Diluted loss per share of $0.01 and Adjusted
EPS of $0.77
Cabot Corporation (NYSE: CBT) today announced results for its
second quarter of fiscal year 2020.
Key Highlights
♦ GAAP EPS was a loss of $0.01, compared to earnings of $0.39
in the prior fiscal year second quarter. Adjusted EPS of $0.77
compared to $0.99 in the prior fiscal year second quarter
♦ Reinforcement Materials EBIT up 30% sequentially and
unchanged compared to the prior fiscal year second quarter despite
the negative impact from the COVID-19 pandemic
♦ Liquidity remains strong as the company finished the
quarter with cash and committed loan facilities of $1.3
billion
♦ Acquisition of Shenzhen Sanshun Nano – a leading producer
of carbon nanotubes (CNT) for lithium-ion batteries – completed on
April 1, 2020
(In millions, except per share
amounts)
Three Months Ended
Six Months Ended
3/31/20
3/31/19
3/31/20
3/31/19
Net sales
$
710
$
844
$
1,437
$
1,665
Net income (loss) attributable to Cabot
Corporation
$
(1
)
$
23
$
40
$
92
Net earnings (loss) per share attributable
to Cabot Corporation
$
(0.01
)
$
0.39
$
0.70
$
1.53
Less: Certain items after tax per
share
$
(0.78
)
$
(0.60
)
$
(0.77
)
$
(0.33
)
Adjusted EPS
$
0.77
$
0.99
$
1.47
$
1.86
Commenting on the environment, Cabot President and CEO Sean
Keohane, said, “The COVID-19 pandemic is having a significant
impact on the world and our focus remains on the safety and
well-being of our employees, while also navigating this environment
to continue to meet the needs of our customers and execute our long
term strategy. We are strictly adhering to government guidelines
and protocols as well as other preventative measures to help stop
the spread of the virus. I'm very grateful for our employees around
the world who are operating under unusual circumstances,
particularly our plant personnel, to safely satisfy our
customers."
Commenting on the company’s second quarter results, Mr. Keohane,
said, “In the second fiscal quarter of 2020, we delivered solid
results, despite the onset of the COVID-19 pandemic during the
quarter. The estimated COVID-19 impact to EBIT in the second
quarter was $21 million, primarily due to lower sales in China. We
also experienced a rapid decline in volume across the Americas and
EMEA primarily in Reinforcement Materials in the last two weeks of
March, after a strong result in January, February, and early March.
Sequentially, Adjusted EPS was up 12% and Adjusted EBITDA improved
by 7% driven by stronger margins and lower fixed costs.
Keohane continued, “We have a strong balance sheet and ended the
quarter with $1.3 billion in cash and committed loan facilities. On
the strategic front, we worked to complete the acquisition of
Shenzhen Sanshun Nano, a leading producer of carbon nanotubes for
lithium-ion batteries, which we expect will strengthen our market
position and formulations capabilities in the high-growth batteries
space.”
Financial Detail
For the second quarter of fiscal 2020, net loss attributable to
Cabot Corporation was $1 million ($0.01 loss per diluted common
share). The net loss includes an after-tax per share charge of
$0.78 which was predominantly comprised of a legal settlement and
restructuring charges in the quarter. Adjusted earnings per share
for the second quarter of fiscal 2020 was $0.77 per share.
Segment Results
Reinforcement Materials – Second quarter fiscal 2020 EBIT
in Reinforcement Materials was flat as compared to the second
quarter of fiscal 2019. Globally, volumes decreased 14%
year-over-year as the COVID-19 pandemic impacted demand. The
COVID-19 impact was most pronounced in Asia, but impacted both
Americas and EMEA demand at the end of the quarter. Offsetting the
lower volumes were higher margins due to pricing and mix benefits
in both our tire and industrial products product lines.
Global and regional volume changes for Reinforcement Materials
for the second quarter of fiscal 2020 as compared to the same
quarter of the prior year are included in the table below:
Second Quarter
Year-over-Year Change
Changes in Global Reinforcement
Materials Volumes
(14%)
Asia
(20%)
Europe, Middle East, Africa
(13%)
Americas
(8%)
Performance Chemicals – Second quarter fiscal 2020 EBIT
in Performance Chemicals decreased by $7 million compared to the
second quarter of fiscal 2019 primarily due to lower margins from a
more competitive pricing environment and weaker product mix in our
fumed metal oxides product line in China and Europe. The lower
margins were partially offset by higher volumes. Year-over-year,
volumes increased by 8% in the Formulated Solutions business driven
by our specialty compounds product line. Volumes in the Performance
Additives business increased by 6% year-over-year due to our
specialty carbons product line.
Purification Solutions – Second quarter fiscal 2020 EBIT
in Purification Solutions increased by $2 million compared to the
second quarter of fiscal 2019 due to higher margins from improved
pricing and product mix.
Cash Performance – The Company ended the second
quarter of fiscal 2020 with a cash balance of $142 million. During
the second quarter of fiscal 2020, cash flows provided by operating
activities were $24 million. Capital expenditures for the second
quarter of fiscal 2020 were $51 million. Additional uses of cash
during the second quarter included $20 million for dividends and
$10 million for share repurchases.
Taxes – During the second quarter of fiscal 2020, the
Company recorded a tax provision of $10 million for an effective
tax rate of 81%. The provision included $3 million of discrete tax
benefits. The year to date operating tax rate was 29% and increased
from 26% in the first quarter of fiscal 2020 due to the estimated
impact from COVID-19 on our projected geographic mix of
earnings.
