false 2020 Q1 0000016040 --09-30 Large Accelerated Filer P0D P20Y P10Y P3Y P12Y P1Y 2020 2018-09-30 us-gaap:OtherAssetsNoncurrent us-gaap:PropertyPlantAndEquipmentNet us-gaap:AccountsPayableAndAccruedLiabilitiesCurrent us-gaap:LongTermDebtCurrent us-gaap:OtherLiabilitiesNoncurrent us-gaap:LongTermDebtNoncurrent P16Y P13Y 250000000 250000000 43000000 54000000 223000000 223000000 0.034 0.034 0000016040 2019-10-01 2019-12-31 xbrli:shares 0000016040 2020-02-04 iso4217:USD 0000016040 2018-10-01 2018-12-31 iso4217:USD xbrli:shares 0000016040 2019-12-31 0000016040 2019-09-30 0000016040 2018-09-30 0000016040 2018-12-31 0000016040 cbt:CommonStockNetOfTreasuryStockMember 2019-09-30 0000016040 us-gaap:RetainedEarningsMember 2019-09-30 0000016040 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-09-30 0000016040 us-gaap:ParentMember 2019-09-30 0000016040 us-gaap:NoncontrollingInterestMember 2019-09-30 0000016040 us-gaap:RetainedEarningsMember 2019-10-01 2019-12-31 0000016040 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-10-01 2019-12-31 0000016040 us-gaap:ParentMember 2019-10-01 2019-12-31 0000016040 us-gaap:NoncontrollingInterestMember 2019-10-01 2019-12-31 0000016040 cbt:CommonStockNetOfTreasuryStockMember 2019-10-01 2019-12-31 0000016040 us-gaap:AdditionalPaidInCapitalMember 2019-10-01 2019-12-31 0000016040 cbt:CommonStockNetOfTreasuryStockMember 2019-12-31 0000016040 us-gaap:RetainedEarningsMember 2019-12-31 0000016040 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-31 0000016040 us-gaap:ParentMember 2019-12-31 0000016040 us-gaap:NoncontrollingInterestMember 2019-12-31 0000016040 cbt:CommonStockNetOfTreasuryStockMember 2018-09-30 0000016040 us-gaap:RetainedEarningsMember 2018-09-30 0000016040 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-09-30 0000016040 us-gaap:ParentMember 2018-09-30 0000016040 us-gaap:NoncontrollingInterestMember 2018-09-30 0000016040 us-gaap:RetainedEarningsMember 2018-10-01 2018-12-31 0000016040 us-gaap:ParentMember 2018-10-01 2018-12-31 0000016040 us-gaap:NoncontrollingInterestMember 2018-10-01 2018-12-31 0000016040 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-10-01 2018-12-31 0000016040 cbt:CommonStockNetOfTreasuryStockMember 2018-10-01 2018-12-31 0000016040 us-gaap:AdditionalPaidInCapitalMember 2018-10-01 2018-12-31 0000016040 cbt:CommonStockNetOfTreasuryStockMember 2018-12-31 0000016040 us-gaap:RetainedEarningsMember 2018-12-31 0000016040 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0000016040 us-gaap:ParentMember 2018-12-31 0000016040 us-gaap:NoncontrollingInterestMember 2018-12-31 0000016040 srt:MinimumMember 2019-10-01 2019-12-31 0000016040 srt:MaximumMember 2019-10-01 2019-12-31 0000016040 us-gaap:BuildingMember srt:MinimumMember 2019-10-01 2019-12-31 0000016040 us-gaap:BuildingMember srt:MaximumMember 2019-10-01 2019-12-31 0000016040 us-gaap:MachineryAndEquipmentMember srt:MinimumMember 2019-10-01 2019-12-31 0000016040 us-gaap:MachineryAndEquipmentMember srt:MaximumMember 2019-10-01 2019-12-31 0000016040 us-gaap:PropertyPlantAndEquipmentOtherTypesMember srt:MinimumMember 2019-10-01 2019-12-31 0000016040 us-gaap:PropertyPlantAndEquipmentOtherTypesMember srt:MaximumMember 2019-10-01 2019-12-31 0000016040 2019-10-01 0000016040 2019-10-01 2019-10-01 0000016040 cbt:NSCCCarbonJiangsuCoLtdMember 2018-09-01 2018-09-30 0000016040 cbt:NSCCCarbonJiangsuCoLtdMember srt:MaximumMember 2019-10-01 2019-12-31 0000016040 cbt:NSCCCarbonJiangsuCoLtdMember 2018-10-01 2018-12-31 0000016040 cbt:ShenzhenSanshunNanoNewMaterialsCoLtdMember 2019-12-01 2019-12-31 0000016040 us-gaap:PensionPlansDefinedBenefitMember us-gaap:ForeignPlanMember 2019-10-01 2019-12-31 0000016040 us-gaap:PensionPlansDefinedBenefitMember us-gaap:ForeignPlanMember 2018-10-01 2018-12-31 0000016040 us-gaap:PensionPlansDefinedBenefitMember country:US 2019-10-01 2019-12-31 0000016040 us-gaap:PensionPlansDefinedBenefitMember country:US 2018-10-01 2018-12-31 0000016040 country:US 2019-10-01 2019-12-31 cbt:Plan 0000016040 cbt:ReinforcementMaterialsMember 2019-09-30 0000016040 cbt:PerformanceChemicalsMember 2019-09-30 0000016040 cbt:ReinforcementMaterialsMember 2019-10-01 2019-12-31 0000016040 cbt:PerformanceChemicalsMember 2019-10-01 2019-12-31 0000016040 cbt:ReinforcementMaterialsMember 2019-12-31 0000016040 cbt:PerformanceChemicalsMember 2019-12-31 0000016040 us-gaap:DevelopedTechnologyRightsMember 2019-12-31 0000016040 us-gaap:TrademarksMember 2019-12-31 0000016040 us-gaap:CustomerRelationshipsMember 2019-12-31 0000016040 us-gaap:DevelopedTechnologyRightsMember 2019-09-30 0000016040 us-gaap:TrademarksMember 2019-09-30 0000016040 us-gaap:CustomerRelationshipsMember 2019-09-30 0000016040 srt:WeightedAverageMember 2019-10-01 2019-12-31 0000016040 cbt:CostOfSalesSellingAndAdministrativeExpenseAndResearchAndTechnicalExpenseMember 2019-10-01 2019-12-31 0000016040 cbt:CostOfSalesSellingAndAdministrativeExpenseAndResearchAndTechnicalExpenseMember 2018-10-01 2018-12-31 0000016040 us-gaap:AccumulatedTranslationAdjustmentMember 2019-09-30 0000016040 