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 quarter ended
DECEMBER 31, 1993
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.)
75 STATE STREET 02109-1806
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 classes of Common
Stock, as of the latest practicable date.
AS OF DECEMBER 31, 1993, THE COMPANY HAD 18,778,791 SHARES OF COMMON
STOCK, PAR VALUE $1 PER SHARE, OUTSTANDING.
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CABOT CORPORATION
INDEX TO FINANCIAL STATEMENTS
Part I. Financial Information Page No.
--------
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income
Three Months Ended December 31, 1993 and 1992 3
Consolidated Balance Sheets
December 31, 1993 and September 30, 1993 4
Consolidated Statements of Cash Flows
Three Months Ended December 31, 1993 and 1992 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
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CABOT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended December 31, 1993 and 1992
(Dollars in thousands, except per share amounts)
UNAUDITED
1993 1992
---- ----
Revenues:
Net sales and other operating revenues $ 398,475 $ 396,104
Interest and dividend income 978 1,449
---------- ----------
Total revenues 399,453 397,553
Costs and expenses:
Cost of sales 296,750 300,310
Selling and administrative expenses 51,029 50,649
Research and technical service 11,721 10,029
Interest expense 10,259 10,996
Other (income) expense, net 3,659 3,219
----------- ----------
Total costs and expenses 373,418 375,203
----------- ----------
Income before income taxes 26,035 22,350
Provision for income taxes (10,414) (9,085)
Equity in net income (loss) of affiliated companies 337 (1,338)
----------- ----------
Income before cumulative effect of accounting changes 15,958 11,927
Cumulative effect of accounting changes - (26,109)
----------- ----------
Net income (loss) 15,958 (14,182)
----------- ----------
Dividends on preferred stock, net of tax
benefit of $484 and $474, respectively (899) (920)
----------- ----------
Income (loss) applicable to primary common shares $ 15,059 $ (15,102)
----------- ----------
----------- ----------
Weighted average common shares outstanding (000):
Primary 19,079 18,637
Fully diluted (Note A) 20,641 20,211
Income per common share:
Primary
Continuing operations $ 0.79 $ 0.59
Cumulative effect of accounting changes - (1.40)
----------- ----------
Income per share $ 0.79 $ (0.81)
----------- ----------
----------- ----------
Fully diluted (Note A)
Continuing operations $ 0.74 $ 0.59
Cumulative effect of accounting changes - (1.40)
------------ ----------
Income per share $ 0.74 $ (0.81)
----------- ----------
----------- ----------
Dividends per common share $ 0.26 $ 0.26
----------- ----------
----------- ----------
The accompanying notes are an integral part of these financial statements.
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CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1993 and September 30, 1993
(Dollars in thousands)
ASSETS
December 31 September 30
1993 1993
(Unaudited)
------------- ----------------
Current assets:
Cash and cash equivalents $ 33,319 $ 40,267
Accounts and notes receivable
(net of reserve for doubtful
accounts of $6,413 and $6,321) 245,077 258,057
Inventories:
Raw materials 47,916 45,589
Work in process 33,786 36,923
Finished goods 93,262 77,747
Other 35,655 35,091
------------- -----------
Total inventories 210,619 195,350
Prepaid expenses 15,245 8,771
Deferred income taxes 37,979 41,761
------------- -----------
Total current assets 542,239 544,206
------------- -----------
Investments:
At equity 164,258 166,669
At cost 7,915 7,911
------------- -----------
Total investments 172,173 174,580
------------- -----------
Property, plant and equipment:
At cost 1,242,128 1,250,228
Accumulated depreciation and amortization 610,691 603,708
------------- -----------
Net property, plant and equipment 631,437 646,520
Other assets:
Intangible assets, net of amortization 78,306 78,873
Deferred income taxes 6,321 5,752
Other assets 34,551 39,542
------------- -----------
Total other assets 119,178 124,167
------------- -----------
Total assets $ 1,465,027 $ 1,489,473
------------- -----------
------------- -----------
The accompanying notes are an integral part of these financial statements.
