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 June 30, 2020March 31, 2021
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 | ☐ |
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Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
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Emerging growth company | ☐ |
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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 56,461,54356,634,131 shares of common stock, $1.00 par value per share, outstanding as of August 4, 2020.May 3, 2021.
INDEX
Part I. |
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| Item 1. |
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| 3 | |
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| Consolidated Statements of Comprehensive Income (Loss) | 4 |
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| 5 | |
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| 7 | |
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| 8 | |
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| 10 | |
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. |
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| Item 4. |
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Part II. |
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| Item 6. |
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Part I. Financial Information
Item 1. | Financial Statements |
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
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| Three Months Ended March 31 |
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| Six Months Ended March 31 |
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| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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| (In millions, except per share amounts) |
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| (In millions, except per share amounts) |
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Net sales and other operating revenues |
| $ | 518 |
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| $ | 845 |
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| $ | 1,955 |
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| $ | 2,510 |
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| $ | 842 |
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| $ | 710 |
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| $ | 1,588 |
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| $ | 1,437 |
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Cost of sales |
|
| 449 |
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|
| 675 |
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|
| 1,592 |
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|
| 1,996 |
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|
| 628 |
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|
| 557 |
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|
| 1,181 |
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|
| 1,143 |
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Gross profit |
|
| 69 |
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|
| 170 |
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|
| 363 |
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|
| 514 |
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|
| 214 |
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|
| 153 |
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|
| 407 |
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| 294 |
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Selling and administrative expenses |
|
| 52 |
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| 65 |
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|
| 230 |
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|
| 208 |
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| 71 |
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|
| 114 |
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|
| 132 |
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|
| 178 |
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Research and technical expenses |
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| 13 |
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| 16 |
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| 41 |
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| 47 |
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| 15 |
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| 14 |
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| 29 |
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| 28 |
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Specialty Fluids loss on sale and asset impairment |
|
| — |
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|
| 8 |
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| 1 |
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| 28 |
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Specialty Fluids loss on sale and asset impairment charge |
|
| — |
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| 1 |
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|
| — |
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| 1 |
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Income (loss) from operations |
|
| 4 |
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|
| 81 |
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|
| 91 |
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|
| 231 |
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|
| 128 |
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|
| 24 |
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|
| 246 |
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|
| 87 |
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Interest and dividend income |
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| 1 |
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| 2 |
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| 7 |
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| 6 |
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| 2 |
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| 3 |
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| 4 |
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| 6 |
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Interest expense |
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| (13 | ) |
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| (14 | ) |
|
| (41 | ) |
|
| (43 | ) |
|
| (13 | ) |
|
| (14 | ) |
|
| (25 | ) |
|
| (28 | ) |
Other income (expense) |
|
| (3 | ) |
|
| — |
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|
| (6 | ) |
|
| (6 | ) |
|
| 1 |
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|
| (1 | ) |
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| (8 | ) |
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| (3 | ) |
Income (loss) before income taxes and equity in earnings of affiliated companies |
|
| (11 | ) |
|
| 69 |
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|
| 51 |
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|
| 188 |
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|
| 118 |
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|
| 12 |
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|
| 217 |
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|
| 62 |
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(Provision) benefit for income taxes |
|
| 5 |
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|
| (30 | ) |
|
| (9 | ) |
|
| (43 | ) |
|
| (34 | ) |
|
| (10 | ) |
|
| (63 | ) |
|
| (14 | ) |
Equity in earnings of affiliated companies, net of tax |
|
| 1 |
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| 1 |
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|
| 2 |
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|
| 1 |
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|
| 1 |
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|
| 1 |
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|
| 1 |
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| 1 |
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Net income (loss) |
|
| (5 | ) |
|
| 40 |
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|
| 44 |
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|
| 146 |
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|
| 85 |
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|
| 3 |
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|
| 155 |
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|
| 49 |
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Net income (loss) attributable to noncontrolling interests, net of tax |
|
| 1 |
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| 8 |
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| 10 |
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|
| 22 |
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| 10 |
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| 4 |
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|
| 20 |
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| 9 |
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Net income (loss) attributable to Cabot Corporation |
| $ | (6 | ) |
| $ | 32 |
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| $ | 34 |
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| $ | 124 |
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| $ | 75 |
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| $ | (1 | ) |
| $ | 135 |
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| $ | 40 |
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Weighted-average common shares outstanding: |
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Basic |
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| 56.5 |
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| 58.2 |
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| 56.7 |
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| 59.1 |
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| 56.6 |
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| 56.6 |
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| 56.6 |
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| 56.7 |
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Diluted |
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| 56.5 |
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| 58.4 |
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| 56.7 |
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| 59.2 |
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| 56.7 |
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| 56.6 |
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| 56.7 |
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| 56.8 |
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Earnings (loss) per common share: |
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Basic |
| $ | (0.12 | ) |
| $ | 0.55 |
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| $ | 0.59 |
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| $ | 2.08 |
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| $ | 1.31 |
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| $ | (0.01 | ) |
| $ | 2.37 |
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| $ | 0.70 |
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Diluted |
| $ | (0.12 | ) |
| $ | 0.55 |
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| $ | 0.59 |
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| $ | 2.08 |
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| $ | 1.30 |
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| $ | (0.01 | ) |
| $ | 2.36 |
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| $ | 0.70 |
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The accompanying notes are an integral part of these consolidated financial statements.
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
UNAUDITED
|
| Three Months Ended June 30 |
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| Nine Months Ended June 30 |
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| Three Months Ended March 31 |
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| Six Months Ended March 31 |
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| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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| 2021 |
|
| 2020 |
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| 2021 |
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| 2020 |
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| (In millions) |
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| (In millions) |
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Net income (loss) |
| $ | (5 | ) |
| $ | 40 |
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| $ | 44 |
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| $ | 146 |
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| $ | 85 |
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| $ | 3 |
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| $ | 155 |
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| $ | 49 |
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Other comprehensive income (loss), net of tax |
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Foreign currency translation adjustment, net of tax |
|
| 31 |
|
|
| 1 |
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|
| (4 | ) |
|
| (15 | ) |
|
| (76 | ) |
|
| (78 | ) |
|
| 18 |
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|
| (35 | ) |
Derivatives: net investment hedges |
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(Gains) losses reclassified to interest expense, net of tax |
|
| (1 | ) |
|
| (1 | ) |
|
| (3 | ) |
|
| (3 | ) |
|
| (2 | ) |
|
| (1 | ) |
|
| (3 | ) |
|
| (2 | ) |
(Gains) losses excluded from effectiveness testing and amortized to interest expense, net of tax |
|
| — |
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|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
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Pension and other postretirement benefit liability adjustments, net of tax |
|
| 1 |
|
|
| 1 |
|
|
| 2 |
|
|
| 23 |
|
|
| 1 |
|
|
| — |
|
|
| 4 |
|
|
| 1 |
|
Other comprehensive income (loss) |
|
| 31 |
|
|
| 2 |
|
|
| (4 | ) |
|
| 6 |
|
|
| (76 | ) |
|
| (78 | ) |
|
| 20 |
|
|
| (35 | ) |
Comprehensive income (loss) |
|
| 26 |
|
|
| 42 |
|
|
| 40 |
|
|
| 152 |
|
|
| 9 |
|
|
| (75 | ) |
|
| 175 |
|
|
| 14 |
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Net income (loss) attributable to noncontrolling interests, net of tax |
|
| 1 |
|
|
| 8 |
|
|
| 10 |
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|
| 22 |
|
|
| 10 |
|
|
| 4 |
|
|
| 20 |
|
|
| 9 |
|
Foreign currency translation adjustment attributable to noncontrolling interests, net of tax |
|
| 2 |
|
|
| (2 | ) |
|
| 2 |
|
|
| — |
|
|
| (2 | ) |
|
| (3 | ) |
|
| 5 |
|
|
| — |
|
Comprehensive income (loss) attributable to noncontrolling interests, net of tax |
|
| 3 |
|
|
| 6 |
|
|
| 12 |
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|
| 22 |
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|
| 8 |
|
|
| 1 |
|
|
| 25 |
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|
| 9 |
|
Comprehensive income (loss) attributable to Cabot Corporation |
| $ | 23 |
|
| $ | 36 |
|
| $ | 28 |
|
| $ | 130 |
|
| $ | 1 |
|
| $ | (76 | ) |
| $ | 150 |
|
| $ | 5 |
|
The accompanying notes are an integral part of these consolidated financial statements.
CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
UNAUDITED
|
| June 30, 2020 |
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| September 30, 2019 |
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| March 31, 2021 |
|
| September 30, 2020 |
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| (In millions) |
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| (In millions) |
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Current assets: |
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Cash and cash equivalents |
| $ | 162 |
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| $ | 169 |
|
| $ | 146 |
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| $ | 151 |
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Accounts and notes receivable, net of reserve for doubtful accounts of $2 and $3 |
|
| 362 |
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|
| 530 |
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Accounts and notes receivable, net of reserve for doubtful accounts of $4 and $2 |
|
| 578 |
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|
| 418 |
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Inventories: |
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Raw materials |
|
| 88 |
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|
| 107 |
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|
| 123 |
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|
| 82 |
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Finished goods |
|
| 250 |
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|
| 305 |
|
|
| 264 |
|
|
| 225 |
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Other |
|
| 55 |
|
|
| 54 |
|
|
| 49 |
|
|
| 52 |
|
Total inventories |
|
| 393 |
|
|
| 466 |
|
|
| 436 |
|
|
| 359 |
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Prepaid expenses and other current assets |
|
| 66 |
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|
| 45 |
|
|
| 64 |
|
|
| 50 |
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Total current assets |
|
| 983 |
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|
| 1,210 |
|
|
| 1,224 |
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|
| 978 |
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Property, plant and equipment, net |
|
| 1,412 |
|
|
| 1,348 |
|
|
| 1,334 |
|
|
| 1,314 |
|
Goodwill |
|
| 130 |
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|
| 90 |
|
|
| 139 |
|
|
| 134 |
|
Equity affiliates |
|
| 36 |
|
|
| 39 |
|
|
| 40 |
|
|
| 39 |
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Intangible assets, net |
|
| 102 |
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|
| 96 |
|
|
| 103 |
|
|
| 103 |
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Deferred income taxes |
|
| 181 |
|
|
| 163 |
|
|
| 50 |
|
|
| 53 |
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Other assets |
|
| 175 |
|
|
| 58 |
|
|
| 157 |
|
|
| 160 |
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Total assets |
| $ | 3,019 |
|
| $ | 3,004 |
|
| $ | 3,047 |
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| $ | 2,781 |
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The accompanying notes are an integral part of these consolidated financial statements.
CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
UNAUDITED
|
| June 30, 2020 |
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| September 30, 2019 |
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| March 31, 2021 |
|
| September 30, 2020 |
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| (In millions, except share |
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| (In millions, except share |
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| and per share amounts) |
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| and per share amounts) |
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Current liabilities: |
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Short-term borrowings |
| $ | 13 |
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| $ | 33 |
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| $ | 44 |
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| $ | 14 |
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Accounts payable and accrued liabilities |
|
| 460 |
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|
| 537 |
|
|
| 562 |
|
|
| 488 |
|
Income taxes payable |
|
| 14 |
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|
| 22 |
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|
| 33 |
|
|
| 20 |
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Current portion of long-term debt |
|
| 7 |
|
|
| 7 |
|
|
| 8 |
|
|
| 7 |
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Total current liabilities |
|
| 494 |
|
|
| 599 |
|
|
| 647 |
|
|
| 529 |
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Long-term debt |
|
| 1,164 |
|
|
| 1,024 |
|
|
| 1,087 |
|
|
| 1,094 |
|
Deferred income taxes |
|
| 41 |
|
|
| 41 |
|
|
| 58 |
|
|
| 58 |
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Other liabilities |
|
| 277 |
|
|
| 206 |
|
|
| 308 |
|
|
| 286 |
|
Commitments and contingencies (Note G) |
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Contingencies (Note G) |
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Stockholders' equity: |
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Preferred stock: |
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Authorized: 2,000,000 shares of $1 par value |
|
| — |
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|
| — |
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|
| — |
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|
| — |
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Issued and Outstanding: NaN and NaN |
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Common stock: |
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Authorized: 200,000,000 shares of $1 par value |
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| ||||||||
Issued: 56,611,504 and 57,250,454 shares |
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Outstanding: 56,460,448 and 57,080,589 shares |
|
| 57 |
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|
| 57 |
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Less cost of 151,056 and 169,865 shares of common treasury stock |
|
| (4 | ) |
|
| (5 | ) | ||||||||
Authorized: 200,000,000 shares of $1 par value, Issued: 56,767,240 and 56,616,030 shares, Outstanding: 56,622,455 and 56,466,638 shares |
|
| 57 |
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|
| 57 |
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Less cost of 144,785 and 149,392 shares of common treasury stock |
|
| (4 | ) |
|
| (4 | ) | ||||||||
Retained earnings |
|
| 1,277 |
|
|
| 1,337 |
|
|
| 1,094 |
|
|
| 989 |
|
Accumulated other comprehensive income (loss) |
|
| (400 | ) |
|
| (391 | ) |
|
| (336 | ) |
|
| (351 | ) |
Total Cabot Corporation stockholders' equity |
|
| 930 |
|
|
| 998 |
|
|
| 811 |
|
|
| 691 |
|
Noncontrolling interests |
|
| 113 |
|
|
| 136 |
|
|
| 136 |
|
|
| 123 |
|
Total stockholders' equity |
|
| 1,043 |
|
|
| 1,134 |
|
|
| 947 |
|
|
| 814 |
|
Total liabilities and stockholders' equity |
| $ | 3,019 |
|
| $ | 3,004 |
|
| $ | 3,047 |
|
| $ | 2,781 |
|
The accompanying notes are an integral part of these consolidated financial statements.