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-09-30 0000016040 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2019-09-30 0000016040 us-gaap:AccumulatedTranslationAdjustmentMember 2019-10-01 2019-12-31 0000016040 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2019-10-01 2019-12-31 0000016040 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-10-01 2019-12-31 0000016040 us-gaap:AccumulatedTranslationAdjustmentMember 2019-12-31 0000016040 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2019-12-31 0000016040 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2019-10-01 2019-12-31 0000016040 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2018-10-01 2018-12-31 0000016040 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetUnamortizedGainLossMember 2019-10-01 2019-12-31 0000016040 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentNetUnamortizedGainLossMember 2018-10-01 2018-12-31 0000016040 cbt:AccumulatedDefinedBenefitPlansAdjustmentNetSettlementAndCurtailmentGainMember 2018-10-01 2018-12-31 0000016040 cbt:PurificationSolutionsMember 2019-12-31 0000016040 cbt:EnvironmentalMattersMember 2019-12-31 0000016040 cbt:EnvironmentalMattersMember 2019-09-30 0000016040 cbt:EnvironmentalMattersMember 2019-10-01 2019-12-31 0000016040 cbt:EnvironmentalMattersMember 2018-10-01 2018-12-31 0000016040 cbt:RespiratorLiabilitiesMember 2019-12-31 0000016040 cbt:RespiratorLiabilitiesMember 2019-09-30 0000016040 cbt:RespiratorLiabilitiesMember 2019-10-01 2019-12-31 0000016040 cbt:RespiratorLiabilitiesMember 2018-10-01 2018-12-31 0000016040 srt:MinimumMember 2019-12-31 0000016040 srt:MaximumMember 2019-12-31 0000016040 srt:MaximumMember us-gaap:LandMember 2019-12-31 xbrli:pure 0000016040 2018-10-01 2018-12-30 0000016040 2017-10-01 2017-12-31 0000016040 2018-01-01 2018-01-01 0000016040 us-gaap:InternalRevenueServiceIRSMember us-gaap:EarliestTaxYearMember 2019-10-01 2019-12-31 0000016040 us-gaap:InternalRevenueServiceIRSMember us-gaap:LatestTaxYearMember 2019-10-01 2019-12-31 0000016040 us-gaap:StateAndLocalJurisdictionMember us-gaap:EarliestTaxYearMember 2019-10-01 2019-12-31 0000016040 us-gaap:StateAndLocalJurisdictionMember us-gaap:LatestTaxYearMember 2019-10-01 2019-12-31 0000016040 us-gaap:ForeignCountryMember us-gaap:EarliestTaxYearMember 2019-10-01 2019-12-31 0000016040 us-gaap:ForeignCountryMember us-gaap:LatestTaxYearMember 2019-10-01 2019-12-31 0000016040 us-gaap:CostOfSalesMember 2019-10-01 2019-12-31 0000016040 us-gaap:CostOfSalesMember 2018-10-01 2018-12-31 0000016040 cbt:SellingAndAdministrativeExpensesMember 2019-10-01 2019-12-31 0000016040 cbt:SellingAndAdministrativeExpensesMember 2018-10-01 2018-12-31 0000016040 us-gaap:EmployeeSeveranceMember 2019-09-30 0000016040 us-gaap:EnvironmentalRemediationMember 2019-09-30 0000016040 us-gaap:EmployeeSeveranceMember 2019-10-01 2019-12-31 0000016040 us-gaap:OtherRestructuringMember 2019-10-01 2019-12-31 0000016040 us-gaap:EmployeeSeveranceMember 2019-12-31 0000016040 us-gaap:EnvironmentalRemediationMember 2019-12-31 0000016040 cbt:TwoThousandTwentyReorganizationMember 2019-10-01 2019-12-31 0000016040 cbt:TwoThousandTwentyReorganizationMember 2019-12-31 0000016040 cbt:PurificationSolutionsTransformationPlanMember 2019-10-01 2019-12-31 0000016040 cbt:PurificationSolutionsTransformationPlanMember 2019-10-01 2020-09-30 0000016040 cbt:PurificationSolutionsTransformationPlanMember srt:MaximumMember 2019-10-01 2019-12-31 0000016040 cbt:PurificationSolutionsTransformationPlanMember 2018-10-01 2018-12-30 0000016040 cbt:PurificationSolutionsTransformationPlanMember 2019-12-31 0000016040 cbt:PrepaidExpensesAndOtherCurrentAssetsAndOtherLiabilitiesMember us-gaap:FairValueInputsLevel2Member us-gaap:ForeignExchangeContractMember 2019-12-31 0000016040 cbt:PrepaidExpensesAndOtherCurrentAssetsAndOtherLiabilitiesMember us-gaap:FairValueInputsLevel2Member us-gaap:ForeignExchangeContractMember 2019-09-30 0000016040 us-gaap:FairValueInputsLevel2Member 2019-12-31 0000016040 us-gaap:FairValueInputsLevel2Member 2019-09-30 0000016040 cbt:FixedRateDebtMember 2019-12-31 0000016040 cbt:FixedRateDebtMember 2019-09-30 0000016040 us-gaap:CrossCurrencyInterestRateContractMember cbt:ThreePointFourPercentageNotesDueTwoThousandAndTwentySixMember us-gaap:NetInvestmentHedgingMember 2019-12-31 iso4217:EUR 0000016040 us-gaap:CrossCurrencyInterestRateContractMember cbt:ThreePointFourPercentageNotesDueTwoThousandAndTwentySixMember us-gaap:NetInvestmentHedgingMember 2019-09-30 0000016040 us-gaap:CrossCurrencyInterestRateContractMember cbt:FixedRateDebtMember cbt:ThreePointFourPercentageNotesDueTwoThousandAndTwentySixMember us-gaap:NetInvestmentHedgingMember 2019-12-31 0000016040 us-gaap:CrossCurrencyInterestRateContractMember cbt:FixedRateDebtMember cbt:ThreePointFourPercentageNotesDueTwoThousandAndTwentySixMember us-gaap:NetInvestmentHedgingMember 2019-09-30 0000016040 us-gaap:NondesignatedMember us-gaap:ForwardContractsMember 2019-12-31 0000016040 us-gaap:NondesignatedMember us-gaap:ForwardContractsMember 2019-09-30 0000016040 us-gaap:NetInvestmentHedgingMember