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CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1993 and September 30, 1993
(Dollars in thousands)
LIABILITIES & STOCKHOLDERS' EQUITY
December 31 September 30
1993 1993
(Unaudited)
-------------- ---------------
Current liabilities:
Notes payable to banks $ 66,588 $ 1,501
Current portion of long-term debt 159,383 29,205
Accounts payable and accrued liabilities 234,539 297,201
U.S. and foreign income taxes payable 17,686 25,029
Deferred income taxes 1,208 1,285
-------------- -------------
Total current liabilities 479,404 354,221
Long-term debt 307,885 459,275
Deferred income taxes 88,074 86,344
Other liabilities 143,512 147,360
Commitments and contingencies (Note B)
Stockholders' Equity: (Note C)
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
Issued: 75,336 shares (aggregate redemption value
$74,167 and $74,982) 75,336 75,336
Less cost of shares of preferred treasury stock (3,321) (3,003)
Common stock:
Authorized: 80,000,000 shares of $1 par value
Issued: 33,887,484 shares 33,887 33,887
Additional paid-in capital 34,583 33,621
Retained earnings 871,986 861,803
Less cost of common treasury stock
(including unearned amounts of $6,788 and $7,321) (480,997) (483,184)
Deferred employee benefits (68,447) (68,781)
Foreign currency translation adjustments (16,875) (7,406)
------------ --------------
Total stockholders' equity 446,152 442,273
------------ -------------
Total liabilities and stockholders' equity $ 1,465,027 $ 1,489,473
------------ ------------
------------ ------------
The accompanying notes are an integral part of these financial statements.
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CABOT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended December 31, 1993 and 1992
(Dollars in thousands)
UNAUDITED
1993 1992
----- -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,958 $ (14,182)
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 21,004 21,151
Deferred tax provision 4,934 1,350
Gain on sale of investments - (2,829)
Effects of accounting changes - 26,109
Equity in net income/loss of affiliated companies,
net of dividends received 1,891 3,294
Other, net 734 (778)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 9,515 (9,768)
Increase in inventory (16,881) (15,066)
Decrease in accounts payable and accruals (58,716) (12,007)
Increase in prepayments and intangible assets (3,209) (452)
Other, net (10,033) (3,396)
---------- ----------
Cash used by operating activities (34,803) (6,574)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (13,183) (14,518)
Investments - (10,515)
Sales of investments and property, plant and equipment 29 3,081
---------- ----------
Cash used by investing activities (13,154) (21,952)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt - 5,330
Reduction in long-term debt (695) (3,021)
Increase in short-term debt 45,549 13,125
Sales of treasury stock, net 2,130 6,305
Cash dividends paid to stockholders (5,775) (5,712)
---------- ----------
Cash provided by financing activities 41,209 16,027
Effect of exchange rate changes on cash (200) 4,896
---------- ----------
Decrease in cash and cash equivalents (6,948) (7,603)
Cash and cash equivalents at beginning of period 40,267 30,656
---------- ----------
Cash and cash equivalents at end of period $ 33,319 $ 23,053
---------- ----------
---------- ----------
The accompanying notes are an integral part of these financial statements.
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CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993
A. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Cabot
Corporation and all majority-owned and controlled domestic and foreign
subsidiaries. Investments in majority-owned affiliates where control
is temporary and investments in 20 percent-to 50 percent-owned
affiliates are accounted for on the equity method. All significant
intercompany transactions have been eliminated.
The 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 the Company's Form 10-K for the year ended
September 30, 1993.
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, 1993 and 1992. 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. During
the fourth quarter of fiscal 1993, the Company adopted two new
accounting standards related to postretirement benefits and income
taxes. Both of these standards were adopted as of October 1, 1992,
and as a result, the quarter ending December 31, 1992 has been
restated.
Earnings Per Share
The computation of fully diluted earnings per share considers the
conversion of the Company's Series B ESOP Convertible Preferred Stock
held by the Company's Employee Stock Ownership Plan, and also includes
the potentially dilutive effects of the Company's Equity Incentive
Plan.