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
|
| Nine Months Ended June 30 |
|
| Six Months Ended March 31 |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||
Cash Flows from Operating Activities: |
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|
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|
|
|
|
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Net income (loss) |
| $ | 44 |
|
| $ | 146 |
|
| $ | 155 |
|
| $ | 49 |
|
Adjustments to reconcile net income (loss) to cash provided by operating activities: |
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|
|
Depreciation and amortization |
|
| 117 |
|
|
| 110 |
|
|
| 77 |
|
|
| 78 |
|
Specialty Fluids loss on sale and asset impairment |
|
| — |
|
|
| 28 |
| ||||||||
Impairment of investment in equity affiliate |
|
| — |
|
|
| 11 |
| ||||||||
Deferred tax provision (benefit) |
|
| (20 | ) |
|
| (20 | ) |
|
| 1 |
|
|
| (23 | ) |
Employee benefit plan settlement |
|
| — |
|
|
| 6 |
|
|
| 6 |
|
|
| — |
|
Equity in earnings of affiliated companies |
|
| (2 | ) |
|
| (1 | ) |
|
| (1 | ) |
|
| (1 | ) |
Non-cash compensation |
|
| 5 |
|
|
| 11 |
|
|
| 10 |
|
|
| 3 |
|
Other non-cash (income) expense |
|
| 4 |
|
|
| (2 | ) |
|
| 19 |
|
|
| 4 |
|
Cash dividends received from equity affiliates |
|
| 1 |
|
|
| 2 |
|
|
| 1 |
|
|
| 1 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts and notes receivable |
|
| 172 |
|
|
| 6 |
|
|
| (155 | ) |
|
| 56 |
|
Inventories |
|
| 74 |
|
|
| (14 | ) |
|
| (80 | ) |
|
| (8 | ) |
Prepaid expenses and other assets |
|
| (25 | ) |
|
| (1 | ) |
|
| (8 | ) |
|
| (33 | ) |
Accounts payable and accrued liabilities |
|
| (68 | ) |
|
| (65 | ) |
|
| 56 |
|
|
| 4 |
|
Income taxes payable |
|
| (10 | ) |
|
| (24 | ) |
|
| 12 |
|
|
| 5 |
|
Other liabilities |
|
| (14 | ) |
|
| (27 | ) |
|
| (7 | ) |
|
| (6 | ) |
Cash provided (used) by operating activities |
|
| 278 |
|
|
| 166 |
|
|
| 86 |
|
|
| 129 |
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
| (162 | ) |
|
| (155 | ) |
|
| (69 | ) |
|
| (119 | ) |
Proceeds from sale of business, net of cash held in escrow of $— and $5 |
|
| — |
|
|
| 130 |
| ||||||||
Acquisitions of businesses, net of cash acquired of $1 and $— |
|
| (92 | ) |
|
| (3 | ) | ||||||||
Cash paid for acquisition of businesses |
|
| — |
|
|
| (8 | ) | ||||||||
Other |
|
| 2 |
|
|
| (5 | ) |
|
| 3 |
|
|
| 1 |
|
Cash provided (used) by investing activities |
|
| (252 | ) |
|
| (33 | ) |
|
| (66 | ) |
|
| (126 | ) |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under financing arrangements |
|
| — |
|
|
| 29 |
| ||||||||
Repayments under financing arrangements |
|
| — |
|
|
| (18 | ) | ||||||||
Proceeds from issuance (repayments) of commercial paper, net |
|
| (20 | ) |
|
| (176 | ) |
|
| 31 |
|
|
| (33 | ) |
Proceeds from long-term debt |
|
| 444 |
|
|
| 344 |
|
|
| 100 |
|
|
| 197 |
|
Repayments of long-term debt |
|
| (334 | ) |
|
| (75 | ) |
|
| (117 | ) |
|
| (50 | ) |
Repayments of redeemable preferred stock |
|
| — |
|
|
| (25 | ) | ||||||||
Purchases of common stock |
|
| (44 | ) |
|
| (144 | ) |
|
| (2 | ) |
|
| (44 | ) |
Proceeds from sales of common stock |
|
| 3 |
|
|
| 2 |
|
|
| 2 |
|
|
| 3 |
|
Cash dividends paid to noncontrolling interests |
|
| (26 | ) |
|
| (23 | ) |
|
| (1 | ) |
|
| (23 | ) |
Cash dividends paid to common stockholders |
|
| (60 | ) |
|
| (60 | ) |
|
| (40 | ) |
|
| (40 | ) |
Cash provided (used) by financing activities |
|
| (37 | ) |
|
| (146 | ) |
|
| (27 | ) |
|
| 10 |
|
Effects of exchange rate changes on cash |
|
| 4 |
|
|
| (15 | ) |
|
| 6 |
|
|
| (5 | ) |
Increase (decrease) in cash and cash equivalents |
|
| (7 | ) |
|
| (28 | ) | ||||||||
Cash and cash equivalents at beginning of period |
|
| 169 |
|
|
| 175 |
| ||||||||
Cash and cash equivalents at end of period |
| $ | 162 |
|
| $ | 147 |
| ||||||||
Increase (decrease) in cash, cash equivalents and restricted cash |
|
| (1 | ) |
|
| 8 |
| ||||||||
Cash, cash equivalents and restricted cash at beginning of period |
|
| 151 |
|
|
| 169 |
| ||||||||
Cash, cash equivalents and restricted cash at end of period |
| $ | 150 |
|
| $ | 177 |
|
The following table presents the Company’s cash, cash equivalents and restricted cash by category within the Consolidated Balance Sheets:
|
| March 31, 2021 |
|
| March 31, 2020 |
| ||
|
| (In millions) |
| |||||
Cash and cash equivalents |
| $ | 146 |
|
| $ | 142 |
|
Restricted cash classified within Prepaid expenses and other current assets |
|
| 4 |
|
|
| 35 |
|
Cash, cash equivalents and restricted cash |
| $ | 150 |
|
| $ | 177 |
|
The accompanying notes are an integral part of these consolidated financial statements.
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’ |
|
| 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 |
|
| Shares |
|
| Cost |
|
| Capital |
|
| Earnings |
|
| Income (Loss) |
|
| Equity |
|
| Interests |
|
| Equity |
| ||||||||||||||||
|
| (In millions, except share amounts) |
|
| (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 | ) |
|
| — |
|
|
|
|
|
|
| — |
| ||||||||||||||||||||||||||||||||
Balance at September 30, 2020 |
|
| 56,467 |
|
| $ | 53 |
|
| $ | — |
|
| $ | 989 |
|
| $ | (351 | ) |
| $ | 691 |
|
| $ | 123 |
|
| $ | 814 |
| ||||||||||||||||||||||||||||||||
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 41 |
|
|
|
|
|
|
| 41 |
|
|
| 5 |
|
|
| 46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 60 |
|
|
|
|
|
|
| 60 |
|
|
| 10 |
|
|
| 70 |
|
Total other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 40 |
|
|
| 40 |
|
|
| 3 |
|
|
| 43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 89 |
|
|
| 89 |
|
|
| 7 |
|
|
| 96 |
|
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.35 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (20 | ) |
|
|
|
|
|
| (20 | ) |
|
|
|
|
|
| (20 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (20 | ) |
|
|
|
|
|
| (20 | ) |
|
|
|
|
|
| (20 | ) |
Cash dividends declared to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (19 | ) |
|
| (19 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1 | ) |
|
| (1 | ) |
Issuance of stock under equity compensation plans |
|
| 273 |
|
|
| — |
|
|
| 1 |
|
|
|
|
|
|
|
|
|
|
| 1 |
|
|
|
|
|
|
| 1 |
|
|
| 192 |
|
|
| — |
|
|
| 1 |
|
|
|
|
|
|
|
|
|
|
| 1 |
|
|
|
|
|
|
| 1 |
|
Amortization of share-based compensation |
|
|
|
|
|
|
|
|
|
| 1 |
|
|
|
|
|
|
|
|
|
|
| 1 |
|
|
|
|
|
|
| 1 |
|
|
|
|
|
|
|
|
|
|
| 4 |
|
|
|
|
|
|
|
|
|
|
| 4 |
|
|
|
|
|
|
| 4 |
|
Purchase and retirement of common stock |
|
| (699 | ) |
|
| — |
|
|
| (2 | ) |
|
| (32 | ) |
|
|
|
|
|
| (34 | ) |
|
|
|
|
|
| (34 | ) |
|
| (53 | ) |
|
| — |
|
|
| (2 | ) |
|
|
|
|
|
|
|
|
|
| (2 | ) |
|
|
|
|
|
| (2 | ) |
Balance at December 31, 2019 |
|
| 56,655 |
|
|
| 52 |
|
|
| — |
|
|
| 1,329 |
|
|
| (354 | ) |
|
| 1,027 |
|
|
| 125 |
|
|
| 1,152 |
| ||||||||||||||||||||||||||||||||
Amount reclassified to retained earnings in excess of additional paid in capital |
|
|
|
|
|
|
|
|
|
| (3 | ) |
|
| 3 |
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| — |
| ||||||||||||||||||||||||||||||||
Balance at December 31, 2020 |
|
| 56,606 |
|
| $ | 53 |
|
| $ | - |
|
| $ | 1,032 |
|
| $ | (262 | ) |
| $ | 823 |
|
| $ | 139 |
|
| $ | 962 |
| ||||||||||||||||||||||||||||||||
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1 | ) |
|
|
|
|
|
| (1 | ) |
|
| 4 |
|
|
| 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 75 |
|
|
|
|
|
|
| 75 |
|
|
| 10 |
|
|
| 85 |
|
Total other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (75 | ) |
|
| (75 | ) |
|
| (3 | ) |
|
| (78 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (74 | ) |
|
| (74 | ) |
|
| (2 | ) |
|
| (76 | ) |
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.35 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (20 | ) |
|
|
|
|
|
| (20 | ) |
|
|
|
|
|
| (20 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (20 | ) |
|
|
|
|
|
| (20 | ) |
|
|
|
|
|
| (20 | ) |
Cash dividends declared to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (16 | ) |
|
| (16 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (11 | ) |
|
| (11 | ) |
Issuance of stock under equity compensation plans |
|
| 30 |
|
|
| — |
|
|
| 2 |
|
|
|
|
|
|
|
|
|
|
| 2 |
|
|
|
|
|
|
| 2 |
|
|
| 17 |
|
|
| — |
|
|
| 1 |
|
|
|
|
|
|
|
|
|
|
| 1 |
|
|
|
|
|
|
| 1 |
|
Amortization of share-based compensation |
|
|
|
|
|
|
|
|
|
| 2 |
|
|
|
|
|
|
|
|
|
|
| 2 |
|
|
|
|
|
|
| 2 |
|
|
|
|
|
|
|
|
|
|
| 6 |
|
|
|
|
|
|
|
|
|
|
| 6 |
|
|
|
|
|
|
| 6 |
|
Purchase and retirement of common stock |
|
| (241 | ) |
|
| — |
|
|
| (4 | ) |
|
| (6 | ) |
|
|
|
|
|
| (10 | ) |
|
|
|
|
|
| (10 | ) |
|
| (1 | ) |
|
| — |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| - |
|
Balance at March 31, 2020 |
|
| 56,444 |
|
|
| 52 |
|
|
| — |
|
|
| 1,302 |
|
|
| (429 | ) |
|
| 925 |
|
|
| 110 |
|
|
| 1,035 |
| ||||||||||||||||||||||||||||||||
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (6 | ) |
|
|
|
|
|
| (6 | ) |
|
| 1 |
|
|
| (5 | ) | ||||||||||||||||||||||||||||||||
Total other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 29 |
|
|
| 29 |
|
|
| 2 |
|
|
| 31 |
| ||||||||||||||||||||||||||||||||
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Common stock, $0.35 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (20 | ) |
|
|
|
|
|
| (20 | ) |
|
|
|
|
|
| (20 | ) | ||||||||||||||||||||||||||||||||
Issuance of stock under equity compensation plans |
|
| 18 |
|
|
| 1 |
|
|
| (1 | ) |
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| — |
| ||||||||||||||||||||||||||||||||
Amortization of share-based compensation |
|
|
|
|
|
|
|
|
|
| 2 |
|
|
|
|
|
|
|
|
|
|
| 2 |
|
|
|
|
|
|
| 2 |
| ||||||||||||||||||||||||||||||||
Purchase and retirement of common stock |
|
| (2 | ) |
|
| — |
|
|
| (1 | ) |
|
| 1 |
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| — |
| ||||||||||||||||||||||||||||||||
Balance at June 30, 2020 |
|
| 56,460 |
|
| $ | 53 |
|
| $ | — |
|
| $ | 1,277 |
|
| $ | (400 | ) |
| $ | 930 |
|
| $ | 113 |
|
| $ | 1,043 |
| ||||||||||||||||||||||||||||||||
Amount reclassified to retained earnings in excess of additional paid in capital |
|
|
|
|
|
|
|
|
|
| (7 | ) |
|
| 7 |
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Balance at March 31, 2021 |
|
| 56,622 |
|
|
| 53 |
|
|
| — |
|
|
| 1,094 |
|
|
| (336 | ) |
|
| 811 |
|
|
| 136 |
|
|
| 947 |
|
The accompanying notes are an integral part of these consolidated financial statements.