us-gaap:CrossCurrencyInterestRateContractMember 2019-12-31 0000016040 us-gaap:NetInvestmentHedgingMember us-gaap:CrossCurrencyInterestRateContractMember cbt:FixedRateDebtMember 2019-10-01 2019-12-31 0000016040 us-gaap:CrossCurrencyInterestRateContractMember cbt:PrepaidExpensesAndOtherAssetCurrentAndOtherAssetsMember 2019-09-30 0000016040 us-gaap:CrossCurrencyInterestRateContractMember cbt:PrepaidExpensesAndOtherAssetCurrentAndOtherLiabilitiesMember 2019-12-31 0000016040 us-gaap:NetInvestmentHedgingMember us-gaap:CrossCurrencyInterestRateContractMember 2019-09-30 0000016040 us-gaap:CrossCurrencyInterestRateContractMember 2019-10-01 2019-12-31 0000016040 us-gaap:CrossCurrencyInterestRateContractMember 2018-10-01 2018-12-31 cbt:Segment 0000016040 2019-04-01 2019-06-30 0000016040 cbt:PerformanceAdditivesMember us-gaap:OperatingSegmentsMember cbt:PerformanceChemicalsMember 2019-10-01 2019-12-31 0000016040 cbt:PerformanceAdditivesMember us-gaap:OperatingSegmentsMember cbt:PerformanceChemicalsMember 2018-10-01 2018-12-31 0000016040 cbt:FormulatedSolutionsMember us-gaap:OperatingSegmentsMember cbt:PerformanceChemicalsMember 2019-10-01 2019-12-31 0000016040 cbt:FormulatedSolutionsMember us-gaap:OperatingSegmentsMember cbt:PerformanceChemicalsMember 2018-10-01 2018-12-31 0000016040 us-gaap:OperatingSegmentsMember cbt:PerformanceChemicalsMember 2019-10-01 2019-12-31 0000016040 us-gaap:OperatingSegmentsMember cbt:PerformanceChemicalsMember 2018-10-01 2018-12-31 0000016040 us-gaap:OperatingSegmentsMember cbt:ReinforcementMaterialsMember 2019-10-01 2019-12-31 0000016040 us-gaap:OperatingSegmentsMember cbt:PurificationSolutionsMember 2019-10-01 2019-12-31 0000016040 us-gaap:OperatingSegmentsMember 2019-10-01 2019-12-31 0000016040 us-gaap:MaterialReconcilingItemsMember 2019-10-01 2019-12-31 0000016040 us-gaap:OperatingSegmentsMember cbt:ReinforcementMaterialsMember 2018-10-01 2018-12-31 0000016040 us-gaap:OperatingSegmentsMember cbt:PurificationSolutionsMember 2018-10-01 2018-12-31 0000016040 us-gaap:OperatingSegmentsMember cbt:SpecialtyFluidsMember 2018-10-01 2018-12-31 0000016040 us-gaap:OperatingSegmentsMember 2018-10-01 2018-12-31 0000016040 us-gaap:MaterialReconcilingItemsMember 2018-10-01 2018-12-31 0000016040 us-gaap:MaterialReconcilingItemsMember cbt:OtherProductsAndServicesMember 2019-10-01 2019-12-31 0000016040 us-gaap:MaterialReconcilingItemsMember cbt:OtherProductsAndServicesMember 2018-10-01 2018-12-31 0000016040 us-gaap:MaterialReconcilingItemsMember us-gaap:ShippingAndHandlingMember 2019-10-01 2019-12-31 0000016040 us-gaap:MaterialReconcilingItemsMember us-gaap:ShippingAndHandlingMember 2018-10-01 2018-12-31 0000016040 us-gaap:MaterialReconcilingItemsMember us-gaap:ProductMember 2019-10-01 2019-12-31 0000016040 us-gaap:MaterialReconcilingItemsMember us-gaap:ProductMember 2018-10-01 2018-12-31 0000016040 us-gaap:CorporateNonSegmentMember 2019-10-01 2019-12-31 0000016040 us-gaap:CorporateNonSegmentMember 2018-10-01 2018-12-31 0000016040 cbt:ReinforcementMaterialsMember srt:AmericasMember 2019-10-01 2019-12-31 0000016040 cbt:PerformanceChemicalsMember srt:AmericasMember 2019-10-01 2019-12-31 0000016040 cbt:PurificationSolutionsMember srt:AmericasMember 2019-10-01 2019-12-31 0000016040 srt:AmericasMember 2019-10-01 2019-12-31 0000016040 cbt:ReinforcementMaterialsMember srt:AsiaPacificMember 2019-10-01 2019-12-31 0000016040 cbt:PerformanceChemicalsMember srt:AsiaPacificMember 2019-10-01 2019-12-31 0000016040 cbt:PurificationSolutionsMember srt:AsiaPacificMember 2019-10-01 2019-12-31 0000016040 srt:AsiaPacificMember 2019-10-01 2019-12-31 0000016040 cbt:ReinforcementMaterialsMember us-gaap:EMEAMember 2019-10-01 2019-12-31 0000016040 cbt:PerformanceChemicalsMember us-gaap:EMEAMember 2019-10-01 2019-12-31 0000016040 cbt:PurificationSolutionsMember us-gaap:EMEAMember 2019-10-01 2019-12-31 0000016040 us-gaap:EMEAMember 2019-10-01 2019-12-31 0000016040 srt:AmericasMember cbt:ReinforcementMaterialsMember 2018-10-01 2018-12-31 0000016040 srt:AmericasMember cbt:PerformanceChemicalsMember 2018-10-01 2018-12-31 0000016040 srt:AmericasMember cbt:PurificationSolutionsMember 2018-10-01 2018-12-31 0000016040 srt:AmericasMember cbt:SpecialtyFluidsMember 2018-10-01 2018-12-31 0000016040 srt:AmericasMember 2018-10-01 2018-12-31 0000016040 srt:AsiaPacificMember cbt:ReinforcementMaterialsMember 2018-10-01 2018-12-31 0000016040 srt:AsiaPacificMember cbt:PerformanceChemicalsMember 2018-10-01 2018-12-31 0000016040 srt:AsiaPacificMember cbt:PurificationSolutionsMember 2018-10-01 2018-12-31 0000016040 srt:AsiaPacificMember cbt:SpecialtyFluidsMember 2018-10-01 2018-12-31 0000016040 srt:AsiaPacificMember 2018-10-01 2018-12-31 0000016040 us-gaap:EMEAMember cbt:ReinforcementMaterialsMember 2018-10-01 2018-12-31 0000016040 us-gaap:EMEAMember cbt:PerformanceChemicalsMember 2018-10-01 2018-12-31 0000016040 us-gaap:EMEAMember cbt:PurificationSolutionsMember 2018-10-01 2018-12-31 0000016040 us-gaap:EMEAMember cbt:SpecialtyFluidsMember 2018-10-01 2018-12-31 0000016040 us-gaap:EMEAMember 2018-10-01 2018-12-31