Outlook
Commenting on the outlook for the Company, Keohane said, “We
expect lower demand due to the impact of the COVID-19 pandemic to
continue, with a pronounced effect on fiscal third quarter results.
At the segment level, we expect a significant reduction in demand
in Reinforcement Materials in the third fiscal quarter due to
temporary customer shutdowns in Europe and the Americas. In
Performance Chemicals, we expect product mix in specialty carbons
and compounds to be negatively impacted by a decline in underlying
automotive demand in Europe and the Americas, while we anticipate
the challenging price environment for fumed silica in China and
Europe will continue. Additionally, we expect the Purification
Solutions segment will see year-over-year declines in quarterly
EBIT due to the impact of COVID-19.”
Keohane continued, “2020 is going to be a difficult year for the
world and our industry, but Cabot’s financial footing is sound as
we work through this uncertain environment. In the short-term, we
expect falling raw material prices and an intense focus on working
capital efficiency to provide strong operating cash flow
generation. We are reducing further our capital spending levels for
the fiscal year to approximately $200 million, have temporarily
halted share repurchases, and have taken appropriate cost reduction
actions to conserve cash. We finished the quarter with cash and
committed loan facilities of $1.3 billion, we have no significant
debt maturities until fiscal 2022, and our Debt to EBITDA ratio as
of the end of March was 2.5x. As is consistent with our history of
countercyclical cash generation, we expect approximately $200
million of operating cash flow in the second half of the fiscal
year that we expect will more than fund our current dividend and
our capital expenditures plan in the back half of the year. Given
the lack of visibility into underlying demand, we are not providing
fiscal year earnings per share guidance at this time. While this is
certainly a challenging time, we believe our focus on cash
generation and our strong balance sheet will allow us to
successfully navigate this period and emerge from the downturn as
an even stronger industry leader.”
Earnings Call
The Company will host a conference call with industry analysts
at 8:00 a.m. Eastern time on Tuesday, May 12, 2020. The call can be
accessed through Cabot’s investor relations website at
http://investor.cabot-corp.com
About Cabot Corporation
Cabot Corporation (NYSE: CBT) is a global specialty chemicals
and performance materials company, headquartered in Boston,
Massachusetts. The company is a leading provider of rubber and
specialty carbons, activated carbon, inkjet colorants,
masterbatches and conductive compounds, fumed silica, and aerogel.
For more information on Cabot, please visit the company’s website
at: http://www.cabotcorp.com. The Company encourages investors and
potential investors to consult the Cabot website regularly.
Forward-Looking Statements – This earnings release
contains forward-looking statements. All statements that address
expectations or projections about the future, including with
respect to our expectations for our performance in fiscal year
2020, including how we expect the COVID-19 pandemic to impact
demand for our products, our business, results of operations and
cash flow and our ability to navigate these challenges, our
expectations for operating cash flow generation and capital
spending, raw material prices, and the benefits we expect to
receive from our acquisition of Shenzhen Sanshun Nano, are
forward-looking statements. These statements are not guarantees of
future performance and are subject to risks, uncertainties,
potentially inaccurate assumptions, and other factors, some of
which are beyond our control and difficult to predict. If known or
unknown risks materialize, or should underlying assumptions prove
inaccurate, our actual results could differ materially from past
results and from those expressed or implied by forward-looking
statements. Importantly, as we cannot predict the duration or scope
of the COVID-19 pandemic, the negative impact to our results cannot
be estimated. Factors that will influence the impact on our
business and operations include the duration and extent of the
pandemic, the extent of imposed or recommended containment and
mitigation measures, and the general economic consequences of the
pandemic. Other important factors that could cause our results to
differ materially from those expressed or implied in the
forward-looking statements include, but are not limited to,
competition from other specialty chemical companies; volatility in
the price of energy and raw materials; a significant adverse change
in a customer relationship; safety, health and environmental
requirements; unanticipated delays in site development projects;
negative or uncertain worldwide or regional economic conditions and
market opportunities, including from trade relations or global
health matters; and fluctuations in foreign currency exchange and
interest rates. These factors are discussed more fully in the
reports we file with the Securities and Exchange Commission
(“SEC”), particularly under the heading “Risk Factors” in our
annual report on Form 10-K for our fiscal year ended September 30,
2019 and in our quarterly report on Form 10-Q for the fiscal
quarter ended March 31, 2020, or subsequent SEC filings, filed with
the SEC at www.sec.gov. We assume no obligation to provide
revisions to any forward-looking statements should circumstances
change, except as otherwise required by securities and other
applicable laws.
Use of Non-GAAP Financial Measures
To supplement Cabot’s consolidated financial statements
presented on a generally accepted accounting principle (“GAAP”)
basis, the preceding discussion of our results and the accompanying
financial tables report Adjusted EPS, Adjusted EPS excluding the
Specialty Fluids segment, Total Segment EBIT, Total Segment EBITDA,
Adjusted EBITDA, our operating tax rate, Free Cash Flow and
Discretionary Free Cash Flow, all of which are non-GAAP financial
measures. These non-GAAP financial measures are not computed in
accordance with, or as an alternative to, GAAP. Reconciliations of
Adjusted EPS and Adjusted EPS excluding the Specialty Fluids
segment to net income (loss) per share attributable to Cabot
Corporation, the most directly comparable GAAP financial measure of
both such non-GAAP measures, Total Segment EBIT, Total Segment
EBITDA, and Adjusted EBITDA to income (loss) before income taxes
and equity in earnings of affiliated companies, the most directly
comparable GAAP financial measure of each such non-GAAP measure,
operating tax rate to effective tax rate, the most directly
comparable GAAP financial measure, and Free Cash Flow and
Discretionary Free Cash Flow to Cash flow from operating
activities, the most directly comparable GAAP financial measure of
both such non-GAAP measures, are provided in the tables titled
“Cabot Corporation Certain Items and Reconciliation of Adjusted EPS
and Operating Tax Rate” and “Cabot Corporation Reconciliation of
Non-GAAP Financial Measures.”