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’ |
|
| 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 |
|
| Shares |
|
| Cost |
|
| Capital |
|
| Earnings |
|
| Income (Loss) |
|
| Equity |
|
| Interests |
|
| Equity |
| ||||||||||||||||
|
| (In millions, except share amounts) |
|
| (In millions, except share amounts) |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2018 |
|
| 60,367 |
|
| $ | 54 |
|
| $ | — |
|
| $ | 1,417 |
|
| $ | (317 | ) |
| $ | 1,154 |
|
| $ | 125 |
|
| $ | 1,279 |
| ||||||||||||||||||||||||||||||||
Balance at September 30, 2019 |
|
| 57,081 |
|
| $ | 52 |
|
| $ | — |
|
| $ | 1,337 |
|
| $ | (391 | ) |
| $ | 998 |
|
| $ | 136 |
|
| $ | 1,134 |
| ||||||||||||||||||||||||||||||||
Adoption of accounting standards |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 3 |
|
| $ | (3 | ) |
|
| — |
|
|
|
|
|
|
| — |
| ||||||||||||||||||||||||||||||||
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 69 |
|
|
|
|
|
|
| 69 |
|
|
| 8 |
|
|
| 77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 41 |
|
|
|
|
|
|
| 41 |
|
|
| 5 |
|
|
| 46 |
|
Total other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (3 | ) |
|
| (3 | ) |
|
| — |
|
|
| (3 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 40 |
|
|
| 40 |
|
|
| 3 |
|
|
| 43 |
|
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.33 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (20 | ) |
|
|
|
|
|
| (20 | ) |
|
|
|
|
|
| (20 | ) | ||||||||||||||||||||||||||||||||
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 |
| ||||||||||||||||||||||||||||||||
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 23 |
|
|
|
|
|
|
| 23 |
|
|
| 6 |
|
|
| 29 |
| ||||||||||||||||||||||||||||||||
Total other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 5 |
|
|
| 5 |
|
|
| 2 |
|
|
| 7 |
| ||||||||||||||||||||||||||||||||
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Common stock, $0.33 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (20 | ) |
|
|
|
|
|
| (20 | ) |
|
|
|
|
|
| (20 | ) | ||||||||||||||||||||||||||||||||
Common stock, $0.35 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (20 | ) |
|
|
|
|
|
| (20 | ) |
|
|
|
|
|
| (20 | ) | ||||||||||||||||||||||||||||||||
Cash dividend declared to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
| (13 | ) |
|
| (13 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (19 | ) |
|
| (19 | ) |
Issuance of stock under equity compensation plans |
|
| 41 |
|
|
| 1 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
| 1 |
|
|
|
|
|
|
| 1 |
|
|
| 273 |
|
|
| — |
|
|
| 1 |
|
|
|
|
|
|
|
|
|
|
| 1 |
|
|
|
|
|
|
| 1 |
|
Amortization of share-based compensation |
|
|
|
|
|
|
|
|
|
| 2 |
|
|
|
|
|
|
|
|
|
|
| 2 |
|
|
|
|
|
|
| 2 |
|
|
|
|
|
|
|
|
|
|
| 1 |
|
|
|
|
|
|
|
|
|
|
| 1 |
|
|
|
|
|
|
| 1 |
|
Purchase and retirement of common stock |
|
| (1,101 | ) |
|
| (2 | ) |
|
| (2 | ) |
|
| (46 | ) |
|
|
|
|
|
| (50 | ) |
|
|
|
|
|
| (50 | ) |
|
| (699 | ) |
|
| — |
|
|
| (2 | ) |
|
| (32 | ) |
|
|
|
|
|
| (34 | ) |
|
|
|
|
|
| (34 | ) |
Balance at March 31, 2019 |
|
| 58,450 |
|
|
| 52 |
|
|
| — |
|
|
| 1,367 |
|
|
| (315 | ) |
|
| 1,104 |
|
|
| 128 |
|
|
| 1,232 |
| ||||||||||||||||||||||||||||||||
Balance at December 31, 2019 |
|
| 56,655 |
|
| $ | 52 |
|
| $ | - |
|
| $ | 1,329 |
|
| $ | (354 | ) |
| $ | 1,027 |
|
| $ | 125 |
|
| $ | 1,152 |
| ||||||||||||||||||||||||||||||||
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 32 |
|
|
|
|
|
|
| 32 |
|
|
| 8 |
|
|
| 40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1 | ) |
|
|
|
|
|
| (1 | ) |
|
| 4 |
|
|
| 3 |
|
Total other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4 |
|
|
| 4 |
|
|
| (2 | ) |
|
| 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (75 | ) |
|
| (75 | ) |
|
| (3 | ) |
|
| (78 | ) |
Cash dividends paid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.33 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (20 | ) |
|
|
|
|
|
| (20 | ) |
|
| — |
|
|
| (20 | ) | ||||||||||||||||||||||||||||||||
Common stock, $0.35 per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (20 | ) |
|
|
|
|
|
| (20 | ) |
|
|
|
|
|
| (20 | ) | ||||||||||||||||||||||||||||||||
Cash dividend declared to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (16 | ) |
|
| (16 | ) | ||||||||||||||||||||||||||||||||
Issuance of stock under equity compensation plans |
|
| 56 |
|
|
| — |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| — |
|
|
| 30 |
|
|
| — |
|
|
| 2 |
|
|
|
|
|
|
|
|
|
|
| 2 |
|
|
|
|
|
|
| 2 |
|
Amortization of share-based compensation |
|
|
|
|
|
|
|
|
|
| 4 |
|
|
|
|
|
|
|
|
|
|
| 4 |
|
|
|
|
|
|
| 4 |
|
|
|
|
|
|
|
|
|
|
| 2 |
|
|
|
|
|
|
|
|
|
|
| 2 |
|
|
|
|
|
|
| 2 |
|
Purchase and retirement of common stock |
|
| (747 | ) |
|
| — |
|
|
| (4 | ) |
|
| (28 | ) |
|
|
|
|
|
| (32 | ) |
|
|
|
|
|
| (32 | ) |
|
| (241 | ) |
|
| — |
|
|
| (4 | ) |
|
| (6 | ) |
|
|
|
|
|
| (10 | ) |
|
|
|
|
|
| (10 | ) |
Balance at June 30, 2019 |
|
| 57,759 |
|
| $ | 52 |
|
| $ | — |
|
| $ | 1,351 |
|
| $ | (311 | ) |
| $ | 1,092 |
|
| $ | 134 |
|
| $ | 1,226 |
| ||||||||||||||||||||||||||||||||
Balance at March 31, 2020 |
|
| 56,444 |
|
|
| 52 |
|
|
| — |
|
|
| 1,302 |
|
|
| (429 | ) |
|
| 925 |
|
|
| 110 |
|
|
| 1,035 |
|
The accompanying notes are an integral part of these consolidated financial statements.
CABOT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020March 31, 2021
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, 20192020 (“20192020 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 June 30, 2020March 31, 2021 and 2019.2020. 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.
Effective October 1, 2019, the Company adopted the accounting standard for leases issued by the Financial Accounting Standards Board (“FASB”) in February 2016.
As discussed in Note C, effective April 1, 2020, the Company acquired Shenzhen Sanshun Nano New Materials Co., Ltd (“SUSN”), a leading carbon nanotube producer. The results of operations, and cash flows, of SUSN are included in the Company’s consolidated financial statements from the date of acquisition.
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 forCabot’s significant accounting policies have not materially changed from 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 stateddescribed 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 associated2020 Form 10-K filed with the contract.
Intangible AssetsU.S. Securities 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 basedExchange Commission (“SEC”) 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, specialty compounds and specialty carbons product lines within Performance Chemicals, which are considered separate reporting units, carry the Company’s goodwill balances as of June 30,November 25, 2020.
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.
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
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 0 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 as of adoption.
In February 2018, the FASB issued a new standard that allows entities to reclassify from Accumulated other comprehensive income (loss) (“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 ana new "expected loss" impairment model that applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables and other financial assets. Entities are required to estimate expected credit losses over the life of financial assets and record an allowance against the assets’ amortized cost basis to present them at the amount expected to be collected. The new standard is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company will adoptadopted this standard effectiveon October 1, 2020. The Company does not expect the adoption of this standard todid not materially impact the Company’s consolidated financial statements.
Recent Accounting Pronouncements
In March 2020, the FASB issued a new standard on Reference Rate Reform, which provides temporary optional expedients and exceptions to the existing guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The standard was effective upon issuance and may generally be applied through December 31, 2022 to any new or amended contracts, hedging relationships, and other transactions that reference LIBOR. The Company is currently evaluating the timing of adoption and the impact of the adoption of this standard on its consolidated financial statementsstatements..
In December 2019, the FASB issued a new standard Simplifying the Accounting for Income Taxes. The new guidance simplifies the accounting for income taxes by removing several exceptions in the current standard and adding guidance to reduce complexity in certain areas. The new standard is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted. The Company is currently evaluating the timing of adoption and the impact of the adoption of this standard on its consolidated financial statements.
C. Acquisitions and Divestitures
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 2022. Transition-related costs associated with this acquisition were $1 million and $2 million for the three and nine months ended June 30, 2020, respectively, and $1 million and $4 million for the three and nine months ended June 30, 2019, respectively.
Shenzhen Sanshun Nano New Materials Co., Ltd
On April 1, 2020, the Company purchased Shenzhen Sanshun Nano New Materials Co., Ltd (SUSN), a leading carbon nanotube producer, for an estimated purchase price of $100 million, consisting of: (i) cash consideration of $84 million, net of $1 million acquired, (ii) contingent consideration of $3 million to be paid over the two-year period ending March 31, 2022 upon the satisfaction of certain milestones, and (iii) the assumed debt of $13 million. The debt the Company assumed in the transaction was repaid in June 2020. The operating results of SUSN wereare included in the results of the Company's Performance Chemicals segment beginning in the third quarter of fiscal 2020, and totaled approximately $6 million of revenue in the quarter.
The Company incurred acquisition and integration costs of $2 million through June 30, 2020 associated with the transaction, which are included in Selling and administrative expenses and Cost of Sales in the Consolidated Statements of Operations.
The provisional allocation of the purchase price set forth below was based on estimates of the fair value of assets acquired and liabilities assumed as of April 1, 2020.
|
| (In millions) |
| |
Assets |
|
|
|
|
Cash |
| $ | 1 |
|
Accounts Receivable |
|
| 8 |
|
Inventories |
|
| 4 |
|
Prepaid expenses and other current assets |
|
| 2 |
|
Property, plant and equipment |
|
| 38 |
|
Intangible assets |
|
| 15 |
|
Goodwill |
|
| 45 |
|
Deferred tax asset |
|
| 1 |
|
Other assets |
|
| 2 |
|
Total assets acquired |
|
| 116 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
Accounts payable and accrued liabilities |
|
| (12 | ) |
Income taxes payable |
|
| (2 | ) |
Long-term debt |
|
| (13 | ) |
Other liabilities |
|
| (4 | ) |
|
|
|
|
|
Total liabilities assumed |
|
| (31 | ) |
|
|
|
|
|
Cash consideration paid |
| $ | 85 |
|
As part of the purchase price allocation, the Company determined the separately identifiable intangible assets are comprised of developed technologies of $9 million, which will be amortized over 10 years, customer relationships of $4 million, which will be amortized over 20 years, and trademarks of $2 million, which will be amortized over 10 years. The Company estimated the fair values of the identifiable acquisition-related intangible assets based on projections of cash flows that will arise from those assets. The projected cash flows were discounted to determine the fair value of the assets at the date of acquisition. The determination of the fair value of the intangible assets acquired required the use of judgment with regard to assumptions in the discounted cash flow model used and determination of the useful lives of the developed technologies, customer relationships and trademarks.
The excess of the purchase price over the fair value of the tangible net assets and intangible assets acquired was recorded as goodwill. The goodwill recognized is attributable to the growth and operating synergies that the Company expects to realize from this acquisition. Goodwill generated from the acquisition will not be deductible for tax purposes.
Divestitures
Sale of Specialty Fluids Business
In June 2019, the Company completed the sale of its Specialty Fluids business, an operating segment of the Company, to Sinomine (Hong Kong) Rare Metals Resource Co. Limited, a wholly owned subsidiary of Sinomine Resource Group Co., Ltd. (“Sinomine”), for total proceeds of $133 million. The Company recognized a $20 million impairment charge during the second quarter of fiscal 2019 and a pre-tax loss on the sale of the Specialty Fluids business of $9 million in fiscal 2019. The sale was subject to customary post-closing adjustments, which were finalized during the second quarter of fiscal 2020 and resulted in an additional pre-tax loss on sale of $1 million.
D. Employee Benefit Plans
Net periodic defined benefit pension costs include the following:
|
| Three Months Ended June 30 |
|
| Three Months Ended March 31 |
| ||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||
|
| Pension Benefits |
|
| Pension Benefits |
| ||||||||||||||||||||||||||
|
| U.S. |
|
| Foreign |
|
| U.S. |
|
| Foreign |
|
| U.S. |
|
| Foreign |
|
| U.S. |
|
| Foreign |
| ||||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||||||||||
Service cost |
| $ | — |
|
| $ | 1 |
|
| $ | 1 |
|
| $ | 2 |
|
| $ | — |
|
| $ | 2 |
|
| $ | 1 |
|
| $ | 2 |
|
Interest cost |
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
Expected return on plan assets |
|
| (1 | ) |
|
| (2 | ) |
|
| (2 | ) |
|
| (2 | ) |
|
| — |
|
|
| (3 | ) |
|
| (1 | ) |
|
| (3 | ) |
Amortization of prior service costs (credit) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
| ||||||||||||||||
Amortization of actual loss |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
| ||||||||||||||||
Amortization of actuarial loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Settlement charge |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Net periodic benefit (credit) cost |
| $ | — |
|
| $ | 1 |
|
| $ | — |
|
| $ | 4 |
|
| $ | — |
|
| $ | — |
|
| $ | 1 |
|
| $ | — |
|
|
| Nine Months Ended June 30 |
|
| Six Months Ended March 31 |
| ||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||||||||||||||||||
|
| Pension Benefits |
|
| Pension Benefits |
| ||||||||||||||||||||||||||
|
| U.S. |
|
| Foreign |
|
| U.S. |
|
| Foreign |
|
| U.S. |
|
| Foreign |
|
| U.S. |
|
| Foreign |
| ||||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||||||||||
Service cost |
| $ | 1 |
|
| $ | 4 |
|
| $ | 1 |
|
| $ | 5 |
|
| $ | — |
|
| $ | 3 |
|
| $ | 1 |
|
| $ | 3 |
|
Interest cost |
|
| 3 |
|
|
| 3 |
|
|
| 4 |
|
|
| 4 |
|
|
| — |
|
|
| 2 |
|
|
| 2 |
|
|
| 2 |
|
Expected return on plan assets |
|
| (3 | ) |
|
| (7 | ) |
|
| (7 | ) |
|
| (8 | ) |
|
| — |
|
|
| (5 | ) |
|
| (2 | ) |
|
| (5 | ) |
Amortization of prior service cost (credit) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
| ||||||||||||||||
Amortization of actuarial loss |
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Settlement and curtailment gain |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6 | ) | ||||||||||||||||
Settlement charge |
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Net periodic benefit (credit) cost |
| $ | 1 |
|
| $ | 2 |
|
| $ | (2 | ) |
| $ | (1 | ) |
| $ | 6 |
|
| $ | 1 |
|
| $ | 1 |
|
| $ | 1 |
|
Other postretirement benefit costs were less than $1 million and $1 million for the three and ninesix months ended June 30, 2020,March 31, 2021, respectively. Other postretirement benefit gainscosts were less than $1 million and $1 million for both the three and ninesix months ended June 30, 2019.March 31, 2020, respectively.
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 commencedIn fiscal 2020 and 2021, the U.S. plan termination process during the third quarter of fiscal 2019 and expects to complete the transfer of the U.S. plan’s assets to participants by the end of calendar year 2020. The pension liability will bewas settled through a combination of lump-sum payments and purchased annuities. Upon settlementannuities, neither 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 and will also recognize in Other income (expense) anywhich required an additional gain or loss between the fair value of plan assets and the benefit plan liability on the date of settlement.