B. CONTINGENCIES
The Company is a defendant in various lawsuits and is involved in
other gas contract issues and environmental proceedings wherein
substantial amounts are claimed. In the opinion of the Company's
management, these suits and claims should not result in final
judgments or settlements which, in the aggregate, would have a
material adverse effect on the Company's financial condition.
Fumed silica supplied by Cabot was used by others in the manufacture
of silicone breast implant envelopes. There are currently pending
more than 10,000 lawsuits in state and federal courts alleging
injuries arising from the use of silicone breast implants. The
federal cases have been consolidated in the Multi-District Litigation
pending in the United States District Court for the Northern District
of Alabama. Generally, the various state cases have been similarly
consolidated in each jurisdiction. In addition, arrangements have
been made for consolidated discovery in all actions. Cabot has been
named as a defendant in fewer than 100 of those lawsuits, although
additional lawsuits have been threatened and are expected to be
brought in due course. The pleadings in those suits are based on
master form complaints adopted for use in the various jurisdictions.
In each of the lawsuits brought against Cabot, Cabot is one of many
defendants and the complaints do not allege the specific factual bases
for liability against Cabot or the amount of damages specifically
claimed against Cabot. Cabot believes that it will be alleged that
fumed silica supplied by Cabot contributed to the plaintiffs' injuries
but also believes that it has adequate defenses. However, the
scientific, legal and societal issues raised by these cases are
complex and the outcome is uncertain. Cabot is still evaluating the
litigation and therefore cannot predict with any assurance the course
this litigation will take, the number of cases to which Cabot will be
added as a defendant, the amount of damages, if any, that may be
assessed against Cabot or the defense costs that will be incurred by
Cabot.
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CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1993
UNAUDITED
C. STOCKHOLDERS' EQUITY
The following table summarizes the changes in stockholders' equity for the
three months ended December 31, 1993.
(Dollars in thousands)
Preferred Stock Preferred Common Stock
--------------- Treasury Stock ------------ Additional
Shares -------------- Shares Paid-In Retained
Issued Value Shares Cost Issued Value Capital Earnings
------ ----- ------ ----- ------ ----- ----------- --------
Balance at September 30, 1993 75,336 $75,336 3,686 $(3,003) 33,887,484 $33,887 $33,621 $861,803
Net Income 15,958
Common stock dividends paid (4,876)
Issuance of treasury stock under
employee compensation plans 329
Purchase of treasury stock-preferred 250 (318)
Sale of treasury stock to Profit Sharing
and Savings Plan 633
Preferred stock dividends paid to
Employee Stock Ownership Plan,
net of tax (899)
Principal payment by Employee Stock
Ownership Plan under guaranteed
loan
Amortization of unearned compensation
Foreign currency translation adjustments
------ ------- ----- ------- ---------- ------- ------- --------
Balance at December 31, 1993 75,336 $75,336 3,936 $(3,321) 33,887,484 $33,887 $34,583 $871,986
------ ------- ----- ------- ---------- ------- ------- --------
------ ------- ----- ------- ---------- ------- ------- --------
Common Foreign Total
Treasury Stock Deferred Currency Stock-
-------------- Unearned Employee Translation holders'
Shares Cost Compensation Benefits Adjustments Equity
------ ---- ------------ --------- ------------ ------
Balance at September 30, 1993 15,161,103 $(475,863) $(7,321) $(68,781) $(7,406) $442,273
Net Income 15,958
Common stock dividends paid (4,876)
Issuance of treasury stock under
employee compensation plans (32,620) 1,029 (168) 1,190
Purchase of treasury stock-preferred (318)
Sale of treasury stock to Profit Sharing
and Savings Plan (19,790) 625 1,258
Preferred stock dividends paid to
Employee Stock Ownership Plan,
net of tax (899)
Principal payment by Employee Stock
Ownership Plan under guaranteed
loan 334 334
Amortization of unearned compensation 701 701
Foreign currency translation adjustments (9,469) (9,469)
---------- ---------- -------- --------- --------- --------
Balance at December 31, 1993 15,108,693 $(474,209) $(6,788) $(68,447) $(16,875) $446,152
---------- ---------- -------- --------- --------- --------
---------- ---------- -------- --------- --------- --------
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CABOT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
I. RESULTS OF OPERATIONS
Sales and operating profit by industry segment are shown in the accompanying
table on page 11.