Management believes these non-GAAP measures provide investors
with greater transparency to the information used by Cabot
management in its financial and operational decision-making, allow
investors to see Cabot’s results through the eyes of management,
and better enable Cabot’s investors to understand Cabot’s operating
performance and financial condition.
Adjusted EPS. In calculating Adjusted EPS, we exclude
from our net income (loss) attributable to Cabot Corporation items
of expense and income that management does not consider
representative of the Company’s business operations. Accordingly,
reporting earnings on an adjusted basis supplements the GAAP
measure of performance and provides additional information related
to the underlying performance of the business. For example, certain
of the items we exclude are items that we are required by GAAP to
recognize in one period that relate to activities extending over
several periods or relate to single events that management
considers to be unusual and infrequent, although not necessarily
non-recurring. We refer to these items as “certain items.”
Management believes excluding these items facilitates operating
performance comparisons from period to period by eliminating
differences caused by the existence and timing of certain expense
and income items that would not otherwise be apparent on a GAAP
basis and evaluates the Company’s operating performance without the
impact of these costs or benefits. Management also uses Adjusted
EPS as a key measure in evaluating management performance for
incentive compensation purposes.
The items of income and expense that we exclude from our
calculations of Adjusted EPS but that are included in our GAAP net
income (loss) per share, as applicable in a particular reporting
period, include, but are not limited to, the following:
- Global restructuring activities, which include costs or
benefits associated with cost reduction initiatives or plant
closures and are primarily related to (i) employee termination
costs, (ii) asset impairment charges associated with restructuring
actions, (iii) costs to close facilities, including environmental
costs and contract termination penalties, and (iv) gains realized
on the sale of land or equipment associated with restructured
plants or locations.
- Non-recurring gains (losses) on foreign currency, which are
primarily related to the impact of continued currency devaluations
on our net monetary assets denominated in that currency.
- Legal and environmental reserves and matters, which consist of
costs or benefits for matters typically related to former
businesses or that are otherwise incurred outside of the ordinary
course of business.
- Executive transition costs, which include incremental charges,
including stock compensation charges, associated with the
retirement or termination of employment of senior executives of the
Company.
- Asset impairment charges, which primarily include charges
associated with an impairment of goodwill or other long-lived
assets.
- Acquisition and integration-related charges, which include
transaction costs, redundant costs incurred during the period of
integration, and costs associated with transitioning certain
management and business processes to Cabot’s processes.
- Gains (losses) on sale of investments, which primarily relate
to the sale of investments accounted for under the
cost-method.
- Indirect tax settlement credits, which include favorable
settlements which result in the recoveries of indirect taxes.
Total Segment EBIT. Total segment EBIT reflects the sum
of EBIT from our three reportable segments. In calculating Total
segment EBIT we exclude from our income (loss) before income taxes
and equity in earnings of affiliated companies, certain items and
items that, because they are not controlled by the business
segments and primarily benefit corporate objectives, are not
allocated to our business segments, such as interest expense and
other corporate costs, which include unallocated corporate overhead
expenses such as certain corporate salaries and headquarter
expenses, plus costs related to corporate projects and
initiatives.
Total Segment EBITDA. Total Segment EBITDA is equal to
Total Segment EBIT (as defined above), but further adjusted for
depreciation and amortization.
Adjusted EBITDA. Adjusted EBITDA reflects Total Segment
EBITDA and is further adjusted for unallocated corporate costs,
which include unallocated corporate overhead expenses such as
certain corporate salaries and headquarter expenses, plus costs
related to corporate projects and initiatives.
Free Cash Flow. To calculate “Free Cash Flow” we deduct
Additions to property, plant and equipment from cash flow from
operating activities.
Discretionary Free Cash Flow. To calculate “Discretionary
Free Cash Flow” we deduct sustaining and compliance capital
expenditures and changes in Net Working Capital from cash flow from
operating activities.
Operating Tax Rate. Our “operating tax rate” represents
the tax rate on our recurring operating results. This rate excludes
discrete tax items, which are unusual or infrequent items that are
excluded from the estimated annual effective tax rate and other tax
items, including the impact of the timing of losses in certain
jurisdictions, cumulative tax rate adjustments and the impact of
the items of expense and income we identify as certain items on
both our operating income and the tax provision. Management
believes that the operating tax rate is useful supplemental
information because it helps our investors compare our tax rate
year to year on a consistent basis and to understand what our tax
rate on current operations would be without the impact of these
items.
Cabot does not provide a forward-looking reconciliation of the
operating tax rate range with an effective tax rate range because,
without unreasonable effort, we are unable to predict with
reasonable certainty the matters we would allocate to “certain
items,” including unusual gains and losses, costs associated with
future restructurings, acquisition-related expenses and litigation
outcomes. These items are uncertain, depend on various factors, and
could have a material impact on the effective tax rate in future
periods.
Explanation of Terms Used
Product Mix. The term “product mix” refers to the mix of
types and grade of products sold or the mix of geographic regions
where products are sold, and the positive or negative impact this
has on the revenue or profitability of the business or segment.