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 1 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 obligationscash contribution to the multi-employer fund administrator. As a result ofplan. In the transfer, a pre-tax gain of $6 million was recorded in the firstfourth quarter of fiscal 2019,2020, the Company recognized a settlement charge of $3 million related to lump-sum payments made to participants who elected this option, which is includedwas recorded in Other income (expense) in the Consolidated StatementStatements of Operations. In addition, as part of the transfer, the Company recorded a $3 million charge in the first quarter of fiscal 2019 reflecting2021, the Company’s agreement to fund the actuarial loss gap between the terminated plan and the multi-employer plan. ThisCompany recognized an additional $6 million settlement charge is included in Other income (expense) inrelated to the Consolidated Statement of Operations.final asset transfers through purchased annuities.
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 nine month periodsix months ended June 30, 2020March 31, 2021 are as follows:
|
| Reinforcement Materials |
|
| Performance Chemicals |
|
| Total |
| |||
|
| (In millions) |
| |||||||||
Balance at September 30, 2019 |
| $ | 50 |
|
| $ | 40 |
|
| $ | 90 |
|
Goodwill acquired(1) |
|
| — |
|
|
| 45 |
|
|
| 45 |
|
Foreign currency impact |
|
| (5 | ) |
|
| — |
|
|
| (5 | ) |
Balance at June 30, 2020 |
| $ | 45 |
|
| $ | 85 |
|
| $ | 130 |
|
|
| Reinforcement Materials |
|
| Performance Chemicals |
|
| Total |
| |||
|
| (In millions) |
| |||||||||
Balance at September 30, 2020 |
| $ | 46 |
|
| $ | 88 |
|
| $ | 134 |
|
Foreign currency impact |
|
| 2 |
|
|
| 3 |
|
|
| 5 |
|
Balance at March 31, 2021 |
| $ | 48 |
|
| $ | 91 |
|
| $ | 139 |
|
(1) Consists of goodwill acquired in the acquisition of SUSN as described in Note C.
The following table provides information regarding the Company’s intangible assets:
|
| June 30, 2020 |
|
| September 30, 2019 |
|
| March 31, 2021 |
|
| September 30, 2020 |
| ||||||||||||||||||||||||||||||||||||
|
| Gross Carrying Value |
|
| Accumulated Amortization |
|
| Net Intangible Assets |
|
| Gross Carrying Value |
|
| Accumulated Amortization |
|
| Net Intangible Assets |
|
| Gross Carrying Value |
|
| Accumulated Amortization |
|
| Net Intangible Assets |
|
| Gross Carrying Value |
|
| Accumulated Amortization |
|
| Net Intangible Assets |
| ||||||||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||||||||||||||||||||||||||
Intangible assets with finite lives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed technologies |
| $ | 58 |
|
| $ | (7 | ) |
| $ | 51 |
|
| $ | 50 |
|
| $ | (5 | ) |
| $ | 45 |
|
| $ | 62 |
|
| $ | (10 | ) |
| $ | 52 |
|
| $ | 60 |
|
| $ | (8 | ) |
| $ | 52 |
|
Trademarks |
|
| 11 |
|
|
| (1 | ) |
|
| 10 |
|
|
| 8 |
|
|
| — |
|
|
| 8 |
|
|
| 11 |
|
|
| (1 | ) |
|
| 10 |
|
|
| 11 |
|
|
| (1 | ) |
|
| 10 |
|
Customer relationships |
|
| 54 |
|
|
| (13 | ) |
|
| 41 |
|
|
| 57 |
|
|
| (14 | ) |
|
| 43 |
|
|
| 59 |
|
|
| (18 | ) |
|
| 41 |
|
|
| 56 |
|
|
| (15 | ) |
|
| 41 |
|
Total intangible assets |
| $ | 123 |
|
| $ | (21 | ) |
| $ | 102 |
|
| $ | 115 |
|
| $ | (19 | ) |
| $ | 96 |
|
| $ | 132 |
|
| $ | (29 | ) |
| $ | 103 |
|
| $ | 127 |
|
| $ | (24 | ) |
| $ | 103 |
|
(1) Total intangible assets as of June 30, 2020 includes $15 million of intangible assets from the acquisition of SUSN as described in Note C and an unfavorable impact of foreign currency translation of $4 million.
Intangible assets are amortized over their estimated useful lives, which range between ten and twenty-five years, with a weighted average amortization period of approximately eighteen years. Amortization expense for each of the three months ended June 30,March 31, 2021 and 2020 and 2019 was $2 million and $1 million, respectively, and for the nine months ended June 30, 2020 and 2019 was $5 million and $4 million, respectively. Amortization expense is included in Cost of sales, Selling and administrative expenses and Research and technical expenses in the Consolidated Statements of Operations. Amortization expense for the six months ended March 31, 2021 and 2020 was $4 million and $3 million, respectively, and is included in Cost of sales, Selling and administrative expenses and Research and technical expenses in the Consolidated Statements of Operations. Total amortization expense is estimated to be approximately $7$8 million each year for the next five fiscal years.
F. Accumulated Other Comprehensive Income (Loss)
Comprehensive income combines net income (loss) and other comprehensive income items, which are reported as components of stockholders’ equity in the accompanying Consolidated Balance Sheets.
Changes in each component of AOCI, net of tax, were as follows:
|
| Currency Translation Adjustment |
|
| Unrealized Gains on Investments |
|
| Pension and Other Postretirement Benefit Liability Adjustments |
|
| Total |
|
| Currency Translation Adjustment |
|
| Pension and Other Postretirement Benefit Liability Adjustments |
|
| Total |
| |||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||||||
Balance at September 30, 2019, attributable to Cabot Corporation |
| $ | (338 | ) |
| $ | 1 |
|
| $ | (54 | ) |
| $ | (391 | ) | ||||||||||||
Other comprehensive income (loss) before reclassifications |
|
| 43 |
|
|
| — |
|
|
| — |
|
|
| 43 |
| ||||||||||||
Amounts reclassified from AOCI |
|
| (1 | ) |
|
| — |
|
|
| 1 |
|
|
| — |
| ||||||||||||
Adoption of accounting standards |
|
| (3 | ) |
|
| (1 | ) |
|
| 1 |
|
|
| (3 | ) | ||||||||||||
Less: Other comprehensive income (loss) attributable to noncontrolling interests |
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 3 |
| ||||||||||||
Balance at December 31, 2019, attributable to Cabot Corporation |
|
| (302 | ) |
|
| — |
|
|
| (52 | ) |
|
| (354 | ) | ||||||||||||
Other comprehensive income (loss) before reclassifications |
|
| (78 | ) |
|
| — |
|
|
| — |
|
|
| (78 | ) | ||||||||||||
Less: Other comprehensive income (loss) attributable to noncontrolling interests |
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| (3 | ) | ||||||||||||
Balance at March 31, 2020, attributable to Cabot Corporation |
|
| (377 | ) |
|
| — |
|
|
| (52 | ) |
|
| (429 | ) | ||||||||||||
Balance at September 30, 2020, attributable to Cabot Corporation |
| $ | (307 | ) |
| $ | (44 | ) |
| $ | (351 | ) | ||||||||||||||||
Other comprehensive income (loss) before reclassifications |
|
| 31 |
|
|
| — |
|
|
| (1 | ) |
|
| 30 |
|
|
| 94 |
|
|
| (1 | ) |
|
| 93 |
|
Amounts reclassified from AOCI |
|
| (1 | ) |
|
| — |
|
|
| 2 |
|
|
| 1 |
|
|
| (1 | ) |
|
| 4 |
|
|
| 3 |
|
Less: Other comprehensive income (loss) attributable to noncontrolling interests |
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 7 |
|
|
| — |
|
|
| 7 |
|
Balance at June 30, 2020, attributable to Cabot Corporation |
| $ | (349 | ) |
| $ | — |
|
| $ | (51 | ) |
| $ | (400 | ) | ||||||||||||
Balance at December 31, 2020, attributable to Cabot Corporation |
|
| (221 | ) |
|
| (41 | ) |
|
| (262 | ) | ||||||||||||||||
Other comprehensive income (loss) before reclassifications |
|
| (76 | ) |
|
| 1 |
|
|
| (75 | ) | ||||||||||||||||
Amounts reclassified from AOCI |
|
| (1 | ) |
|
| — |
|
|
| (1 | ) | ||||||||||||||||
Less: Other comprehensive income (loss) attributable to noncontrolling interests |
|
| (2 | ) |
|
| — |
|
|
| (2 | ) | ||||||||||||||||
Balance at March 31, 2021, attributable to Cabot Corporation |
| $ | (296 | ) |
| $ | (40 | ) |
| $ | (336 | ) |
The amounts reclassified out of AOCI and into the Consolidated Statements of Operations in each of the three and ninesix months ended June 30,March 31, 2021 and 2020 and 2019 were as follows:
|
| Affected Line Item in the Consolidated |
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Affected Line Item in the Consolidated |
| Three Months Ended March 31 |
|
| Six Months Ended March 31 |
| ||||||||||||||||||||
|
| Statements of Operations |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| Statements of Operations |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
|
|
|
| (In millions) |
|
|
|
|
|
|
|
|
|
|
|
| (In millions) |
|
|
|
|
|
|
|
|
| ||||||||||
Derivatives: net investment hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gains) losses reclassified to interest expense |
| Interest expense |
| $ | (2 | ) |
| $ | (1 | ) |
| $ | (4 | ) |
| $ | (4 | ) |
| Interest expense (Note L) |
| $ | (2 | ) |
| $ | (1 | ) |
| $ | (3 | ) |
| $ | (2 | ) |
(Gains) losses excluded from effectiveness testing and amortized to interest expense |
| Interest expense |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
|
| Interest expense (Note L) |
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Pension and other postretirement |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of actuarial losses and prior service cost (credit) |
| Net Periodic Benefit Cost - see Note D for details |
|
| 2 |
|
|
| 2 |
|
|
| 3 |
|
|
| 2 |
|
| Net Periodic Benefit Cost (Note D) |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
|
Settlement and curtailment gain |
| Net Periodic Benefit Cost - see Note D for details |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6 | ) | ||||||||||||||||||
Settlement charge |
| Net Periodic Benefit Cost (Note D) |
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| — |
| ||||||||||||||||||
Total before tax |
|
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| (7 | ) |
|
|
|
| (1 | ) |
|
| — |
|
|
| 5 |
|
|
| — |
|
Tax impact |
| Provision (benefit) for income taxes |
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| (2 | ) |
| Provision (benefit) for income taxes |
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| — |
|
Total after tax |
|
|
| $ | 1 |
|
| $ | 2 |
|
| $ | 1 |
|
| $ | (9 | ) |
|
|
| $ | (1 | ) |
| $ | — |
|
| $ | 2 |
|
| $ | — |
|
G. Commitments and Contingencies
Contingencies
Respirator Liabilities
Cabot has exposure in connection with a safety respiratory products business that a subsidiary acquired from American Optical Corporation (“AO”) in an April 1990 asset purchase transaction. The subsidiary manufactured respirators under the AO brand and disposed of that business in July 1995. In connection with its acquisition of the business, the subsidiary agreed, in certain circumstances, to assume a portion of AO’s liabilities, including costs of legal fees together with amounts paid in settlements and judgments, allocable to AO respiratory products used prior to the 1990 purchase by the Cabot subsidiary. In exchange for the subsidiary’s assumption of certain of AO’s respirator liabilities, AO agreed to provide to the subsidiary the benefits of: (i) AO’s insurance coverage for the period prior to the 1990 acquisition and (ii) a former owner’s indemnity of AO holding it harmless from any liability allocable to AO respiratory products used prior to May 1982. As more fully described in the 20192020 10-K, the respirator liabilities generally involve claims for personal injury, including asbestosis, silicosis and coal worker’s pneumoconiosis, allegedly resulting from the use of respirators that are alleged to have been negligently designed and/or labeled. Neither Cabot, nor its past or present subsidiaries, at any time manufactured asbestos or asbestos-containing products. At no time did this respiratory product line represent a significant portion of the respirator market. In addition to Cabot’s subsidiary, other parties are responsible for significant portions of the costs of these respirator liabilities (as defined in the 20192020 10-K, the “Payor Group”).
On February 28, 2020, Cabot, with certain members of the Payor Group, entered into a settlement agreement resolving a large group of claims, including claims alleging serious injury, brought by coal workers in Kentucky and West Virginia represented by common legal counsel. The Company’s share of this liability iswas $65.2 million, and during the second quarter of fiscal 2020, Cabot recorded a charge of $50 million for this settlement, which was included in Selling and administrative expenses in the Consolidated Statements of Operations. The Company paid $32.6 million of the settlement during the third quarter of fiscal 2020 and the remaining $32.6 million which is included in Accounts payable and accrued liabilities on the Consolidated Balance Sheets as of June 30, 2020, will be paid in the first quarter of fiscal 2021.
In addition to the February 2020 settlement, Cabot has a reserve to cover its expected share of liabilities for existingpending and future respirator liability claims, which is included in Other liabilities and Accounts payable and accrued liabilities on the Consolidated Balance Sheets. The Company expects these liabilities to be incurred over a number of years. The reserve was $21$22 million and $35$24 million as of June 30, 2020March 31, 2021 and September 30, 2019,2020, respectively.
The Company’s current estimate of the cost of its share of existingpending and future respirator liability claims is based on facts and circumstances existing at this time, including the number and nature of the remaining claims. Because reserves are limited to amounts that are probable and estimable as of a relevant measurement date, and there is inherent difficulty in projecting the impact of potential developments on Cabot’s share of liability for these existing and future claims, the actual amount of liabilities related to these claims could be different from Cabot’s reserve.