 

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, 2019

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 56,679,597 shares of common stock, $1.00 par value per share, outstanding as of February 4, 2020.

 

 

 


 

INDEX

 

 

2


 

Part I. Financial Information

Item 1.

Financial Statements

CABOT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

 

 

 

Three Months Ended December 31

 

 

 

2019

 

 

2018

 

 

 

(In millions, except per share amounts)

 

Net sales and other operating revenues

 

$

727

 

 

$

821

 

Cost of sales

 

 

586

 

 

 

655

 

Gross profit

 

 

141

 

 

 

166

 

Selling and administrative expenses

 

 

64

 

 

 

73

 

Research and technical expenses

 

 

14

 

 

 

16

 

Income (loss) from operations

 

 

63

 

 

 

77

 

Interest and dividend income

 

 

3

 

 

 

2

 

Interest expense

 

 

(14

)

 

 

(15

)

Other income (expense)

 

 

(2

)

 

 

6

 

Income (loss) from continuing operations before income taxes

   and equity in earnings of affiliated companies

 

 

50

 

 

 

70

 

(Provision) benefit for income taxes

 

 

(4

)

 

 

7

 

Equity in earnings of affiliated companies, net of tax

 

 

 

 

 

 

Net income (loss)

 

 

46

 

 

 

77

 

Net income (loss) attributable to noncontrolling interests, net

   of tax

 

 

5

 

 

 

8

 

Net income (loss) attributable to Cabot Corporation

 

$

41

 

 

$

69

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

56.9

 

 

 

59.9

 

Diluted

 

 

57.0

 

 

 

60.1

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.71

 

 

$

1.14

 

Diluted

 

$

0.70

 

 

$

1.14

 

 

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

3


 

CABOT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

UNAUDITED

 

 

 

Three Months Ended December 31

 

 

 

2019

 

 

2018

 

 