Net Working Capital. The term “net working capital”
includes accounts receivable, inventory and accounts payable and
accrued expenses.
CABOT CORPORATION CONSOLIDATED STATEMENTS OF
OPERATIONS Periods ended March 31 Three Months
Six Months Dollars in millions, except per share amounts
(unaudited)
2020
2019
2020
2019
Net sales and other operating revenues
$
710
$
844
$
1,437
$
1,665
Cost of sales
557
666
1,143
1,321
Gross profit
153
178
294
344
Selling and administrative expenses
114
70
178
143
Research and technical expenses
14
15
28
31
Specialty Fluids loss on sale and asset impairment charge
1
20
1
20
Income (loss) from operations
24
73
87
150
Other income (expense) Interest and dividend
income
3
2
6
4
Interest expense
(14
)
(14
)
(28
)
(29
)
Other income (expense)
(1
)
(12
)
(3
)
(6
)
Total other income (expense)
(12
)
(24
)
(25
)
(31
)
Income (loss) before income taxes and equity in earnings
of affiliated companies
12
49
62
119
(Provision) benefit for income taxes
(10
)
(20
)
(14
)
(13
)
Equity in earnings of affiliated companies, net of tax
1
—
1
—
Net income (loss)
3
29
49
106
Net income (loss) attributable to noncontrolling interests
4
6
9
14
Net income (loss) attributable to Cabot Corporation
$
(1
)
$
23
$
40
$
92
Diluted earnings per share of common stock
attributable to Cabot Corporation
$
(0.01
)
$
0.39
$
0.70
$
1.53
Diluted weighted average common shares outstanding
56.6
59.3
56.8
59.7
CABOT CORPORATION SUMMARY RESULTS BY SEGMENT
Periods ended March 31 Three Months Six Months
Dollars in millions, except per share amounts (unaudited)
2020
2019
2020
2019
Sales Reinforcement Materials
$
355
$
445
$
734
$
902
Performance Chemicals
245
254
487
485
Performance Additives
168
179
338
346
Formulated Solutions
77
75
149
139
Purification Solutions
64
72
123
137
Specialty Fluids (A)
—
24
—
43
Segment sales
664
795
1,344
1,567
Unallocated and other (B)
46
49
93
98
Net sales and other operating revenues
$
710
$
844
$
1,437
$
1,665
Segment Earnings Before Interest and Taxes (C)
Reinforcement Materials
$
61
$
61
$
108
$
123
Performance Chemicals
31
38
72
74
Purification Solutions
3
1
1
(2
)
Specialty Fluids
—
12
—
22
Total Segment Earnings Before Interest and Taxes
95
112
181
217
Unallocated and Other Interest expense
(14
)
(14
)
(28
)
(29
)
Certain items (D)
(56
)
(37
)
(67
)
(47
)
Unallocated corporate costs
(12
)
(13
)
(22
)
(25
)
General unallocated income (expense) (E)
—
1
(1
)
3
Less: Equity in earnings of affiliated companies
1
—
1
—
Income (loss) before income taxes and equity in earnings
of affiliated companies
12
49
62
119
(Provision) benefit for income taxes (including tax certain
items)
(10
)
(20
)
(14
)
(13
)
Equity in earnings of affiliated companies
1
—
1
—
Net income (loss)
3
29
49
106
Net income attributable to noncontrolling interests
4
6
9
14
Net income (loss) attributable to Cabot Corporation
$
(1
)
$
23
$
40
$
92
Diluted earnings per share of common stock attributable
to Cabot Corporation
$
(0.01
)
$
0.39
$
0.70
$
1.53
Adjusted earnings per share (F)
$
0.77
$
0.99
$
1.47
$
1.86
Diluted weighted average common shares outstanding
56.6
59.3
56.8
59.7
(A)
Cabot divested its Specialty Fluids business, which does not meet
the criteria to be reported as a discontinued operation, during the
third quarter of fiscal 2019. Therefore, prior periods’ financial
statements and disclosures have not been recast. For more detail on
the sale of the Specialty Fluids business, please refer to the
Company's fiscal 2019 10-K filing.
(B)
Unallocated and other reflects royalties, other operating revenues,
external shipping and handling fees, the impact of the corporate
adjustment for unearned revenue, the removal of 100% of the sales
of an equity method affiliate, and discounting charges for certain
Notes receivable.
(C)
Segment EBIT is a measure used by Cabot's Chief Operating
Decision-Maker to measure consolidated operating results, assess
segment performance and allocate resources. Segment EBIT includes
equity in earnings of affiliated companies, royalty income, and
allocated corporate costs.
(D)
Details of Certain items are presented in the Certain Items and
Reconciliation of Adjusted EPS and Operating Tax Rate table.
(E)
General unallocated income (expense) consists of gains (losses)
arising from foreign currency transactions, net of other foreign
currency risk management activities, Interest and dividend income,
the profit or loss related to the corporate adjustment for unearned
revenue, the impact of including the full operating results of a
contractual joint venture in Purification Solutions Segment EBIT
and unrealized holding gains (losses) for equity securities.
(F)
Adjusted EPS is a non-GAAP measure, and a reconciliation of
Adjusted EPS to GAAP EPS is presented in the Certain Items and
Reconciliation of Adjusted EPS and Operating Tax Rate table.