Developments that could affect the Company’s estimate include, but are not limited to, (i) significant changes in the number of pending and future claims, (ii) changes in the rate of dismissals without payment of pending claims, (iii) significant changes in the average cost of resolving claims, including potential settlements of groups of claims, (iv) significant changes in the legal costs of defending these claims, (v) changes in the nature of claims received or changes in our assessment of the viability of these claims, (vi) trial and appellate outcomes, (vii) changes in the law and procedure applicable to these claims, (viii) the financial viability of the parties that contribute to the settlementpayment of respirator claims, (ix) exhaustion or changes in the recoverability of the insurance coverage maintained by certain members of the parties that contribute to the settlement of respirator claims,Payor Group, or a change in the availability of the indemnity provided by a former owner of the business,AO, (x) changes in the allocation of costs among the various parties paying legal and settlement costs, and (xi) a determination that the assumptions that were used to estimate Cabot’s share of liability are no longer reasonable. The Company cannot determine the impact of these potential developments on its current estimate of its share of liability for existing and future claims. Because reserves are limited to amounts that are probable and estimable as of a relevant measurement date, and there is inherent difficulty in projecting the impact of potential developments on Cabot’s share of liability for these existing and future claims, the actual amount of these liabilities for pending and future claims could be different than the reserved amount.
Other Matters
The Company has various other lawsuits, claims and contingent liabilities arising in the ordinary course of its business and with respect to its divested businesses. The Company does not believe that any of these matters will have a material adverse effect on its financial position; however, litigation is inherently unpredictable. Cabot could incur judgments, enter into settlements or revise its expectations regarding the outcome of certain matters, and such developments could have a material impact on its results of operations in the period in which the amounts are accrued or its cash flows in the period in which the amounts are paid.
H. Leases
The Company determines if an arrangement is a lease at inception. The Company considers a contract to be or to contain a lease if the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.
A lease liability is recorded at commencement for the net present value of future lease payments over the lease term. The discount rate used is generally the Company’s estimated incremental borrowing rate based on credit-adjusted and term-specific discount rates, using a third-party yield curve. An ROU asset is recorded and recognized at commencement at the lease liability amount, including initial direct costs incurred, and is reduced for lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
In the normal course of its business, the Company enters into various leases as the lessee, primarily related to certain transportation vehicles, warehouse facilities, office space, and machinery and equipment. These leases have remaining lease terms between one and nineteen years, some of which may include options to extend the leases for up to fifteen years or options to terminate the leases. The Company’s land leases have remaining lease terms up to seventy years.
Some lease arrangements require variable payments that are dependent on usage, output, or index-based adjustments. The Company does not have material variable lease payments.
The Company has elected not to recognize short-term leases on the balance sheet for all underlying asset classes. Short-term leases are leases that, at the commencement date, have a lease term of twelve months or less and do not include a purchase option that the Company is reasonably certain to exercise. Short-term leases are expensed on a straight-line basis over the lease term.
The components of the Company’s lease costs were as follows:
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
| ||
|
| 2020 |
|
| 2020 |
| ||
|
| (In millions) |
| |||||
Operating lease cost |
| $ | 7 |
|
| $ | 24 |
|
Finance lease cost |
|
| 2 |
|
|
| 4 |
|
Total lease cost |
| $ | 9 |
|
| $ | 28 |
|
For the three and nine months ended June 30, 2020, short-term lease costs were $1 million and $5 million, respectively. For both the three and nine months ended June 30, 2020, variable lease costs were less than $1 million.
Supplemental cash flow information related to the Company’s leases was as follows:
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
| ||
|
| 2020 |
|
| 2020 |
| ||
|
| (In millions) |
| |||||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | 7 |
|
| $ | 19 |
|
Operating cash flows from finance leases |
|
| — |
|
|
| 1 |
|
Financing cash flows from finance leases |
|
| 1 |
|
|
| 2 |
|
Right-of-use assets obtained in exchange for new operating lease liabilities |
| $ | 8 |
|
| $ | 13 |
|
Right-of-use assets obtained in exchange for new finance lease liabilities |
| $ | — |
|
| $ | 23 |
|
Supplemental balance sheet information related to the Company’s leases was as follows:
Description |
| Balance Sheet Classification |
| June 30, 2020 |
| |
|
|
|
| (In millions) |
| |
Lease ROU assets: |
|
|
|
|
|
|
Operating |
| Other assets |
| $ | 102 |
|
Finance |
| Net property, plant and equipment |
|
| 45 |
|
Total lease ROU assets |
|
|
| $ | 147 |
|
|
|
|
|
|
|
|
Lease liabilities: |
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
Operating |
| Accounts payable and accrued liabilities |
| $ | 17 |
|
Finance |
| Current portion of long-term debt |
|
| 3 |
|
Long-term: |
|
|
|
|
|
|
Operating |
| Other liabilities |
|
| 91 |
|
Finance |
| Long-term debt |
|
| 28 |
|
Total lease liabilities |
|
|
| $ | 139 |
|
The following table presents the weighted-average remaining lease term and discount rates for the Company’s leases as of June 30, 2020:
|
| |||
| ||||
|
| |||
|
| |||
| ||||
|
|
| ||
|
|
|
Future minimum lease payments under non-cancelable operating and finance leases as of June 30, 2020 were as follows:
Years Ended September 30 |
| Operating leases |
|
| Finance leases |
| ||
|
| (In millions) |
| |||||
Remainder of fiscal 2020 |
| $ | 6 |
|
| $ | 1 |
|
2021 |
|
| 16 |
|
|
| 5 |
|
2022 |
|
| 12 |
|
|
| 4 |
|
2023 |
|
| 10 |
|
|
| 4 |
|
2024 |
|
| 10 |
|
|
| 4 |
|
2025 and thereafter |
|
| 75 |
|
|
| 25 |
|
Total lease payments |
|
| 129 |
|
|
| 43 |
|
Less: imputed interest |
|
| 21 |
|
|
| 12 |
|
Total |
| $ | 108 |
|
| $ | 31 |
|
|
|
|
|
|
|
|
|
|
The Company’s future minimum lease payments under noncancelable leases as of September 30, 2019 were as follows:
Years Ended September 30 |
| Operating leases |
|
| Capital leases |
| ||
|
| (In millions) |
| |||||
2020 |
| $ | 23 |
|
| $ | 3 |
|
2021 |
|
| 14 |
|
|
| 3 |
|
2022 |
|
| 9 |
|
|
| 3 |
|
2023 |
|
| 9 |
|
|
| 3 |
|
2024 |
|
| 8 |
|
|
| 2 |
|
2025 and thereafter |
|
| 68 |
|
|
| 7 |
|
Total lease payments |
|
| 131 |
|
|
| 21 |
|
Less: imputed interest |
|
| — |
|
|
| 9 |
|
Total |
| $ | 131 |
|
| $ | 12 |
|
I.H. Income Tax
Effective Tax Rate
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended March 31 |
|
| Six Months Ended March 31 |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
|
| (Dollars in millions) |
|
| (Dollars in millions) |
| ||||||||||||||||||||||||||
(Provision) benefit for income taxes |
| $ | 5 |
|
| $ | (30 | ) |
| $ | (9 | ) |
| $ | (43 | ) |
| $ | (34 | ) |
| $ | (10 | ) |
| $ | (63 | ) |
| $ | (14 | ) |
Effective tax rate |
|
| 51 | % |
|
| 43 | % |
|
| 17 | % |
|
| 23 | % |
|
| 29 | % |
|
| 81 | % |
|
| 29 | % |
|
| 22 | % |
For the three and ninesix months ended June 30,March 31, 2021, the (Provision) benefit for income taxes included a net discrete tax benefit of $1 million and a net discrete tax expense of $1 million, respectively. For the three and six months ended March 31, 2020, the (Provision) benefit for income taxes included a net discrete tax benefit of $2$1 million and $14$11 million, respectively. The $14$11 million benefit was comprised of $8$5 million related to changes in uncertain tax positions and $6 million related to the impactsimpact of Switzerland tax reform legislation. Forlegislation in a foreign jurisdiction.
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 threecurrent period ordinary income or loss to determine the income tax provision or benefit allocated to the interim period. The income tax effects of unusual or infrequent items are excluded from the estimated annual effective tax rate and nine months ended June 30, 2019,are recognized in the (Provision)impacted interim period. Losses from jurisdictions for which no benefit for income taxes included a net discretecan be recognized are excluded from the overall computations of the estimated annual effective tax expense of $13 millionrate and a net discreteseparate estimated annual effective tax rate is computed and applied to ordinary income or loss in the loss jurisdiction.
Valuation allowances are provided against the future tax benefits that arise from the deferred tax assets in jurisdictions for which no benefit of $11 million, respectively. Of these amounts, a netcan be recognized. The estimated annual effective tax expense of $17 millionrate may be significantly impacted by nondeductible expenses and a nil amount, respectively,the Company’s projected earnings mix by tax jurisdiction. Adjustments to the estimated annual effective income tax rate are related to U.S. tax reform legislation.recognized in the period when such estimates are revised.
Uncertainties
CabotCabot and certain subsidiaries are under audit in a number of jurisdictions. In addition, certain statutes of limitations are scheduled to expire in the near future. It is reasonably possible that a further change in the unrecognized tax benefits may also occur within the next twelve months related to the settlement of one or more of these audits or the lapse of applicable statutes of limitations. However, an estimated range of the impact on the unrecognized tax benefits cannot be quantified at this time.
Cabot files U.S. federal and state and non-U.S. income tax returns in jurisdictions with varying statutes of limitations. The 20162017 through 2019 tax years generally remain subject to examination by the IRS and various tax years from 2005 through 2019 remain subject to examination by the respective state tax authorities. In significant non-U.S. jurisdictions, various tax years from 2003 through 20192020 remain subject to examination by their respective tax authorities. As of June 30, 2020, Cabot’s significant non-U.S. jurisdictions include Canada, China, France, Germany, Italy, Japan, Switzerland and the Netherlands.
During the three and ninesix months ended June 30, 2020,March 31, 2021, Cabot released uncertain tax positions of $3less than $1 million and $11$1 million, respectively, due to audit settlements and the expiration of statutes of limitations in various jurisdictions. During the three and ninesix months ended June 30, 2019,March 31, 2020, Cabot released uncertain tax positions of $1$2 million and $9$8 million, respectively, due to audit settlements and the expiration of statutes of limitations in various jurisdictions.
J.I. Earnings Per Share
The following tables summarize the components of the basic and diluted earnings (loss) per common share (“EPS”) computations:
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended March 31 |
|
| Six Months Ended March 31 |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
|
| (In millions, except per share amounts) |
|
| (In millions, except per share amounts) |
| ||||||||||||||||||||||||||
Basic EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Cabot Corporation |
| $ | (6 | ) |
| $ | 32 |
|
| $ | 34 |
|
| $ | 124 |
|
| $ | 75 |
|
| $ | (1 | ) |
| $ | 135 |
|
| $ | 40 |
|
Less: Dividends and dividend equivalents to participating securities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Less: Undistributed earnings allocated to participating securities(1) |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
| ||||||||||||||||
Earnings (loss) allocated to common shareholders (numerator) |
| $ | (6 | ) |
| $ | 32 |
|
| $ | 34 |
|
| $ | 124 |
|
| $ | 74 |
|
| $ | (1 | ) |
| $ | 134 |
|
| $ | 40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares and participating securities outstanding |
|
| 57.2 |
|
|
| 59.0 |
|
|
| 57.4 |
|
|
| 59.9 |
|
|
| 57.4 |
|
|
| 57.3 |
|
|
| 57.3 |
|
|
| 57.5 |
|
Less: Participating securities(1) |
|
| 0.7 |
|
|
| 0.8 |
|
|
| 0.7 |
|
|
| 0.8 |
|
|
| 0.8 |
|
|
| 0.7 |
|
|
| 0.7 |
|
|
| 0.8 |
|
Adjusted weighted average common shares (denominator) |
|
| 56.5 |
|
|
| 58.2 |
|
|
| 56.7 |
|
|
| 59.1 |
|
|
| 56.6 |
|
|
| 56.6 |
|
|
| 56.6 |
|
|
| 56.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share - basic: |
| $ | (0.12 | ) |
| $ | 0.55 |
|
| $ | 0.59 |
|
| $ | 2.08 |
|
| $ | 1.31 |
|
| $ | (0.01 | ) |
| $ | 2.37 |
|
| $ | 0.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) allocated to common shareholders |
| $ | (6 | ) |
| $ | 32 |
|
| $ | 34 |
|
| $ | 124 |
|
| $ | 74 |
|
| $ | (1 | ) |
| $ | 134 |
|
| $ | 40 |
|
Plus: Earnings allocated to participating securities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
Less: Adjusted earnings allocated to participating securities(2) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
Earnings (loss) allocated to common shareholders (numerator) |
| $ | (6 | ) |
| $ | 32 |
|
| $ | 34 |
|
| $ | 124 |
|
| $ | 74 |
|
| $ | (1 | ) |
| $ | 134 |
|
| $ | 40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average common shares outstanding |
|
| 56.5 |
|
|
| 58.2 |
|
|
| 56.7 |
|
|
| 59.1 |
|
|
| 56.6 |
|
|
| 56.6 |
|
|
| 56.6 |
|
|
| 56.7 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issuable(3) |
|
| — |
|
|
| 0.2 |
|
|
| — |
|
|
| 0.1 |
|
|
| 0.1 |
|
|
| — |
|
|
| 0.1 |
|
|
| 0.1 |
|
Adjusted weighted average common shares (denominator) |
|
| 56.5 |
|
|
| 58.4 |
|
|
| 56.7 |
|
|
| 59.2 |
|
|
| 56.7 |
|
|
| 56.6 |
|
|
| 56.7 |
|
|
| 56.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share - diluted: |
| $ | (0.12 | ) |
| $ | 0.55 |
|
| $ | 0.59 |
|
| $ | 2.08 |
|
| $ | 1.30 |
|
| $ | (0.01 | ) |
| $ | 2.36 |
|
| $ | 0.70 |
|
(1) | Participating securities consist of shares |
Undistributed earnings are the earnings which remain after dividends declared during the period are assumed to be distributed to the common and participating shareholders. Undistributed earnings are allocated to common and participating shareholders on the same basis as dividend distributions. The calculation of undistributed earnings is as follows:
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended March 31 |
|
| Six Months Ended March 31 |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||||||||||
Calculation of undistributed earnings (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Cabot Corporation |
| $ | (6 | ) |
| $ | 32 |
|
| $ | 34 |
|
| $ | 124 |
|
| $ | 75 |
|
| $ | (1 | ) |
| $ | 135 |
|
| $ | 40 |
|
Less: Dividends declared on common stock |
|
| 20 |
|
|
| 20 |
|
|
| 60 |
|
|
| 60 |
|
|
| 20 |
|
|