 

(In millions)

 

Net income (loss)

 

$

46

 

 

$

77

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

Foreign currency translation adjustment, net of tax (provision)

   benefit of $(1) and $2

 

 

43

 

 

 

(24

)

Derivatives: net investment hedges

 

 

 

 

 

 

 

 

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

   provision (benefit) of $— and $—

 

 

(1

)

 

 

(1

)

Pension and other postretirement benefit liability adjustments

 

 

 

 

 

 

 

 

Pension and other postretirement benefit liability

   adjustments arising during the period, net of tax

 

 

1

 

 

 

22

 

Other comprehensive income (loss)

 

 

43

 

 

 

(3

)

Comprehensive income (loss)

 

 

89

 

 

 

74

 

Net income (loss) attributable to noncontrolling interests, net

   of tax

 

 

5

 

 

 

8

 

Foreign currency translation adjustment attributable to

   noncontrolling interests, net of tax

 

 

3

 

 

 

 

Comprehensive income (loss) attributable to noncontrolling

   interests, net of tax

 

 

8

 

 

 

8

 

Comprehensive income (loss) attributable to Cabot Corporation

 

$

81

 

 

$

66

 

 

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

4


 

CABOT CORPORATION

CONSOLIDATED BALANCE SHEETS

ASSETS

UNAUDITED

 

 

 

December 31, 2019

 

 

September 30, 2019

 

 

 

(In millions)

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

173

 

 

$

169

 

Accounts and notes receivable, net of reserve for doubtful

   accounts of $3 and $3

 

 

485

 

 

 

530

 

Inventories:

 

 

 

 

 

 

 

 

Raw materials

 

 

110

 

 

 

107

 

Finished goods

 

 

313

 

 

 

305

 

Other

 

 

56

 

 

 

54

 

Total inventories

 

 

479

 

 

 

466

 

Prepaid expenses and other current assets

 

 

59

 

 

 

45

 

Total current assets

 

 

1,196

 

 

 

1,210

 

Property, plant and equipment, net

 

 

1,395

 

 

 

1,348

 

Goodwill

 

 

92

 

 

 

90

 

Equity affiliates

 

 

39

 

 

 

39

 

Intangible assets, net

 

 

97

 

 

 

96

 

Deferred income taxes

 

 

161

 

 

 

163

 

Other assets

 

 

171

 

 

 

58

 

Total assets

 

$

3,151

 

 

$

3,004

 

 

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, 2019

 

 

September 30, 2019

 

 

 

(In millions, except share

 

 

 

and per share amounts)

 

Current liabilities:

 

 

 

 

 

 

 

 

Short-term borrowings

 

$

4

 

 

$

33

 

Accounts payable and accrued liabilities

 

 

544

 

 

 

537

 

Income taxes payable

 

 

19

 

 

 

22

 

Current portion of long-term debt

 

 

7

 

 

 

7

 

Total current liabilities

 

 

574

 

 

 

599

 

Long-term debt

 

 

1,095

 

 

 

1,024

 

Deferred income taxes

 

 

41

 

 

 

41

 

Other liabilities

 

 

289

 

 

 

206

 

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: 56,825,282 and 57,250,454 shares

 

 

 

 

 

 

 

 

Outstanding: 56,655,417 and 57,080,589 shares

 

 

57

 

 

 

57

 

Less cost of 169,865 and 169,865 shares of common treasury stock

 

 

(5

)

 

 

(5

)

Additional paid-in capital

 

 

 

 

 

 

Retained earnings

 

 

1,329

 

 

 

1,337

 

Accumulated other comprehensive income (loss)

 

 

(354

)

 

 

(391

)

Total Cabot Corporation stockholders' equity

 

 

1,027

 

 

 

998

 

Noncontrolling interests

 

 

125

 

 

 

136

 

Total stockholders' equity

 

 

1,152

 

 

 

1,134

 

Total liabilities and stockholders' equity

 

$

3,151

 

 

$

3,004

 

 

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

 

 

 

2019

 

 

2018

 

 

 

(In millions)

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

46

 

 

$

77

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

39

 

 

 

35

 

Deferred tax provision (benefit)

 

 

(6

)

 

 

(23

)

Employee benefit plan settlement

 

 

 

 

 

6

 

Non-cash compensation

 

 

1

 

 

 

5

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts and notes receivable

 

 

54

 

 

 

47

 

Inventories

 

 

(7

)

 

 

(83

)

Prepaid expenses and other current assets

 

 

(21

)

 

 

(2

)

Accounts payable and accrued liabilities

 

 

3

 

 

 

(75

)

Income taxes payable

 

 

(3

)

 

 

(15

)

Other liabilities

 

 

(2

)

 

 

(12

)

Cash dividends received from equity affiliates

 

 

1

 

 

 

1

 

Cash provided (used) by operating activities

 

 

105

 

 

 

(39

)

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(68

)

 

 

(54

)

Cash paid for acquisition of business (Note C)

 

 

(8

)

 

 

 

Other

 

 

(1

)

 

 

 

Cash provided (used) by investing activities

 

 

(77

)

 

 

(54

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Borrowings under financing arrangements

 

 

 

 

 

18

 

Proceeds from (repayments of) issuance of commercial paper, net

 

 

(29

)

 

 

248

 

Proceeds from long-term debt

 

 

97

 

 

 

 

Repayments of long-term debt

 

 

(48

)

 

 

(74

)

Repayments of redeemable preferred stock

 

 

 

 

 

(25

)

Purchases of common stock

 

 

(34

)

 

 

(62

)

Proceeds from sales of common stock

 

 

1

 

 

 

 

Cash dividends paid to noncontrolling interests

 

 

(11

)

 

 

(11

)

Cash dividends paid to common stockholders

 

 

(20

)

 

 

(20

)

Cash provided (used) by financing activities

 

 

(44

)

 

 

74

 

Effects of exchange rate changes on cash

 

 

20

 

 

 

(14

)

Increase (decrease) in cash and cash equivalents

 

 

4

 

 

 

(33

)

Cash and cash equivalents at beginning of period

 

 

169

 

 

 

175

 

Cash and cash equivalents at end of period

 

$

173

 

 

$

142

 

 

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, 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 dividends 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.

