowed 150 million EURO ($129 million)
from institutional lenders. The loan is payable in EUROs, bears interest at
EURIBOR plus 1.10%, and matures in November 2003.
On October 4, 2000, Cabot purchased $17 million of its Medium Term Notes at par
plus accrued interest. The 7.28% Medium Term Notes were issued on October 21,
1997 and were subject to a put at par in 2004.
On September 8, 2000, Cabot's Board of Directors authorized the repurchase of up
to 10 million shares of Cabot's common stock, superseding prior authorizations.
As of March 31, 2001, approximately 3 million shares have been purchased at an
average price of $28 per share under this new authorization.
During the second quarter of fiscal 2001, Cabot entered into a knock-in share
repurchase contract with an investment bank. The contract allowed for the
purchase of up to 2 million shares of Cabot's common stock at various market
prices from April 1, 2001 to April 28, 2001. The contract expired without being
triggered.
On March 16, 2001, Cabot UK Holdings Limited, a wholly owned subsidiary of Cabot
Corporation, announced an open offer for approximately 3.5 million shares of
Cabot India Limited, at 100 Rupees per share. Cabot India Limited is a majority
owned subsidiary of Cabot Corporation and its shares are traded on the Mumbai
Stock Exchange and the National Stock Exchange of India. The tender
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CABOT CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
offer is for the 40% ownership of Cabot India Limited currently held by minority
interest shareholders. The offer period is expected to end June 16, 2001.
As a result of the operating and financing activities during the quarter,
Cabot's ratio of total debt (including short-term debt net of cash) to capital
decreased from 4% to 2% at March 31, 2001.
Cabot maintains a credit agreement under which it may, under certain conditions,
borrow up to $300 million at floating rates. The facility is available through
January 3, 2002. As of March 31, 2001, Cabot had no borrowings outstanding under
this arrangement. Management expects cash on hand, cash from operations and
present financing arrangements, including Cabot's unused line of credit and
shelf registration for debt securities, to be sufficient to meet Cabot's cash
requirements for the foreseeable future.
Forward-Looking Information: Included above are statements relating to
management's expectations of future profits, the possible achievement of the
Company's financial goals and objectives and management's expectations for
shareholder value creation initiatives and for the Company's product development
program. Actual results may differ materially from the results anticipated in
the statements included herein due to a variety of factors, including market
supply and demand conditions, fluctuations in currency exchange rates, costs of
raw materials, patent rights of others, stock market conditions, demand for our
customers' products and competitors' reactions to market conditions, and other
factors referred to in the Company's filings with the Securities and Exchange
Commission. Timely commercialization of products under development by the
Company may be disrupted or delayed by technical difficulties, market
acceptance, competitors' new products, as well as difficulties in moving from
the experimental stage to the production stage. The Company undertakes no
obligation to update forward-looking statements or reflect events or
circumstances after the date of this document.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS.
The Annual Meeting of Stockholders of Cabot Corporation (the "Annual Meeting")
was held on March 8, 2001. An election of Directors was held for which Kennett
F. Burnes, John S. Clarkeson, Robert P. Henderson, Roderick C.G. MacLeod, and
Ronaldo H. Schmitz were nominated and elected to the class of Directors whose
terms expire in 2004, and John G.L. Cabot and John F. O'Brien were nominated and
elected to the class of Directors whose terms expire in 2003. The following
votes were cast for or withheld with respect to each of the nominees.
Director In Favor Of Withheld
-------- ----------- --------
Kennett F. Burnes 66,959,112 2,236,641
John S. Clarkeson 67,540,478 1,655,275
Robert P. Henderson 67,663,030 1,532,723
Roderick C.G. MacLeod 67,595,218 1,600,535
Ronaldo H. Schmitz 67,753,456 1,442,297
John G.L. Cabot 67,795,941 1,399,812
John F. O'Brien 67,640,559 1,555,194
Other Directors whose terms of office as Directors continued after the meeting
are:
Director Term of Office Expires
-------- ----------------------
Samuel W. Bodman 2002
Arthur L. Goldstein 2002
Gautam S. Kaji 2002
John H. McArthur 2002
Lydia W. Thomas 2003
Mark S. Wrighton 2003
Effective March 8, 2001, David V. Ragone retired as a member of the Board of
Directors, in accordance with the Company's Director Retirement Policy.
The second proposal before the Annual Meeting was a management proposal to adopt
the Cabot Corporation Short-Term Incentive Compensation Plan. This proposal was
approved by the stockholders. The following votes were cast for or against, or
abstained from voting on, this Proposal:
For Against Abstained
--- ------- ---------
57,621,417 10,777,564 796,772
There were no broker non-votes with respect to the second proposal.
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ITEM 5. OTHER INFORMATION.
On May 11, 2001, Cabot Corporation's Board of Directors elected
Kennett F. Burnes as Chairman of the Board. Mr. Burnes was named Chief
Executive Officer of Cabot Corporation on March 9, 2001. He succeeds
Samuel W. Bodman as Chairman and Chief Executive Officer.
The Board of Directors also voted to increase the quarterly
dividend by $0.02 per share, or 18%, to $0.13 per share on all
outstanding shares of the Corporation's common stock. The dividend is
payable June 8, 2001, to stockholders of record as of the close of
business on May 25, 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibit numbers in the following list correspond to the number
assigned to such exhibits in the Exhibit Table of Item 601 of
Regulation S-K:
Exhibit
Number Description
------ -----------
10* Cabot Corporation Short-Term Incentive Compensation Plan,
filed herewith.
*Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
No report on Form 8-K was filed by the Company during the three
months ended March 31, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CABOT CORPORATION
Date: May 14, 2001 /s/ Robert L. Culver
--------------------------------
Robert L. Culver
Executive Vice President and
Chief Financial Officer
Date: May 14, 2001 /s/ William T. Anderson
--------------------------------
William T. Anderson
Vice President and Controller
(Chief Accounting Officer)
25