| 20 |
|
|
| 40 |
|
|
| 40 |
|
Less: Dividends declared on participating securities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Undistributed earnings (loss) |
| $ | (26 | ) |
| $ | 12 |
|
| $ | (26 | ) |
| $ | 64 |
|
| $ | 55 |
|
| $ | (21 | ) |
| $ | 95 |
|
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of undistributed earnings (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed earnings (loss) allocated to common shareholders |
| $ | (26 | ) |
| $ | 12 |
|
| $ | (26 | ) |
| $ | 64 |
|
| $ | 54 |
|
| $ | (21 | ) |
| $ | 94 |
|
| $ | — |
|
Undistributed earnings allocated to participating shareholders |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
Undistributed earnings (loss) |
| $ | (26 | ) |
| $ | 12 |
|
| $ | (26 | ) |
| $ | 64 |
|
| $ | 55 |
|
| $ | (21 | ) |
| $ | 95 |
|
| $ | — |
|
(2) | Undistributed earnings are adjusted for the assumed distribution of dividends to the dilutive securities, which are described in (3) below, and then reallocated to participating securities. |
(3) | Represents incremental shares of common stock from the (i) assumed exercise of stock options issued under Cabot’s equity incentive plans; and (ii) assumed issuance of shares to employees pursuant to the Company’s Deferred Compensation and Supplemental Retirement Plan. For the |
K.J. Restructuring
Cabot’s restructuring activities were recorded in the Consolidated Statements of Operations in the three and ninesix months ended June 30,March 31, 2021 and 2020 and 2019 as follows:
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended March 31 |
|
| Six Months Ended March 31 |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||||||||||
Cost of sales |
| $ | — |
|
| $ | 2 |
|
| $ | 5 |
|
| $ | 7 |
|
| $ | — |
|
| $ | 4 |
|
| $ | 3 |
|
| $ | 5 |
|
Selling and administrative expenses |
|
| 3 |
|
|
| 2 |
|
|
| 11 |
|
|
| 8 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 8 |
|
Research and technical expenses |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
| ||||||||||||||||
Total |
| $ | 3 |
|
| $ | 4 |
|
| $ | 16 |
|
| $ | 15 |
|
| $ | 1 |
|
| $ | 5 |
|
| $ | 4 |
|
| $ | 13 |
|
Details of all restructuring activities and the related reserves during the three and ninesix months ended June 30, 2020March 31, 2021 were as follows:
|
| Severance and Employee Benefits |
|
| Environmental Remediation |
|
| Accelerated Depreciation and Idle Asset Depreciation |
|
| Other |
|
| Total |
|
| Severance and Employee Benefits |
|
| Environmental Remediation |
|
| Non-cash Asset Impairment |
|
| Other |
|
| Total |
| ||||||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||||||||||||||||||
Reserve at September 30, 2019 |
| $ | 3 |
|
| $ | 4 |
|
| $ | — |
|
| $ | — |
|
| $ | 7 |
| ||||||||||||||||||||
Reserve at September 30, 2020 |
| $ | 5 |
|
| $ | 4 |
|
| $ | — |
|
| $ | — |
|
| $ | 9 |
| ||||||||||||||||||||
Charges (gain) |
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 8 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 1 |
|
|
| 3 |
|
Cost charged against assets |
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| — |
|
|
| (2 | ) | ||||||||||||||||||||
Cash paid |
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| (3 | ) |
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| (3 | ) |
Reserve at December 31, 2019 |
|
| 8 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 12 |
| ||||||||||||||||||||
Reserve at December 31, 2020 |
|
| 3 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 7 |
| ||||||||||||||||||||
Charges (gain) |
|
| 3 |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
|
|
| 5 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
Costs charged against assets / (liabilities) |
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Cash paid |
|
| (5 | ) |
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| (6 | ) |
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
Reserve at March 31, 2020 |
|
| 6 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 10 |
| ||||||||||||||||||||
Charges (gain) |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 3 |
| ||||||||||||||||||||
Cash paid |
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| (4 | ) | ||||||||||||||||||||
Reserve at June 30, 2020 |
| $ | 5 |
|
| $ | 4 |
|
| $ | — |
|
| $ | — |
|
| $ | 9 |
| ||||||||||||||||||||
Reserve at March 31, 2021 |
|
| 2 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
Cabot’s severance and employee benefit reserves and other closure related reserves are reflected in Accounts payable and accrued liabilities on the Company’s Consolidated Balance Sheets. Cabot’s environmental remediation reserves related to restructuring activities are reflected in Other liabilities on the Company’s Consolidated Balance Sheets.
2020 Reorganization
During the first nine months of fiscal 2020, the Company initiated several actions that it believes willto enable the Company to perform certain activities more cost-effectively.cost‐effectively. These actions primarily consistconsisted of the reorganization of Cabot’s leadership structure, the creation of a Global Business Services function and other operational efficiency initiatives. As partA majority of the creation of the Global Business Services function, certain business service activities performed at Cabot’s North American business service center are being consolidated into the Company’s European business service center.these actions were completed in fiscal 2020. During the three and ninesix months ended June 30,March 31, 2020, the Company recorded charges of $3$12 million and $15paid cash of $7 million respectively, forrelated to these actions,activities. As of March 31, 2021, the Company had recorded total charges of $18 million, of which $17 million was recorded in fiscal 2020, primarily related to severance costs. The Company expects to record additional restructuring charges, primarily related to site demolitioncosts, and clearing costs associated with the Company’s other operational efficiency initiatives, of approximately $1 million in fiscal 2020 and $5 million thereafter. Cabot paid approximately $3 million and $10 million related to these activities in the three and nine months ended June 30, 2020, respectively, and expects to pay approximately $3 million in the remainder of fiscal 2020 and $7 million thereafter. As of June 30, 2020, Cabotalso had $5$2 million of accrued severance charges in the Consolidated Balance Sheets related to these actions. The Company expects to record additional restructuring charges of approximately $1 million throughout the rest of fiscal 2021 and $3 million thereafter primarily related to site demolition costs associated with the reorganization. As of March 31, 2021, the Company had paid a total of $15 million in cash, of which $13 million was paid in fiscal 2020, and expects to have future cash outlays of approximately $2 million in the remainder of fiscal 2021 and $4 million thereafter related to the reorganization.
Purification Solutions Transformation Plan
In December 2018, the Company initiated a transformation plan to improve the long-termlong‐term performance of the Purification Solutions segment. The purpose of the plan is to focus the business’s product portfolio, optimize its manufacturing assets, and streamline its organizational structure to support the new focus. TheAs of March 31, 2021, the Company expects to recordhad recorded total charges of $10$14 million related tofor this plan, of which approximately $9$11 million was recorded in prior fiscal 2019, comprised of severance, employee benefits and professional service fees. The Company recorded nominal charges in the three months ended June 30, 2020 and $1 million of charges in the nine months ended June 30, 2020. The Company recorded charges of less than $1 million and $9 million in the three and nine months ended June 30, 2019, respectively. The Company expects to record nominal charges in the futureyears, primarily related to this plan. Cabot paid approximately $9 million related to these activities through June 30, 2020, $8 million of which was paid in fiscal 2019,severance costs, and expects to pay $1 million in the remainder of fiscal 2020. As of June 30, 2020, Cabotalso had less than $1 million of accrued severance and other employee benefit charges in the Consolidated Balance Sheets related to these actions. The Company expects to record additional restructuring charges of approximately $2 million throughout the rest of fiscal 2021 and $1 million thereafter primarily related to decommissioning costs associated with the business’s manufacturing facility in Marshall, Texas. As of March 31, 2021, the Company has paid a total of $11 million in cash for this plan, of which $9 million was paid in prior fiscal years, and expects to have future cash outlays of approximately $2 million in the remainder of fiscal 2021 and $2 million thereafter related to this plan.
L.
K. Financial Instruments and Fair Value Measurements
The FASB authoritative guidance on fair value measurements defines fair value, provides a framework for measuring fair value, and requires certain disclosures about fair value measurements. The required disclosures focus on the inputs used to measure fair value. The guidance establishes the following hierarchy for categorizing these inputs:
Level 1 |
| — |
| Quoted market prices in active markets for identical assets or liabilities |
|
|
|
|
|
Level 2 |
| — |
| Significant other observable inputs (e.g., quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs) |
|
|
|
|
|
Level 3 |
| — |
| Significant unobservable inputs |
There were 0 transfers of financial assets or liabilities measured at fair value between Level 1 and Level 2 and there were no Level 3 investments during the first ninesix months of either fiscal 20202021 or 2019.2020.
At June 30, 2020March 31, 2021 and September 30, 2019,2020, Cabot had derivatives relating to foreign currency risks, including a net investment hedge and forward foreign currency contracts, carried at fair value. At JuneMarch 31, 2021, the fair value of these derivatives was a net liability of $21 million and was included in Prepaid expenses and other current assets and Other liabilities on the Consolidated Balance Sheets. At September 30, 2020, the fair value of these derivatives was a net asset of $10 million and was included in Prepaid expenses and other current assets, Accounts payable and accrued liabilities, and Other assets on the Consolidated Balance Sheets. At September 30, 2019, the fair value of these derivatives was a net assetliability of $1 million and was included in Prepaid expenses and other current assets and Other assetsliabilities on the Consolidated Balance Sheets. These derivatives are classified as Level 2 instruments within the fair value hierarchy as the fair value determination was based on observable inputs.
At June 30, 2020each of March 31, 2021 and September 30, 2019,2020, the fair value of guaranteed investment contracts, included in Other assets on the Consolidated Balance Sheets was $11 million and $10 million, respectively.million. Guaranteed investment contracts were classified as Level 2 instruments within the fair value hierarchy as the fair value determination was based on other observable inputs.
At June 30, 2020March 31, 2021 and September 30, 2019,2020, the fair values of cash and cash equivalents, accounts and notes receivable, accounts payable and accrued liabilities, and short-term borrowings and variable rate debt approximated their carrying values due to the short-term nature of these instruments. The carrying value and fair value of the long-term fixed rate debt were $1.15$1.07 billion and $1.27$1.14 billion, respectively, as of June 30, 2020,March 31, 2021, and $1.03$1.08 billion and $1.10$1.18 billion, respectively, as of September 30, 2019.2020. The fair values of Cabot’s fixed rate long-term debt are estimated based on comparable quoted market prices at the respective period ends. The carrying amounts of Cabot’s floating rate long-term debt and finance and operating lease obligations approximate their fair values. All such measurements are based on observable inputs and are classified as Level 2 within the fair value hierarchy. The valuation technique used is the discounted cash flow model.
M.L. Derivatives
Foreign Currency Risk Management
Cabot’s international operations are subject to certain risks, including currency exchange rate fluctuations and government actions. Cabot endeavors to match the currency in which debt is issued to the currency of the Company’s major, stable cash receipts. In some situations, Cabot has issued debt denominated in U.S. dollars and then entered into cross-currency swaps that exchange the dollar principal and interest payments into Euro-denominated principal and interest payments.
Additionally, the Company has foreign currency exposure arising from its net investments in foreign operations. Cabot may enter into cross-currency swaps to mitigate the impact of currency rate changes on the Company’s net investments.
The Company also has foreign currency exposure arising from the denomination of monetary assets and liabilities in foreign currencies other than the functional currency of a given subsidiary as well as the risk that currency fluctuations could affect the dollar value of future cash flows generated in foreign currencies. Accordingly, Cabot uses short-term forward contracts to minimize the exposure to foreign currency risk. In certain situations where the Company has forecasted purchases under a long-term commitment or forecasted sales denominated in a foreign currency, Cabot may enter into appropriate financial instruments in accordance with the Company’s risk management policy to hedge future cash flow exposures.
The following table provides details of the derivatives held as of June 30, 2020March 31, 2021 and September 30, 20192020 to manage foreign currency risk.
|
|
|
| Notional Amount |
|
| ||
Description |
| Borrowing |
|
|
| September 30, |
| Hedge Designation |
Cross-Currency Swaps |
| 3.4% Notes |
| USD 250 million swapped to EUR 223 million |
| USD 250 million swapped to EUR 223 million |
| Net investment |
Forward Foreign Currency Contracts (1) |
| N/A |
| USD |
| USD 54 million |
| No designation |
(1) | As of March 31, 2021, Cabot’s forward foreign exchange contracts |
Accounting for Derivative Instruments and Hedging Activities
The Company has cross-currency swaps with a notional amount of $250 million, which are designated as hedges of its net investments in certain Euro-denominated subsidiaries. Cash settlements occur semi-annually on March 15th and September 15th for fixed rate interest payments and a cash exchange of the notional currency amount will occur at the end of the term in 2026. As of June 30, 2020,March 31, 2021, the fair value of these swaps was a net assetliability of $10$21 million and was included in Prepaid expenses and other current assets and Other assetsliabilities and the cumulative gainloss of $13$17 million was included in AOCI on the Consolidated Balance Sheets. As of September 30, 2019,2020, the fair value of these swaps was a net assetliability of $1 million and was included in Prepaid expenses and other current assets and Other assetsLiabilities, and the cumulative gain of $5$2 million was included in AOCI on the Consolidated Balance Sheets.