CABOT CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION March 31, September 30, Dollars in
millions (unaudited)
2020
2019
Current assets: Cash and cash equivalents
$
142
$
169
Accounts and notes receivable, net of reserve for doubtful
accounts of $3 and $3
462
530
Inventories: Raw materials
103
107
Finished goods
312
305
Other
54
54
Total inventories
469
466
Prepaid expenses and other current assets
98
45
Total current assets
1,171
1,210
Property, plant and equipment, net
1,369
1,348
Goodwill
82
90
Equity affiliates
36
39
Intangible assets, net
87
96
Deferred income taxes
181
163
Other assets (A)
171
58
Total assets
$
3,097
$
3,004
(A)
Effective October 1, 2019, the Company adopted the new accounting
standard for leases and applied the modified retrospective optional
transition method. As such, operating lease right of use assets of
$98 million are included in Other assets as of March 31, 2020, and
the prior period has not been restated.
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION March
31, September 30, Dollars in millions, except share and per
share amounts (unaudited)
2020
2019
Current liabilities: Short-term borrowings
$
―
$
33
Accounts payable and accrued liabilities (A)
530
537
Income taxes payable
26
22
Current portion of long-term debt
7
7
Total current liabilities
563
599
Long-term debt
1,190
1,024
Deferred income taxes
41
41
Other liabilities (A)
268
206
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: 56,598,515 and 57,250,454 shares Outstanding: 56,444,288
and 57,080,589 shares
56
57
Less cost of 154,227 and 169,865 shares of common treasury
stock
(4
)
(5
)
Additional paid-in capital
—
—
Retained earnings
1,302
1,337
Accumulated other comprehensive income (loss)
(429
)
(391
)
Total Cabot Corporation stockholders' equity
925
998
Noncontrolling interests
110
136
Total stockholders' equity
1,035
1,134
Total liabilities and stockholders' equity..
$
3,097
$
3,004
(A)
Effective October 1, 2019, the Company adopted the new accounting
standard for leases and applied the modified retrospective optional
transition method. As such, operating lease liabilities of $18
million and $86 million are included in Accounts payable and
accrued liabilities and Other liabilities, respectively, as of
March 31, 2020, and the prior period has not been restated.
CABOT CORPORATION QUARTERLY RESULTS BY SEGMENT
Fiscal 2019 Fiscal 2020 Dollars in millions, except
per share amounts (unaudited) Dec. Q Mar. Q June Q Sept. Q
FY Dec. Q Mar. Q June Q Sept. Q
FY
Sales Reinforcement Materials
$
457
$
445
$
461
$
452
$
1,815
$
379
$
355
$ ―
$ ―
$
734
Performance Chemicals
231
254
251
259
995
242
245
—
—
487
Performance Additives
167
179
172
176
694
170
168
—
—
338
Formulated Solutions
64
75
79
83
301
72
77
—
—
149
Purification Solutions
65
72
73
68
278
59
64
—
—
123
Specialty Fluids (A)
19
24
13
—
56
—
—
—
—
— Segment sales
772
795
798
779
3,144
680
664
—
—
1,344
Unallocated and other (B)
49
49
47
48
193
47
46
—
—
93
Net sales and other operating revenues
$
821
$
844
$
845
$
827
$
3,337
$
727
$
710
$ ―
$ ―
$
1,437
Segment Earnings Before Interest and Taxes (C)
Reinforcement Materials
$
62
$
61
$
72
$
71
$
266
$
47
$
61
$ ―
$ ―
$
108
Performance Chemicals
36
38
37
41
152
41
31
—
—
72
Purification Solutions
(3
)
1
1
3
2
(2
)
3
—
—
1
Specialty Fluids
10
12
2
—
24
—
—
—
—
— Total Segment Earnings Before Interest and Taxes
105
112
112
115
444
86
95
—
—
181
Unallocated and Other
Interest expense
(15
)
(14
)
(14
)
(16
)
(59
)
(14
)
(14
)
—
—
(28
)
Certain items (D)
(10
)
(37
)
(14
)
(26
)
(87
)
(11
)
(56
)
—
—
(67
)
Unallocated corporate costs
(12
)
(13
)
(14
)
(11
)
(50
)
(10
)
(12
)
—
—
(22
)
General unallocated income (expense) (E)
2
1
—
5
8
(1
)
—
—
—
(1
)
Less: Equity in earnings of affiliated companies
—
—
1
—
1
—
1
—
—
1
Income (loss) before income taxes and equity in earnings of
affiliated companies
70
49
69
67
255
50
12
—
—
62
—
—
—
—
(Provision) benefit for income taxes (including tax certain items)
7
(20
)
(30
)
(27
)
(70
)
(4
)
(10
)
—
—
(14
)
Equity in earnings of affiliated companies
—
—
1
—
1
—
1
—
—
1
Net income (loss)
77
29
40
40
186
46
3
—
—
49
Net income (loss) attributable to noncontrolling interests
8
6
8
7
29
5
4
—
—
9
Net income (loss) attributable to Cabot Corporation
$
69
$
23
$
32
$
33
$
157
$
41
$
(1
)
$ ―
$ ―
$
40
Diluted earnings per share of common stock attributable
to Cabot Corporation
$
1.14
$
0.39
$
0.55
$
0.55
$
2.63
$
0.70
$
(0.01
)
$ —
$ —
$
0.70
Adjusted earnings per share (F)
$
0.87
$
0.99
$
1.00
$
1.05
$
3.91
$
0.69
$
0.77
$ —
$ —
$
1.47
Diluted weighted average common shares outstanding
60.1
59.3
58.4
57.6
58.8
57.0
56.6
—
—
56.8
(A)
Cabot divested its Specialty Fluids business, which does not meet
the criteria to be reported as a discontinued operation, during the
third quarter of fiscal 2019. Therefore, prior periods’ financial
statements and disclosures have not been recast. For more detail on
the sale of the Specialty Fluids business, please refer to the
Company's fiscal 2019 10-K filing.