Three Months Ended December 31, 1993 versus
Three Months Ended December 31, 1992
Net income for the first quarter of fiscal year 1994 was $16.0 million ($0.79
per primary common share), compared with a loss of $14.2 million ($0.81 loss
per primary common share) in the same quarter a year ago. Fiscal 1993 first
quarter results were restated to reflect a $26.1 million ($1.40 per share)
charge for required accounting changes. Net income before these accounting
changes was $11.9 million ($0.59 per primary common share). Net sales and
other operating revenues of $398.5 million were relatively flat with last
year's revenues of $396.1 million. Total operating profit, however, increased
16% to $41.6 million from $35.9 million last year.
In the Specialty Chemicals and Materials Group, sales decreased 3% to
$278.2 million from $288.2 million, while operating profits increased 21% to
$36.0 million from $29.7 million in the first quarter of fiscal 1993. Strong
operating profits reflected favorable margins in most of the Specialty
Chemicals businesses, and the effect of continued cost reductions. The
only significant shifts in Specialty Chemicals volumes were declines
in the European Carbon Black Division, partially offset by increases in the
South American Carbon Black Division and the Cab-O-Sil Division. Regionally,
economic uncertainty continues in Europe and in Japan. The Company expects to
implement planned European capacity reduction with the closing of its carbon
black production facility in Hanau, Germany later this year. The Company's
equity affiliate in Japan continues to review the possibility of carbon black
capacity reductions.
In the Energy Group, sales grew 11% to $120.3 million from $107.9 million, and
operating profits fell 10% to $5.6 million from $6.2 million last year. The
decline in operating profits is a result of smaller margins in the Company's
LNG business brought about by an overall weakness in energy prices. LNG prices
have recently rebounded with the unusually cold weather in the Northeast. The
Company's LNG business imported 6 cargoes during the quarter versus 4 cargoes
last year.
First quarter net income also included a $1.7 million increase in the Company's
equity in affiliates. This increase reflects performance improvement in
certain carbon black affiliate plants.
Interest expense declined 6% to $10.3 million from $11.0 million a year ago.
The improvement is a result of an overall reduction in debt from a year ago and
lower effective interest rates.
The Company's effective tax rate remained unchanged from last year at 40%.
The Company remains concerned that the European and Japanese economies are
still quite sluggish. In Europe, carbon black volumes are down versus the year
ago quarter, and margins remain under pressure. In the Energy Group, the
Company has recently experienced and expects to continue to experience some LNG
supply constraint due to the refurbishment of its Algerian supplier's LNG
facility. The Company expects the positive effects of the cold winter in the
Northeast to offset the negative effects of the reduced shipments in the second
quarter.
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CABOT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
II. CASH FLOWS AND LIQUIDITY
During the quarter, the Company's operations used $35 million of cash
reflecting increased working capital requirements due to normal seasonal trends
and the settlement of the last significant, and previously reserved for,
take-or-pay case. Cabot increased its borrowings by $44.9 million during the
quarter primarily to fund these needs.
The Company invested $13 million in plant and equipment during the quarter.
The Company made no investments in its equity affiliates during this quarter
compared to $10.5 million in the first quarter of fiscal 1993.
At December 31, 1993, there were no amounts borrowed under a $250 million line
of credit available to the Company. In January 1994, the company replaced this
existing line of credit with a new line, for the same amount, under similar
terms. The Company's ratio of total debt (including short term debt net of
cash) to capital increased from 50% to 53% during the quarter. The Company
believes its businesses can support higher-than-targeted leverage for an
interim period as a result of investment in businesses that will contribute
materially to the growth and stability of the Company's earnings.
Management expects cash from operations and present financing arrangements,
including the Company's unused line of credit, to be sufficient to meet the
Company's cash requirements for the foreseeable future.