The following table summarizes the impact of the cross-currency swaps to AOCI and the Consolidated Statements of Operations:
|
| Three Months Ended June 30 |
|
| Three Months Ended March 31 |
| ||||||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||||||
Description |
| Gain/(Loss) Recognized in AOCI |
|
| (Gain)/Loss Reclassified from AOCI into Interest Expense in the Consolidated Statements of Operations |
|
| (Gain)/Loss Recognized in Interest Expense in the Consolidated Statements of Operations (Amount Excluded from Effectiveness Testing) |
|
| Gain/(Loss) Recognized in AOCI |
|
| (Gain)/Loss Reclassified from AOCI into Interest Expense in the Consolidated Statements of Operations |
|
| (Gain)/Loss Recognized in Interest Expense in the Consolidated Statements of Operations (Amount Excluded from Effectiveness Testing) |
| ||||||||||||||||||||||||||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||||||||||||||||||||||||||
Cross-currency swaps |
| $ | 1 |
|
| $ | (1 | ) |
| $ | (2 | ) |
| $ | (1 | ) |
| $ | — |
|
| $ | — |
|
| $ | (5 | ) |
| $ | 14 |
|
| $ | (2 | ) |
| $ | (2 | ) |
| $ | 1 |
|
| $ | 1 |
|
|
| Six Months Ended March 31 |
| |||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||
Description |
| Gain/(Loss) Recognized in AOCI |
|
| (Gain)/Loss Reclassified from AOCI into Interest Expense in the Consolidated Statements of Operations |
|
| (Gain)/Loss Recognized in Interest Expense in the Consolidated Statements of Operations (Amount Excluded from Effectiveness Testing) |
| |||||||||||||||
|
| (In millions) |
| |||||||||||||||||||||
Cross-currency swaps |
| $ | (18 | ) |
| $ | 10 |
|
| $ | (3 | ) |
| $ | (3 | ) |
| $ | 1 |
|
| $ | 1 |
|
|
| Nine Months Ended June 30 |
| |||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
Description |
| Gain/(Loss) Recognized in AOCI |
|
| (Gain)/Loss Reclassified from AOCI into Interest Expense in the Consolidated Statements of Operations |
|
| (Gain)/Loss Recognized in Interest Expense in the Consolidated Statements of Operations (Amount Excluded from Effectiveness Testing) |
| |||||||||||||||
|
| (In millions) |
| |||||||||||||||||||||
Cross-currency swaps |
| $ | 11 |
|
| $ | 12 |
|
| $ | (4 | ) |
| $ | (4 | ) |
| $ | 1 |
|
| $ | 1 |
|
Other Derivative Instruments
From time to time, the Company may enter into certain derivative instruments that may not be designated as hedges for accounting purposes, which may include cross-currency swaps, foreign currency forward contracts and commodity derivatives. For cross-currency swaps and foreign currency forward contracts not designated as hedges, the Company uses standard models with market-based inputs. The significant inputs to these models are interest rate curves for discounting future cash flows, and exchange rate curves of the foreign currency for translating future cash flows. In determining the fair value of the commodity derivatives, the significant inputs to valuation models are quoted market prices of similar instruments in active markets. Although these derivatives do not qualify for hedge accounting, Cabot believes that such instruments are closely correlated with the underlying exposure, thus managing the associated risk. The gains or losses from changes in the fair value of derivative instruments that are not accounted for as hedges are recognized in current period earnings.
At both June 30, 2020 and September 30, 2019, the fair value of derivative instruments not designated as hedges were nominal, and these instruments were presented in Prepaid expenses and other current assets and Accounts payable and accrued liabilities on the Consolidated Balance Sheets.
N.M. Financial Information by Segment
The Company identifies a business as an operating segment if: (i) it engages in business activities from which it may earn revenues and incur expenses; (ii) its operating results are regularly reviewed by the Chief Operating Decision Maker (“CODM”), who is Cabot’s President and Chief Executive Officer, to make decisions about resources to be allocated to the segment and assess its performance; and (iii) it has available discrete financial information. The Company has determined that all of its businesses are operating segments. The CODM reviews financial information at the operating segment level to allocate resources and to assess the operating results and financial performance for each operating segment. Operating segments are aggregated into a reportable segment if the operating segments are determined to have similar economic characteristics and if the operating segments are similar in the following areas: (i) nature of products and services; (ii) nature of production processes; (iii) type or class of customer for their products and services; (iv) methods used to distribute the products or provide services; and (v) if applicable, the nature of the regulatory environment.
The Company has 3 reportable segments: Reinforcement Materials, Performance Chemicals, and Purification Solutions. The Company’s former Specialty Fluids business was a separate reporting segment prior to divestiture in the third quarter of fiscal 2019.
The Reinforcement Materials segment consists of the rubber blacks and elastomer composites product lines.
The Performance Chemicals segment combines the specialty carbons, fumed metal oxides and aerogel product lines into the Performance Additives business, and combines the specialty compounds and inkjet colorants product lines into the Formulated Solutions business. These businesses are similar in terms of economic characteristics, nature of products, processes, customer class and product distribution methods, and, therefore, have been aggregated into 1 reportable segment. The net sales from each of these businesses for the three and ninesix months ended June 30,March 31, 2021 and 2020 and 2019 were as follows:
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended March 31 |
|
| Six Months Ended March 31 |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||||||||||
Performance Additives |
| $ | 151 |
|
| $ | 172 |
|
| $ | 489 |
|
| $ | 518 |
|
| $ | 203 |
|
| $ | 168 |
|
| $ | 387 |
|
| $ | 338 |
|
Formulated Solutions |
|
| 69 |
|
|
| 79 |
|
|
| 218 |
|
|
| 218 |
|
|
| 91 |
|
|
| 77 |
|
|
| 174 |
|
|
| 149 |
|
Total Performance Chemicals |
| $ | 220 |
|
| $ | 251 |
|
| $ | 707 |
|
| $ | 736 |
|
| $ | 294 |
|
| $ | 245 |
|
| $ | 561 |
|
| $ | 487 |
|
The Purification Solutions segment consists of the Company’s activated carbon business.
Income (loss) before income taxes (“Segment EBIT”) is presented for each reportable segment in the table below. Segment EBIT excludes Interest expense, general unallocated income (expense), unallocated corporate costs, and certain items, meaning items management does not consider representative of on-going operating segment results. In addition, Segment EBIT includes Equity in earnings of affiliated companies, net of tax, the full operating results of a contractual joint venture in Purification Solutions, royalties, Net income attributable to noncontrolling interests, net of tax, and discounting charges for certain Notes receivable.
Financial information by reportable segment is as follows:
|
| Reinforcement Materials |
|
| Performance Chemicals |
|
| Purification Solutions |
|
| Specialty Fluids(1) |
|
| Segment Total |
|
| Unallocated and Other(2) |
|
| Consolidated Total |
| |||||||
|
| (In millions) |
| |||||||||||||||||||||||||
Three Months Ended June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers(3) |
| $ | 197 |
|
| $ | 220 |
|
| $ | 63 |
|
| $ | — |
|
| $ | 480 |
|
| $ | 38 |
|
| $ | 518 |
|
Income (loss) before income taxes(4) |
| $ | (5 | ) |
| $ | 21 |
|
| $ | 2 |
|
| $ | — |
|
| $ | 18 |
|
| $ | (29 | ) |
| $ | (11 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers(3) |
| $ | 461 |
|
| $ | 251 |
|
| $ | 73 |
|
| $ | 13 |
|
| $ | 798 |
|
| $ | 47 |
|
| $ | 845 |
|
Income (loss) before income taxes(4) |
| $ | 72 |
|
| $ | 37 |
|
| $ | 1 |
|
| $ | 2 |
|
| $ | 112 |
|
| $ | (43 | ) |
| $ | 69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers(3) |
| $ | 931 |
|
| $ | 707 |
|
| $ | 186 |
|
| $ | — |
|
| $ | 1,824 |
|
| $ | 131 |
|
| $ | 1,955 |
|
Income (loss) before income taxes(4) |
| $ | 103 |
|
| $ | 93 |
|
| $ | 3 |
|
| $ | — |
|
| $ | 199 |
|
| $ | (148 | ) |
| $ | 51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers(3) |
| $ | 1,363 |
|
| $ | 736 |
|
| $ | 210 |
|
| $ | 56 |
|
| $ | 2,365 |
|
| $ | 145 |
|
| $ | 2,510 |
|
Income (loss) before income taxes(4) |
| $ | 195 |
|
| $ | 111 |
|
| $ | (1 | ) |
| $ | 24 |
|
| $ | 329 |
|
| $ | (141 | ) |
| $ | 188 |
|
|
| Reinforcement Materials |
|
| Performance Chemicals |
|
| Purification Solutions |
|
| Segment Total |
|
| Unallocated and Other(1) |
|
| Consolidated Total |
| ||||||
|
| (In millions) |
| |||||||||||||||||||||
Three Months Ended March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers(2) |
| $ | 434 |
|
| $ | 294 |
|
| $ | 63 |
|
| $ | 791 |
|
| $ | 51 |
|
| $ | 842 |
|
Income (loss) before income taxes(3) |
| $ | 89 |
|
| $ | 58 |
|
| $ | 2 |
|
| $ | 149 |
|
| $ | (31 | ) |
| $ | 118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers(2) |
| $ | 355 |
|
| $ | 245 |
|
| $ | 64 |
|
| $ | 664 |
|
| $ | 46 |
|
| $ | 710 |
|
Income (loss) before income taxes(3) |
| $ | 61 |
|
| $ | 31 |
|
| $ | 3 |
|
| $ | 95 |
|
| $ | (83 | ) |
| $ | 12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers(2) |
| $ | 809 |
|
| $ | 561 |
|
| $ | 122 |
|
| $ | 1,492 |
|
| $ | 96 |
|
| $ | 1,588 |
|
Income (loss) before income taxes(3) |
| $ | 177 |
|
| $ | 112 |
|
| $ | — |
|
| $ | 289 |
|
| $ | (72 | ) |
| $ | 217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers(2) |
| $ | 734 |
|
| $ | 487 |
|
| $ | 123 |
|
| $ | 1,344 |
|
| $ | 93 |
|
| $ | 1,437 |
|
Income (loss) before income taxes(3) |
| $ | 108 |
|
| $ | 72 |
|
| $ | 1 |
|
| $ | 181 |
|
| $ | (119 | ) |
| $ | 62 |
|
|
|
| Unallocated and Other includes certain items and eliminations necessary to reflect management’s reporting of operating segment results. These items are reflective of the segment reporting presented to the CODM. |
( | Consolidated Total Revenues from external customers reconciles to Net sales and other operating revenues on the Consolidated Statements of Operations. Revenues from external customers that are categorized as Unallocated and Other reflects royalties, external shipping and handling fees, the impact of unearned revenue, the removal of 100% of the sales of an equity method affiliate, discounting charges for certain Notes receivable, and by-product revenue. Details are provided in the table below: |
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended March 31 |
|
| Six Months Ended March 31 |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||||||||||
Royalties, the impact of unearned revenue, the removal of 100% of the sales of an equity method affiliate and discounting charges for certain notes receivable |
| $ | 4 |
|
| $ | (3 | ) |
| $ | 2 |
|
| $ | (9 | ) |
| $ | (5 | ) |
| $ | (1 | ) |
| $ | (10 | ) |
| $ | (2 | ) |
Shipping and handling fees |
|
| 22 |
|
|
| 32 |
|
|
| 83 |
|
|
| 96 |
|
|
| 38 |
|
|
| 30 |
|
|
| 71 |
|
|
| 61 |
|
By-product sales |
|
| 12 |
|
|
| 18 |
|
|
| 46 |
|
|
| 58 |
|
|
| 18 |
|
|
| 17 |
|
|
| 35 |
|
|
| 34 |
|
Total |
| $ | 38 |
|
| $ | 47 |
|
| $ | 131 |
|
| $ | 145 |
|
| $ | 51 |
|
| $ | 46 |
|
| $ | 96 |
|
| $ | 93 |
|
( | Consolidated Total Income (loss) before income taxes reconciles to Income (loss) before income taxes and equity in earnings of affiliated companies on the Consolidated Statements of Operations. Income (loss) before income taxes that are categorized as Unallocated and Other includes: |
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended March 31 |
|
| Six Months Ended March 31 |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||||||||||
Interest expense |
| $ | (13 | ) |
| $ | (14 | ) |
| $ | (41 | ) |
| $ | (43 | ) |
| $ | (13 | ) |
| $ | (14 | ) |
| $ | (25 | ) |
| $ | (28 | ) |
Certain items(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee benefit plan settlement and other charges (Note D) |
|
| 1 |
|
|
| (1 | ) |
|
| (5 | ) |
|
| (3 | ) | ||||||||||||||||
Global restructuring activities (Note J) |
|
| (1 | ) |
|
| (5 | ) |
|
| (4 | ) |
|
| (13 | ) | ||||||||||||||||
Acquisition and integration-related charges |
|
| (1 | ) |
|
| (1 | ) |
|
| (2 | ) |
|
| (2 | ) | ||||||||||||||||
Legal and environmental matters and reserves |
|
| (1 | ) |
|
| — |
|
|
| (51 | ) |
|
| (1 | ) |
|
| — |
|
|
| (51 | ) |
|
| — |
|
|
| (50 | ) |
Global restructuring activities (Note K) |
|
| (3 | ) |
|
| (4 | ) |
|
| (16 | ) |
|
| (15 | ) | ||||||||||||||||
Employee benefit plan settlements |
|
| (2 | ) |
|
| — |
|
|
| (5 | ) |
|
| 3 |
| ||||||||||||||||
Acquisition and integration-related charges |
|
| (1 | ) |
|
| (1 | ) |
|
| (3 | ) |
|
| (5 | ) | ||||||||||||||||
Specialty Fluids loss on sale and asset impairment charges |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) | ||||||||||||||||
Indirect tax settlement credits |
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 3 |
|
Specialty Fluids loss on sale and asset impairment charge (Note C) |
|
| — |
|
|
| (8 | ) |
|
| (1 | ) |
|
| (28 | ) | ||||||||||||||||
Equity affiliate investment impairment charge |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11 | ) | ||||||||||||||||
Other |
|
| — |
|
|
| (1 | ) |
|
| (1 | ) |
|
| (4 | ) |
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| (1 | ) |
Total certain items, pre-tax |
|
| (7 | ) |
|
| (14 | ) |
|
| (74 | ) |
|
| (61 | ) |
|
| (1 | ) |
|
| (56 | ) |
|
| (12 | ) |
|
| (67 | ) |
Unallocated corporate costs(b) |
|
| (10 | ) |
|
| (14 | ) |
|
| (32 | ) |
|
| (39 | ) |
|
| (16 | ) |
|
| (12 | ) |
|
| (29 | ) |
|
| (22 | ) |
General unallocated income (expense)(c) |
|
| 2 |
|
|
| — |
|
|
| 1 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| (1 | ) |
Less: Equity in earnings of affiliated companies, net of tax(d) |
|
| 1 |
|
|
| 1 |
|
|
| 2 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
Total |
| $ | (29 | ) |
| $ | (43 | ) |
| $ | (148 | ) |
| $ | (141 | ) |
| $ | (31 | ) |
| $ | (83 | ) |
| $ | (72 | ) |
| $ | (119 | ) |
| (a) | Certain items are items of expense and income that management does not consider representative of the Company’s fundamental on-going segment results and they are, therefore, excluded from Segment EBIT. |
| (b) | Unallocated corporate costs are costs that are not controlled by the segments and primarily benefit corporate interests. |
| (c) | 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. |
| (d) | Equity in earnings of affiliated companies, net of tax, is included in Segment EBIT and is removed in Unallocated and other to reconcile to Income (loss) from operations before income taxes and equity in earnings from affiliated companies. |
The Company’s segments operate globally. In addition to presenting Revenue from external customers by reportable segment, the following tables further disaggregate Revenues from external customers by geographic region.