(B)
Unallocated and other reflects royalties, other operating revenues,
external shipping and handling fees, the impact of the corporate
adjustment for unearned revenue, the removal of 100% of the sales
of an equity method affiliate and discounting charges for certain
Notes receivable.
(C)
Segment EBIT is a measure used by Cabot's Chief Operating
Decision-Maker to measure consolidated operating results, assess
segment performance and allocate resources. Segment EBIT includes
equity in earnings of affiliated companies, royalty income, and
allocated corporate costs.
(D)
Details of certain items are presented in the Certain Items and
Reconciliation of Adjusted EPS and Operating Tax Rate table.
(E)
General unallocated income (expense) consists of gains (losses)
arising from foreign currency transactions, net of other foreign
currency risk management activities, Interest and dividend income,
the profit or loss related to the corporate adjustment for unearned
revenue, the impact of including the full operating results of a
contractual joint venture in Purification Solutions Segment EBIT
and unrealized holding gains (losses) for equity securities.
(F)
Adjusted EPS is a non-GAAP measure, and a reconciliation of
Adjusted EPS to GAAP EPS is presented in the Certain Items and
Reconciliation of Adjusted EPS and Operating Tax Rate table.
CABOT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS Periods ended March 31 Three Months Six Months
Dollars in millions (unaudited)
2020
2019
2020
2019
Cash Flows from Operating Activities: Net
income (loss)
$
3
$
29
$
49
$
106
Adjustments to reconcile net income to cash provided by
operating activities: Depreciation and amortization
39
38
78
73
Other non-cash charges, net
(12
)
26
(17
)
14
Changes in assets and liabilities: Changes in certain
working capital items (A)
2
22
52
(89
)
Changes in other assets and liabilities, net
(8
)
(26
)
(34
)
(55
)
Cash dividends received from
equity affiliates
—
1
1
2
Cash provided by (used in) operating activities
24
90
129
51
Cash Flows from Investing Activities:
Additions to property, plant and equipment
(51
)
(43
)
(119
)
(97
)
Cash paid for acquisition of business
—
—
(8
)
—
Other investing activities, net
2
(1
)
1
(1
)
Cash used in investing activities
(49
)
(44
)
(126
)
(98
)
Cash Flows from Financing Activities: Change
in debt, net
94
59
114
251
Cash dividends paid to common stockholders
(20
)
(20
)
(40
)
(40
)
Other financing activities, net
(20
)
(55
)
(64
)
(153
)
Cash provided by (used in) financing activities
54
(16
)
10
58
Effect of exchange rates on cash
(25
)
4
(5
)
(10
)
Increase (decrease) in cash and cash equivalents
4
34
8
1
Cash, cash equivalents and restricted cash at beginning of
period
173
142
169
175
Cash, cash equivalents and restricted cash at end of period
$
177
$
176
$
177
$
176
(A)
Includes Accounts and notes receivable, Inventories, and Accounts
payable and accrued liabilities.
CABOT CORPORATION
CERTAIN ITEMS AND RECONCILIATION OF ADJUSTED EPS AND OPERATING TAX
RATE TABLE 1: DETAIL OF CERTAIN ITEMS Periods
ended March 31 Three Months Six Months Dollars in millions, except
per share amounts (unaudited)
2020
2019
2020
2019
Certain items before and after income
taxes Global restructuring activities
$
(5
)
$
(2
)
$
(13
)
$
(11
)
Legal and environmental matters and reserves
(51
)
(1
)
(50
)
(1
)
Employee benefit plan settlement and other charges
(1
)
—
(3
)
3
Acquisition and integration-related charges
(1
)
(1
)
(2
)
(4
)
Specialty Fluids loss on sale and asset impairment charges
(1
)
(20
)
(1
)
(20
)
Indirect tax settlement credits
3
—
3
—
Equity affiliate investment impairment charge
—
(11
)
—
(11
)
Other certain items
—
(2
)
(1
)
(3
)
Total certain items, pre-tax
(56
)
(37
)
(67
)
(47
)
Tax impact of certain items (A)
8
1
10
3
Certain items after tax (excluding discrete tax items)
(48
)
(36
)
(57
)
(44
)
Certain items after tax per share impact (excluding discrete
tax items)
$
(0.85
)
$
(0.59
)
$
(1.01
)
$
(0.73
)
Tax-related certain items Discrete tax items
3
—
13
24
Total tax-related certain items
3
—
13
24
Total tax-related certain items per share impact
0.07
(0.01
)
0.24
0.40
Total certain items after tax
$
(45
)
$
(36
)
$
(44
)
$
(20
)
Total certain items after tax per share impact
$
(0.78
)
$
(0.60
)
$
(0.77
)
$
(0.33
)
TABLE 2: CERTAIN ITEMS STATEMENT OF
OPERATIONS LINE ITEM Periods ended March 31 Three Months Six
Months Dollars in millions, Pre-Tax (unaudited)
2020
2019
2020
2019
Statement of Operations Line Item
(B) Cost of sales
$
―
$
(5
)
$
(3
)
$
(10
)
Selling and administrative expenses
(53
)
—
(59
)
(7
)
Research and technical expenses
—
—
—
(1
)
Other income (expense)
(2
)
(12
)
(4
)
(9
)
Specialty Fluids loss on sale and asset impairment charges
(1
)
(20
)
(1
)
(20
)
Total certain items, pre-tax
$
(56
)
$
(37
)
$
(67
)
$
(47
)
TABLE 3: RECONCILIATION OF TAX CERTAIN ITEMS Periods
ended March 31 Three Months Six Months Dollars in millions
(unaudited)
2020
2019
2020
2019
Reconciliation of Provision for income
taxes, excluding certain items, to
Provision for income taxes (Provision) benefit
for income taxes
$
(10
)
$
(20
)
$