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, 2018

 

 

60,367

 

 

$

54

 

 

$

 

 

$

1,417

 

 

$

(317

)

 

$

1,154

 

 

$

125

 

 

$

1,279

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

69

 

 

 

 

 

 

 

69

 

 

 

8

 

 

 

77

 

Total other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

(3

)

 

 

 

 

 

(3

)

Cash dividends paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.33 per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20

)

 

 

 

 

 

 

(20

)

 

 

 

 

 

 

(20

)

Cash dividends declared to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of stock under equity compensation plans

 

 

344

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of share-based compensation

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

 

5

 

Purchase and retirement of common stock

 

 

(1,201

)

 

 

(1

)

 

 

(5

)

 

 

(56

)

 

 

 

 

 

 

(62

)

 

 

 

 

 

 

(62

)

Balance at December 31, 2018

 

 

59,510

 

 

$

53

 

 

$

 

 

$

1,410

 

 

$

(320

)

 

$

1,143

 

 

$

133

 

 

$

1,276

 

 

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

 

9


 

CABOT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019

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, 2019 (“2019 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, 2019 and 2018. 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.

In June 2019, the Company completed the sale of its Specialty Fluids business. The transaction did not meet the criteria to be reported as a discontinued operation. Therefore, prior periods’ consolidated financial statements and disclosures have not been recast.

Effective October 1, 2019, the Company adopted the accounting standard for leases issued by the Financial Accounting Standards Board (“FASB”) in February 2016. The Company used a modified retrospective optional transition method, which is discussed in detail in Note B.

 

 

B. Significant Accounting Policies

Revenue Recognition

Cabot recognizes revenue when its customers obtain control of promised goods or services. The revenue recognized is the amount of consideration that the Company expects to receive in exchange for those goods or services. The Company’s contracts with customers are generally for products only and do not include other performance obligations. Generally, Cabot considers purchase orders, which in some cases are governed by master supply agreements, to be contracts with customers. The transaction price as specified on the purchase order or sales contract is considered the standalone selling price for each distinct product. To determine the transaction price at the time when revenue is recognized, the Company evaluates whether the price is subject to adjustments, such as for returns, discounts or volume rebates, which are stated in the customer contract, to determine the net consideration to which the Company expects to be entitled. Revenue from product sales is recognized based on a point in time model when control of the product is transferred to the customer, which typically occurs upon shipment or delivery of the product to the customer and title, risk and rewards of ownership have passed to the customer. The Company has an immaterial amount of revenue that is recognized over time. Payment terms typically range from zero to ninety days.

Shipping and handling costs incurred after the transfer of control of a product to the customer are billed to the customer and are recorded as sales revenue, as the Company considers these to be fulfillment costs. Shipping and handling costs are expensed in the period incurred and included in Cost of sales within the Consolidated Statement of Operations. Taxes collected on sales to customers are excluded from the transaction price.

The Company generally provides a warranty that its products will substantially conform to the identified specifications. The Company’s liability typically is limited to either a credit equal to the purchase price or replacement of the non-conforming product. Returns under warranty have historically been immaterial.

The Company does not have contract assets or liabilities that are material.

As permitted by the FASB’s revenue recognition standard, Revenue from Contracts with Customers, when the period of time between the transfer of control of the goods and the time the customer pays for the goods is one year or less, the Company does not consider there to be a significant financing component associated with the contract.

10


 

Intangible Assets and Goodwill Impairment

The Company records tangible and intangible assets acquired and liabilities assumed in business combinations under the acquisition method of accounting. Amounts paid for assets acquired and liabilities assumed in an acquisition are allocated to the assets and liabilities based on their fair values at the date of acquisition. The Company uses assumptions and estimates in determining the fair value of assets acquired and liabilities assumed in a business combination. The determination of the fair value of intangible assets requires the use of significant judgment with regard to assumptions used in the valuation model. The Company estimates the fair value of identifiable acquisition-related intangible assets principally based on projections of cash flows that will arise from these assets. The projected cash flows are discounted to determine the fair value of the assets at the dates of acquisition.

Definite-lived intangible assets, which are comprised of trademarks, customer relationships and developed technologies, are amortized over their estimated useful lives and are reviewed for impairment when indication of potential impairment exists, such as a significant reduction in cash flows associated with the assets.

Goodwill is comprised of the purchase price of business acquisitions in excess of the fair value assigned to the net tangible and identifiable intangible assets acquired. Goodwill is not amortized, but is reviewed for impairment annually as of August 31, or when events or changes in the business environment indicate that the carrying value of the reporting unit may exceed its fair value. A reporting unit, for the purpose of the impairment test, is at or below the operating segment level, and constitutes a business for which discrete financial information is available and regularly reviewed by segment management. Reinforcement Materials, and the fumed metal oxides and specialty compounds product lines within Performance Chemicals, which are considered separate reporting units, carry the Company’s goodwill balances as of December 31, 2019.