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CABOT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Months Ended
------------------
12/31/93 12/31/92
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Dollars in millions,
except per share amounts
------------------------
Industry Segment Data
Sales:
Specialty Chemicals & Materials $ 278.2 $ 288.2
Energy 120.3 107.9
--------- --------
Net Sales $ 398.5 $ 396.1
--------- --------
--------- --------
Operating Profit:
Specialty Chemicals & Materials $36.0 $ 29.7
Energy 5.6 6.2
--------- --------
Total operating profit 41.6 35.9
Interest expense (10.3) (11.0)
General corporate expense (5.3) (2.6)
--------- --------
Income from continuing operations before income taxes 26.0 22.3
Provision for income taxes (10.4) (9.1)
Equity in net income (loss) of affiliated companies 0.4 (1.3)
--------- --------
Net income before the cumulative effect of accounting changes 16.0 11.9
Cumulative effect of accounting changes - (26.1)
--------- ---------
Net income (loss) 16.0 (14.2)
Dividends on preferred stock (0.9) (0.9)
--------- --------
Income (loss) applicable to primary common shares $ 15.1 $ (15.1)
--------- --------
--------- --------
Income (loss) per common share:
Primary
Continuing operations $ 0.79 $ 0.59
Cumulative effect of accounting changes - (1.40)
--------- --------
Income (loss) per share $ 0.79 $ (0.81)
--------- --------
--------- --------
Fully Diluted
Continuing operations $ 0.74 $ 0.59
Cumulative effect of accounting changes - (1.40)
--------- --------
Income (loss) per share $ 0.74 $ (0.81)
--------- --------
--------- --------
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Part II. Other Information
Item 1. Legal Proceedings
During the first quarter of fiscal year 1994, a take-or-pay case pending
against the Company and certain former subsidiaries and on appeal before the
court of appeals for the Seventh District of Texas was settled with no material
adverse effect on the Company's financial condition. This case is in addition
to a take-or-pay case reported in the Company's Annual Report on Form 10-K to
have been settled in December 1993.
Fumed silica supplied by Cabot was used by others in the manufacture of
silicone breast implant envelopes. There are currently pending more than
10,000 lawsuits in state and federal courts alleging injuries arising from the
use of silicone breast implants. The federal cases have been consolidated in
the Multi-District Litigation pending in the United States District Court for
the Northern District of Alabama. Generally, the various state cases have been
similarly consolidated in each jurisdiction. In addition, arrangements have
been made for consolidated discovery in all actions. Cabot has been named as a
defendant in fewer than 100 of those lawsuits, although additional lawsuits
have been threatened and are expected to be brought in due course. The
pleadings in those suits are based on master form complaints adopted for use in
the various jurisdictions. In each of the lawsuits brought against Cabot,
Cabot is one of many defendants and the complaints do not allege the specific
factual bases for liability against Cabot or the amount of damages specifically
claimed against Cabot. Cabot believes that it will be alleged that fumed
silica supplied by Cabot contributed to the plaintiffs' injuries but also
believes that it has adequate defenses. However, the scientific, legal and
societal issues raised by these cases are complex and the outcome is uncertain.
Cabot is still evaluating the litigation and therefore cannot predict with any
assurance the course this litigation will take, the number of cases to which
Cabot will be added as a defendant, the amount of damages, if any, that may be
assessed against Cabot or the defense costs that will be incurred by Cabot.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Exhibit number corresponds to the number assigned to such
Exhibits in the Exhibit Table of Item 601 of Regulation S-K.
Exhibit
Number Description
------- -----------
4 Credit Agreement, dated as of January 13, 1994,
among Cabot Corporation and nine banks and
Morgan Guaranty Trust Company of New York, as agent
for the banks, filed herewith.
11 Statements regarding Computation of Per Share
Earnings filed herewith.
12 Statement regarding Computation of Ratio of
Earnings to Fixed Charges filed herewith.
(b) Reports on Form 8-K
No report on Form 8-K was filed by the Company during the
three months ended December 31, 1993.
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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: February 10, 1994 /s/ John G.L. Cabot
----------------------------
John G.L. Cabot
Vice Chairman and Chief Financial Officer
Date: February 10, 1994 /s/ William R. Thompson
-----------------------------
William R. Thompson
Vice President and Controller
(Chief Accounting Officer)
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