(14
)
$
(13
)
Less: Tax impact of certain items
8
1
10
3
Less: Tax-related certain items
3
—
13
24
(Provision) benefit for income taxes, excluding certain
items
$
(21
)
$
(21
)
$
(37
)
$
(40
)
TABLE 4: RECONCILIATION OF OPERATING TAX RATE Periods
ended March 31 Three Months Six Months Dollars in millions
(unaudited)
2020
2019
2020
2019
Reconciliation of the effective tax
rate to the operating tax rate (C) (Provision)
benefit for income taxes
$
(10
)
$
(20
)
$
(14
)
$
(13
)
Effective tax rate
81
%
41
%
22
%
11
%
Impact of discrete tax items: (D) Unusual or infrequent
items
—
%
(1
)%
9
%
17
%
Items related to uncertain tax positions
12
%
1
%
9
%
3
%
Other discrete tax items
3
%
(1
)%
4
%
—
%
Impact of certain items
(67
)%
(16
)%
(15
)%
(7
)%
Operating tax rate
29
%
24
%
29
%
24
%
TABLE 5: RECONCILIATION OF ADJUSTED EPS BY QUARTER FOR
FISCAL 2020 and FISCAL 2019 Fiscal 2020 (E) Periods
ended (unaudited) Dec. Q Mar. Q June Q Sept. Q FY 2020
Reconciliation of Adjusted EPS to GAAP EPS Net
income (loss) per share attributable to Cabot Corporation
$
0.70
$
(0.01
)
$
—
$
—
$
0.70
Less: Certain items after tax per share
0.01
(0.78
)
—
—
(0.77
)
Adjusted earnings per share
$
0.69
$
0.77
$
—
$
—
$
1.47
Fiscal 2019 (E) Periods ended (unaudited) Dec. Q Mar.
Q June Q Sept. Q FY 2019
Reconciliation of
Adjusted EPS to GAAP EPS Net income (loss) per share
attributable to Cabot Corporation
$
1.14
$
0.39
$
0.55
$
0.55
$
2.63
Less: Certain items after tax per share
0.27
(0.60
)
(0.45
)
(0.50
)
(1.28
)
Adjusted earnings per share
$
0.87
$
0.99
$
1.00
$
1.05
$
3.91
(A)
The tax effect of certain items is determined by (1) starting with
the current and deferred income tax expense or benefit, included in
Net income attributable to Cabot Corporation, and (2) subtracting
the tax expense or benefit on “adjusted earnings”. Adjusted
earnings is defined as the pre-tax income attributable to Cabot
Corporation excluding certain items. The tax expense or benefit on
adjusted earnings is calculated by applying the operating tax rate,
which includes both current and deferred taxes, as defined under
the section Use of Non-GAAP Financial Measures of the earnings
release.
(B)
This table indicates the line items where certain items are
recorded in the Consolidated Statements of Operations.
(C)
For fiscal year 2020, the Operating tax rate is expected to be in
the range of 29% to 30%.
(D)
For the three and six months ended March 31, 2020, Impact of
discrete tax items included a net discrete tax benefit of $3
million and $13 million, respectively. For the three and six months
ended March 31, 2019, Impact of discrete tax items included a net
discrete tax expense of less than $1 million and a net discrete tax
benefit of $24 million, respectively. The nature of the discrete
tax items for the periods ended March 31, 2020 and 2019 were as
follows: (i) Unusual or infrequent items during the three and six
months ended March 31, 2020 consisted of the net tax impact of
Switzerland tax reform legislation(net tax benefit of nil and $6
million). Unusual or infrequent items during the three and six
months ended March 31, 2019 consisted of the net tax impacts of the
Tax Cuts and Jobs Act of 2017 (net tax benefit of nil and $17
million), excludible foreign exchange gains and losses in certain
jurisdictions, impacts related to stock compensation deductions,
and the tax impacts of a pension settlement; (ii) Items related to
uncertain tax positions during the three and six months ended March
31, 2020 and 2019 included net tax impacts from the reversal of
accruals for uncertain tax positions due to the expiration of
statutes of limitations, the accrual of interest on uncertain tax
positions, the accrual of an uncertain tax position (fiscal 2020
only) and the settlement of tax audits; and (iii) Other discrete
tax items during the three and six months ended March 31, 2020 and
2019 included net tax impacts as a result of changes in non-U.S.
tax laws, return to provision adjustments related to tax return
filings, and other items.
(E)
Per share amounts are calculated after tax and, where applicable,
noncontrolling interest, net of tax.
CABOT CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES Fiscal
2020 (A) Dec. Q Mar. Q June Q Sept. Q FY 2020
Reconciliation of Adjusted EPS to GAAP EPS Net
income (loss) per share attributable to Cabot Corporation
$
0.70
$
(0.01
)
$
—
$
—
$
0.70
Less: Certain items after tax per share
0.01
(0.78
)
—
—
(0.77
)
Adjusted earnings per share
$
0.69
$
0.77
$
—
$
—
$
1.47
Fiscal 2019 (A) Dec. Q Mar. Q June Q Sept. Q FY 2019
Reconciliation of Adjusted EPS to GAAP
EPS Net income (loss) per share attributable to Cabot
Corporation
$
1.14
$
0.39
$
0.55
$
0.55
$
2.63
Less: Certain items after tax per share
0.27
(0.60
)
(0.45
)
(0.50
)
(1.28
)
Adjusted earnings per share
$
0.87
$
0.99
$
1.00
$
1.05
$
3.91
Less: Specialty Fluids Adjusted earnings per share (B)
0.14
0.15
0.02
—
0.31
Adjusted earnings per share excluding Specialty Fluids
$
0.73
$
0.84
$
0.98
$
1.05
$
3.60
(A)
Per share amounts are calculated
after tax and, where applicable, noncontrolling interest, net of
tax.