For the purpose of the goodwill impairment test, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an initial qualitative assessment identifies that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, an additional quantitative evaluation is performed. Alternatively, the Company may elect to proceed directly to the quantitative goodwill impairment test. If based on the quantitative evaluation the fair value of the reporting unit is less than its carrying amount, a goodwill impairment loss would result. The goodwill impairment loss would be the amount by which the carrying value of the reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit. The fair value of a reporting unit is based on discounted estimated future cash flows. The fair value is also benchmarked against a market approach using the guideline public company method. The assumptions used to estimate fair value include management’s best estimates of future growth rates, operating cash flows, capital expenditures and discount rates over an estimate of the remaining operating period at the reporting unit level. Based on the Company’s most recent annual goodwill impairment test performed as of August 31, 2019, the fair values of the Reinforcement Materials, Fumed Metal Oxides and Specialty Compounds reporting units were substantially in excess of their carrying values.

Long-lived Assets Impairment

The Company’s long-lived assets primarily include property, plant and equipment, intangible assets and long-term investments. The carrying values of long-lived assets are reviewed for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be recoverable.

To test for impairment of assets, the Company generally uses a probability-weighted estimate of the future undiscounted net cash flows of the assets over their remaining lives to determine if the value of the asset is recoverable. Long-lived assets are grouped with other assets and liabilities at the lowest level for which independent identifiable cash flows are determinable.

An asset impairment is recognized when the carrying value of the asset is not recoverable based on the analysis described above, in which case the asset is written down to its fair value. If the asset does not have a readily determinable fair value, a discounted cash flow model may be used to determine the fair value of the asset. In circumstances when an asset does not have separately identifiable cash flows, an impairment charge is recorded when the Company no longer intends to use the asset.

The Company continues to consider strategic options for its Purification Solutions business. Depending on the actions taken, there could be a negative impact on the fair value of the Purification Solutions reporting unit, which may lead to an impairment.

11


 

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation of property, plant and equipment is calculated using the straight-line method over the estimated useful lives of the related assets. The depreciable lives for buildings, machinery and equipment, and other fixed assets are between twenty and twenty-five years, ten and twenty-five years, and three and twenty-five years, respectively. The cost and accumulated depreciation for property, plant and equipment sold, retired, or otherwise disposed of are removed from the Consolidated Balance Sheets and resulting gains or losses are included in earnings in the Consolidated Statements of Operations. Expenditures for repairs and maintenance are charged to expenses as incurred. Expenditures for major renewals and betterments, which significantly extend the useful lives of existing plant and equipment, are capitalized and depreciated.

Income Tax in Interim Periods

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

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

Inventory Valuation

Inventories are stated at the lower of cost or net realizable value. The cost of inventory is determined using the FIFO method.

Cabot periodically reviews inventory for both potential obsolescence and potential declines in anticipated selling prices. In this review, the Company makes assumptions about the future demand for and market value of the inventory, and based on these assumptions estimates the amount of any obsolete, unmarketable, slow moving, or overvalued inventory. Cabot writes down the value of these inventories by an amount equal to the difference between the cost of the inventory and its estimated net realizable value.

Pensions and Other Postretirement Benefits

The Company recognizes the funded status of defined benefit pension and other postretirement benefit plans as an asset or liability. This amount is defined as the difference between the fair value of plan assets and the benefit obligation. Pension and post-retirement benefit costs other than service cost are included in Other income (expense) in the Consolidated Statement of Operations. The Company is required to recognize as a component of Other comprehensive income (loss), net of tax, the actuarial gains/losses and prior service costs/credits that arise but were not previously required to be recognized as components of net periodic benefit cost. Other comprehensive income (loss) is adjusted as these amounts are later recognized in income as components of net periodic benefit cost.

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) (“AOCI”), which is included as a component of stockholders’ equity, includes unrealized gains or losses on derivative instruments, currency translation adjustments in foreign subsidiaries, translation adjustments on foreign equity securities and minimum pension liability adjustments.

Recently Adopted Accounting Standards

In February 2016, the FASB issued a new standard for the accounting for leases. This standard requires lessees to recognize assets and liabilities for most leases, but recognize expenses on their income statements in a manner that is similar to the historical accounting treatment for leases. The Company adopted the standard on October 1, 2019 using the modified retrospective optional transition method. Accordingly, leases in the prior period continue to be reported and disclosed in accordance with the Company’s historical accounting treatment. The Company elected the package of practical expedients that permits the Company to not reassess the identification, classification and initial direct costs of leases commencing before the October 1, 2019 effective date and to exclude short-term leases from the balance sheet. The Company did not elect the hindsight practical expedient to determine the lease term for existing leases or the practical expedient to not separate lease and non-lease components to existing leases, as well as new leases, through transition. The Company allocates the total consideration to the lease components and non-lease components on an observable stand-alone price basis to all asset classes.

Adoption of the new lease standard resulted in the recognition of operating lease right-of-use (“ROU”) assets and operating lease liabilities of approximately $106 million and $111 million, respectively, as of October 1, 2019. Refer to Note H for further

12


 

details regarding the balance sheet classification of these items. The difference between the operating lease ROU assets and operating lease liabilities reflects the reclassification of historical deferred rent balances of approximately $5 million. The effects of transition to the new standard resulted in no cumulative adjustment to retained earnings in the period of adoption. The standard did not materially impact the Company’s Consolidated Statement of Operations or Consolidated Statement of Cash Flows. The new standard did not have a material impact on the Company’s liquidity or debt-covenant compliance under its current debt agreements.