(B)
Specialty Fluids Adjusted
earnings per share is calculated as follows (in millions except for
per share amounts):
Specialty Fluids EBIT
$
10
$
12
$
2
$
—
$
24
Less: Specialty Fluids taxes (C)
2
3
1
—
6
Specialty Fluids profit after tax
$
8
$
9
$
1
$
—
$
18
Divided by: Cabot Corporation diluted weighted average common
shares outstanding
60.1
59.3
58.4
57.6
58.8
Specialty Fluids Adjusted EPS
$
0.14
$
0.15
$
0.02
$
—
$
0.31
(C)
Specialty Fluids taxes calculated
by applying Cabot's Operating tax rate for each period to Specialty
Fluids EBIT. Please refer to Cabot's fiscal 2019 earnings releases
for the reconciliations of the Company's operating tax rate to its
effective tax rate.
Dollars in millions
Fiscal 2020 Dec. Q Mar. Q June Q
Sept. Q FY 2020
Reconciliation of Segment
EBIT to Net Income and Segment EBITDA Margin Net
income (loss) attributable to Cabot Corporation
$
41
$
(1
)
$
―
$
―
$
40
Net income (loss) attributable to noncontrolling interests
5
4
—
—
9
Equity in earnings of affiliated companies, net of tax
—
(1
)
—
—
(1
)
Provision (benefit) for income taxes
4
10
—
—
14
Income (loss) before income taxes and equity in earnings of
affiliated companies
$
50
$
12
$
―
$
―
$
62
Interest expense
14
14
—
—
28
Certain items
11
56
—
—
67
Unallocated corporate costs
10
12
—
—
22
General unallocated (income) expense
1
—
—
—
1
Less: Equity in earnings of affiliated companies
—
(1
)
—
—
(1
)
Total Segment EBIT
$
86
$
95
$
―
$
―
$
181
Depreciation and amortization
39
39
—
—
78
Adjustments to depreciation (D)
(1
)
—
—
—
(1
)
Total Segment EBITDA
$
124
$
134
$
―
$
―
$
258
Less: Unallocated corporate costs
10
12
—
—
22
Adjusted EBITDA
$
114
$
122
$
―
$
―
$
236
(D) Adjustments to depreciation includes the addition of the
depreciation expense of a contractual joint venture in Purification
Solutions less accelerated depreciation expense not allocated to a
business. Dollars in millions Dec. Q Mar. Q June Q Sept. Q
FY 2020 Reinforcement Materials EBIT
$
47
$
61
$
―
$
―
$
108
Reinforcement Materials Depreciation and amortization
17
17
—
—
34
Reinforcement Materials EBITDA
$
64
$
78
$
―
$
―
$
142
Reinforcement Materials Sales
$
379
$
355
$
―
$
―
$
734
Reinforcement Materials EBITDA Margin
17
%
22
%
—
%
—
%
19
%
Dollars in millions Dec. Q Mar. Q June Q Sept. Q FY 2020
Performance Chemicals EBIT
$
41
$
31
$
―
$
―
$
72
Performance Chemicals Depreciation and amortization
15
15
—
—
30
Performance Chemicals EBITDA
$
56
$
46
$
―
$
―
$
102
Performance Chemicals Sales
$
242
$
245
$
―
$
―
$
487
Performance Chemicals EBITDA Margin
23
%
19
%
—
%
—
%
21
%
Dollars in millions Dec. Q Mar. Q June Q Sept. Q FY 2020
Purification Solutions EBIT
$
(2
)
$
3
$
―
$
―
$
1
Purification Solutions Depreciation and amortization
6
7
—
—
13
Purification Solutions EBITDA
$
4
$
10
$
―
$
―
$
14
Purification Solutions Sales
$
59
$
64
$
―
$
―
$
123
Purification Solutions EBITDA Margin
7
%
16
%
—
%
—
%
11
%
Dollars in millions
Fiscal 2020 Reconciliation of Free Cash Flow and Discretionary Free
Cash Flow to Cash Flow from Operating Activities Dec. Q
Mar. Q June Q Sept. Q FY 2020 Cash flow from operating activities
(E)
$
105
$
24
$
―
$
―
$
129
Less: Additions to property, plant and equipment
68
51
—
—
119
Free cash flow
$
37
$
(27
)
$
―
$
―
$
10
Plus: Additions to property, plant and equipment
68
51
—
—
119
Less: Changes in net working capital (F)
50
2
—
—
52
Less: Sustaining and compliance capital expenditures
30
27
—
—
57
Discretionary free cash flow
$
25
$
(5
)
$
―
$
―
$
20
(E)
As provided in the Condensed
Consolidated Statements of Cash Flows.
(F) Defined as changes in accounts receivable, inventory and
accounts payable and accrued liabilities as presented on the
Condensed Consolidated Statements of Cash Flows.
View source
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Contacts Investor Contact: Steve Delahunt (617) 342-6255
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