In February 2018, the FASB issued a new standard that allows entities to reclassify from AOCI to Retained earnings stranded tax effects resulting from changes made as a result of the Tax Cuts and Jobs Act of 2017 (the “Act”). The Company adopted this standard on October 1, 2019 which resulted in the reclassification of a $2 million net gain from AOCI to Retained earnings. The reclassification was primarily related to the Company’s pension plans and derivative instruments.

Recent Accounting Pronouncements

In June 2016, the FASB issued a new standard on measurement of credit losses. The standard introduces an "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 new standard is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company is evaluating this standard and the timing of its adoption. The Company does not expect the adoption of this standard to materially impact the Company’s consolidated financial statements.

 

 

C. Acquisitions

NSCC Carbon (Jiangsu) Co. Ltd

In September 2018, the Company acquired NSCC Carbon (Jiangsu) Co. Ltd, a carbon black manufacturing facility in Pizhou, Jiangsu Province, China for a purchase price of $8 million, subject to certain conditions. The purchase price conditions were satisfied in September 2019 and the purchase price was paid in the first quarter of fiscal 2020. The Company has commenced plans to modify this facility to produce specialty carbons and therefore the plant is temporarily mothballed. The modifications are expected to be completed, and production is expected to commence, in 2021. During the first three months of fiscal 2020 and 2019, the Company incurred less than $1 million and $2 million, respectively, of transition-related costs associated with this acquisition.

Shenzhen Sanshun Nano New Materials Co., Ltd

In December 2019, the Company entered into an agreement to purchase Shenzhen Sanshun Nano New Materials Co., Ltd (SUSN), a leading carbon nanotube producer, for approximately $115 million through cash considerations of $100 million and debt assumed of $15 million. The transaction is expected to close in the second quarter of fiscal 2020 and will be accounted for as a business combination. Upon closing, the operating results of the business will be included in the Company’s Performance Chemicals segment.

 

 

D. Employee Benefit Plans

Net periodic defined benefit pension and other postretirement benefit costs include the following:

 

 

 

Three Months Ended December 31

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

Pension Benefits

 

 

Postretirement Benefits

 

 

 

U.S.

 

 

Foreign

 

 

U.S.

 

 

Foreign

 

 

U.S.

 

 

Foreign

 

 

U.S.

 

 

Foreign

 

 

 

(In millions)

 

Service cost

 

$

 

 

$

1

 

 

$

 

 

$

2

 

 

$

 

 

$

 

 

$

 

 

$

 

Interest cost

 

 

1

 

 

 

1

 

 

 

1

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

Expected return on plan assets

 

 

(1

)

 

 

(2

)

 

 

(2

)

 

 

(4

)

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of prior service credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of actuarial loss

 

 

 

 

 

1

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

Settlement and curtailment gain

 

 

 

 

 

 

 

 

 

 

 

(6

)

 

 

 

 

 

 

 

 

 

 

 

 

Net periodic benefit (credit) cost

 

$

 

 

$

1

 

 

$

(1

)

 

$

(5

)

 

$

 

 

$

 

 

$

 

 

$

 

 

 

U.S. Cash Balance Plan Termination

In fiscal 2019, the Company’s Board of Directors approved a resolution to terminate the Company’s U.S. pension plan. The Company commenced the U.S. plan termination process during the third quarter of fiscal 2019 and expects to complete the transfer

13


 

of the U.S. plan’s assets to participants in fiscal year 2020, pending an Internal Revenue Service (“IRS”) determination letter. The pension liability will be settled through a combination of lump-sum payments and purchased annuities. Upon settlement of the benefit liabilities accrued in the plan, the Company will recognize a loss associated with the release of approximately $13 million from AOCI in the Consolidated Balance Sheet to Other income (expense) in the Consolidated Statement of Operations.

Curtailments and Settlements of Employee Benefit Plans

In fiscal 2019, the Company transferred the majority of the defined benefit obligations and pension plan assets in one of its foreign defined benefit plans to a multi-employer plan. This action moved the administrative, asset custodial, asset investment, actuarial, communication and benefit payment obligations to the multi-employer fund administrator. As a result of the transfer, a pre-tax gain of $6 million was recorded in the first quarter of fiscal 2019, which is included in Other income (expense) in the Consolidated Statement of Operations. In addition, as part of the transfer, the Company recorded a $3 million charge in the first quarter of fiscal 2019 reflecting the Company’s agreement to fund the actuarial loss gap between the terminated plan and the multi-employer plan. This charge is included in Other income (expense) in the Consolidated Statement of Operations.

 

 

E. Goodwill and Intangible Assets

The carrying amount of goodwill attributable to each reportable segment with goodwill balances and the changes in those balances during the three month period ended December 31, 2019 are as follows:

 

 

 

Reinforcement

Materials

 

 

Performance

Chemicals

 

 

Total

 

 

 

(In millions)

 

Balance at September 30, 2019

 

$

50

 

 

$

40

 

 

$

90

 

Foreign currency impact

 

 

1

 

 

 

1

 

 

 

2

 

Balance at December 31, 2019

 

$

51

 

 

$

41

 

 

$

92

 

 

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

 

 

 

December 31, 2019

 

 

September 30, 2019

 

 

 

Gross

Carrying

Value

 

<