|
| Three Months Ended March 31, 2021 |
| |||||||||||||
|
| Reinforcement Materials |
|
| Performance Chemicals |
|
| Purification Solutions |
|
| Consolidated Total |
| ||||
|
| (In millions) |
| |||||||||||||
Americas |
| $ | 163 |
|
| $ | 78 |
|
| $ | 26 |
|
| $ | 267 |
|
Asia Pacific |
|
| 185 |
|
|
| 122 |
|
|
| 9 |
|
|
| 316 |
|
Europe, Middle East and Africa |
|
| 86 |
|
|
| 94 |
|
|
| 28 |
|
|
| 208 |
|
Segment revenues from external customers |
|
| 434 |
|
|
| 294 |
|
|
| 63 |
|
|
| 791 |
|
Unallocated and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 51 |
|
Net sales and other operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 842 |
|
|
| Three Months Ended June 30, 2020 |
|
| Three Months Ended March 31, 2020 |
| ||||||||||||||||||||||||||
|
| Reinforcement Materials |
|
| Performance Chemicals |
|
| Purification Solutions |
|
| Consolidated Total |
|
| Reinforcement Materials |
|
| Performance Chemicals |
|
| Purification Solutions |
|
| Consolidated Total |
| ||||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||||||||||
Americas |
| $ | 59 |
|
| $ | 54 |
|
| $ | 28 |
|
| $ | 141 |
|
| $ | 154 |
|
| $ | 76 |
|
| $ | 29 |
|
| $ | 259 |
|
Asia Pacific |
|
| 106 |
|
|
| 98 |
|
|
| 8 |
|
|
| 212 |
|
|
| 122 |
|
|
| 79 |
|
|
| 9 |
|
|
| 210 |
|
Europe, Middle East and Africa |
|
| 32 |
|
|
| 68 |
|
|
| 27 |
|
|
| 127 |
|
|
| 79 |
|
|
| 90 |
|
|
| 26 |
|
|
| 195 |
|
Segment revenues from external customers |
|
| 197 |
|
|
| 220 |
|
|
| 63 |
|
|
| 480 |
|
|
| 355 |
|
|
| 245 |
|
|
| 64 |
|
|
| 664 |
|
Unallocated and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 46 |
|
Net sales and other operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 710 |
|
|
| Six Months Ended March 31, 2021 |
| |||||||||||||
|
| Reinforcement Materials |
|
| Performance Chemicals |
|
| Purification Solutions |
|
| Consolidated Total |
| ||||
|
| (In millions) |
| |||||||||||||
Americas |
| $ | 312 |
|
| $ | 147 |
|
| $ | 51 |
|
| $ | 510 |
|
Asia Pacific |
|
| 340 |
|
|
| 240 |
|
|
| 18 |
|
|
| 598 |
|
Europe, Middle East and Africa |
|
| 157 |
|
|
| 174 |
|
|
| 53 |
|
|
| 384 |
|
Segment revenues from external customers |
|
| 809 |
|
|
| 561 |
|
|
| 122 |
|
|
| 1,492 |
|
Unallocated and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 96 |
|
Net sales and other operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,588 |
|
|
| Six Months Ended March 31, 2020 |
| |||||||||||||
|
| Reinforcement Materials |
|
| Performance Chemicals |
|
| Purification Solutions |
|
| Consolidated Total |
| ||||
|
| (In millions) |
| |||||||||||||
Americas |
| $ | 295 |
|
| $ | 152 |
|
| $ | 55 |
|
| $ | 502 |
|
Asia Pacific |
|
| 292 |
|
|
| 173 |
|
|
| 18 |
|
|
| 483 |
|
Europe, Middle East and Africa |
|
| 147 |
|
|
| 162 |
|
|
| 50 |
|
|
| 359 |
|
Segment revenues from external customers |
|
| 734 |
|
|
| 487 |
|
|
| 123 |
|
|
| 1,344 |
|
Unallocated and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 93 |
|
Net sales and other operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,437 |
|
|
| Three Months Ended June 30, 2019 |
| |||||||||||||||||
|
| Reinforcement Materials |
|
| Performance Chemicals |
|
| Purification Solutions |
|
| Specialty Fluids |
|
| Consolidated Total |
| |||||
|
| (In millions) |
| |||||||||||||||||
Americas |
| $ | 179 |
|
| $ | 69 |
|
| $ | 33 |
|
| $ | 2 |
|
| $ | 283 |
|
Asia Pacific |
|
| 191 |
|
|
| 93 |
|
|
| 10 |
|
|
| — |
|
|
| 294 |
|
Europe, Middle East and Africa |
|
| 91 |
|
|
| 89 |
|
|
| 30 |
|
|
| 11 |
|
|
| 221 |
|
Segment revenues from external customers |
|
| 461 |
|
|
| 251 |
|
|
| 73 |
|
|
| 13 |
|
|
| 798 |
|
Unallocated and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 47 |
|
Net sales and other operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 845 |
|
|
| Nine Months Ended June 30, 2020 |
| |||||||||||||
|
| Reinforcement Materials |
|
| Performance Chemicals |
|
| Purification Solutions |
|
| Consolidated Total |
| ||||
|
| (In millions) |
| |||||||||||||
Americas |
| $ | 354 |
|
| $ | 206 |
|
| $ | 83 |
|
| $ | 643 |
|
Asia Pacific |
|
| 398 |
|
|
| 271 |
|
|
| 26 |
|
|
| 695 |
|
Europe, Middle East and Africa |
|
| 179 |
|
|
| 230 |
|
|
| 77 |
|
|
| 486 |
|
Segment revenues from external customers |
|
| 931 |
|
|
| 707 |
|
|
| 186 |
|
|
| 1,824 |
|
Unallocated and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 131 |
|
Net sales and other operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,955 |
|
|
| Nine Months Ended June 30, 2019 |
| |||||||||||||||||
|
| Reinforcement Materials |
|
| Performance Chemicals |
|
| Purification Solutions |
|
| Specialty Fluids |
|
| Consolidated Total |
| |||||
|
| (In millions) |
| |||||||||||||||||
Americas | �� | $ | 515 |
|
| $ | 222 |
|
| $ | 93 |
|
| $ | 6 |
|
| $ | 836 |
|
Asia Pacific |
|
| 573 |
|
|
| 253 |
|
|
| 26 |
|
|
| 1 |
|
|
| 853 |
|
Europe, Middle East and Africa |
|
| 275 |
|
|
| 261 |
|
|
| 91 |
|
|
| 49 |
|
|
| 676 |
|
Segment revenues from external customers |
|
| 1,363 |
|
|
| 736 |
|
|
| 210 |
|
|
| 56 |
|
|
| 2,365 |
|
Unallocated and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 145 |
|
Net sales and other operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 2,510 |
|
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Critical Accounting Policies
Our critical accounting policies have not substantially changed from those described in the 20192020 10-K.
Recently Issued Accounting Pronouncements
Refer to the discussion under the headings “Recently Adopted Accounting Standards” and “Recent Accounting Pronouncements” in Note B of our Notes to the Consolidated Financial Statements.
Results of Operations
Cabot wasis organized into fourthree reportable business segments through June 28, 2019:segments: Reinforcement Materials, Performance Chemicals, and Purification Solutions and Specialty Fluids. The Specialty Fluids business was divested as of June 28, 2019 and since that time Cabot has been organized into the three remaining reportable business segments.Solutions. Cabot is also organized for operational purposes into three geographic regions: the Americas; Europe, Middle East and Africa; and Asia Pacific. The discussion of our results of operations for the periods presented reflectreflects these structures.
Our analysis of our financial condition and operating results should be read with our consolidated financial statements and accompanying notes.
Definition of Terms and Non-GAAP Financial Measures
When discussing our results of operations, we use several terms as described below.
The term “product mix” refers to the mix of types and grades 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 and/or segment.
Our discussion under the heading “(Provision) Benefit for Income Taxes and Reconciliation of Effective Tax Rate to Operating Tax Rate” includes a discussion and reconciliation of our “effective tax rate” and our “operating tax rate” for the periods presented, as well as management’s projection of our operating tax rate range for the full fiscal year. Our operating tax rate is a non-GAAP financial measure and should not be considered as an alternative to our effective tax rate, the most comparable GAAP financial measure. In calculating our operating tax rate, we exclude discrete tax items, which include: (i) unusual or infrequent items, such as a significant release or establishment of a valuation allowance, (ii) items related to uncertain tax positions, such as the tax impact of audit settlements, interest on tax reserves, and the release of tax reserves from the expiration of statutes of limitations, and (iii) other discrete tax items, such as the tax impact of legislative changes and, on a quarterly basis, the timing of losses in certain jurisdictions and the cumulative rate adjustment, if applicable. We also exclude the tax impact of certain items, as defined below in the discussion of Total segment EBIT, on both operating income and the tax provision. When the tax impact of a certain item is also a discrete tax item, it is classified as a certain item for our definition of operating tax rate. Our definition of the operating tax rate may not be comparable to the definition used by other companies. Management believes that this non-GAAP financial measure 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.
Our discussion under the heading “Third“Second Quarter and First Nine Months of Fiscal 20202021 versus ThirdSecond Quarter and First Nine Months of Fiscal 2019—2020—By Business Segment” includes a discussion of Total segment EBIT, which is a non-GAAP financial measure defined as Income (loss) before income taxes and equity in earnings from affiliated companies less certain items and other unallocated items. Our Chief Operating Decision Maker, who is our President and Chief Executive Officer, uses segment EBIT to evaluate the operating results of each segment and to allocate resources to the segments. We believe Total segment EBIT, which reflects the sum of EBIT from our reportable segments, provides useful supplemental information for our investors as it is an important indicator of our operational strength and performance, allows investors to see our results through the eyes of management, and provides context for our discussion of individual business segment performance. Total segment EBIT should not be considered an alternative for Income (loss) before income taxes and equity in earnings of affiliated companies, which is the most directly comparable GAAP financial measure. A reconciliation of Total segment EBIT to Income (loss) before income taxes and equity in earnings of affiliated companies is provided under the heading “Third“Second quarter of Fiscal 20202021 versus ThirdSecond quarter of Fiscal 2019—2020—By Business Segment”. Investors should consider the limitations associated with this non-GAAP measure, including the potential lack of comparability of this measure from one company to another.
In calculating Total segment EBIT, we exclude from our Income (loss) before income taxes and equity in earnings of affiliated companies (i) items of expense and income that management does not consider representative of our fundamental on-going segment results, which we refer to as “certain items”, and (ii) 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 special projects and initiatives, which we refer to as “other unallocated items”. Management believes excluding the items identified as certain 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 also facilitates an evaluation of our operating performance without the impact of these costs or benefits. The items of income and expense that we exclude from Total segment EBIT but that are included in our GAAP Income (loss) before income taxes and equity in earnings of affiliated companies, as applicable in a particular reporting period, include, but are not limited to, the following:
| • | Asset impairment charges, which primarily include charges associated with an impairment of goodwill or other long-lived assets. |
| • | Inventory reserve adjustment, which generally result from an evaluation performed as part of an impairment analysis. |
| • | 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. |
| • | Indirect tax settlement credits, which includes favorable settlements resulting in the recoveries of indirect taxes. |
| • | 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 our processes. |
| • | Legal and environmental matters and reserves, 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. |
| • | Gains (losses) on sale of investments, which primarily relate to the sale of investments accounted for using the cost method. |
| • | Gains (losses) on sale of businesses. |
| • | Non-recurring gains (losses) on foreign exchange, which primarily relate to the impact of controlled currency devaluations on our net monetary assets denominated in that currency. |
| • | 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. |
| • | Employee benefit plan settlements, which consist of either charges or benefits associated with the termination of a pension plan or the transfer of a pension plan to a multi-employer plan. |
Overview
DuringOur business, results of operations and cash flows in fiscal 2020 were adversely affected by the COVID-19 pandemic and its impact on our customers and our operations, predominately in the second and third fiscal quarters. As our customers in China began to restart operations at the end of March 2020, and in the Americas and Europe in May and June 2020, demand for our products began to improve. This recovery continued into the fourth quarter of fiscal 2020, and by October 2020, our volumes had largely recovered from the COVID-related lows we experienced in fiscal 2020. We saw further strengthening of demand in the first half of 2021 as the recovery was also complemented by replenishment of stocks in the value chain, particularly in our Performance Chemicals segment, following the depletion of inventory levels in the value chain during fiscal 2020.
Despite this improvement in demand for our products, the duration and scope of the COVID-19 pandemic continues to be uncertain. Infection rates remain high in many parts of the world, and the level and timing of COVID-19 vaccine distribution across the world will impact the economic recovery and growth. Additionally, if there is a resurgence in the COVID-19 pandemic impacting our business, it could cause us to recognize write-downs or impairments for certain assets, or a reduction in our borrowing availability under our credit agreements. These factors could also result in an adverse impact on our revenue as well as our overall profitability. In addition, the COVID-19 pandemic is having a negative impact on the cost and availability of global transportation and the availability of semi-conductor chips for the automotive industry. If these global logistics challengesor the semi-conductor chip shortage persist or intensify, they could negatively impact the results of our Performance Chemicals segment.
During the second quarter of fiscal 2021, Income (loss) before income taxes and equity in earnings of affiliated companies decreasedincreased compared to the thirdsecond quarter of fiscal 2019.2020. The decrease primarily reflectsincrease is driven by the decreaseincrease in Total Segmentsegment EBIT of $94 million. Total Segment EBIT$54 million and a $50 million charge in the third quarter of fiscal 2019 included $2 million2020 related to our Specialty Fluids business, which we divesteda legal settlement. The increase in the third quarter of fiscal 2019. Excluding the impact from the divestiture of our Specialty Fluids business, Total Segmentsegment EBIT decreased $92 millionwas driven by lowerhigher volumes in all segments and lower margins in Reinforcement Materials and Performance Chemicals partially offset by lower fixed costs due to cost reduction activities.
COVID-19Impact and Outlookhigher unit margins primarily in Performance Chemicals.
In December 2019, a novel coronavirus disease (“COVID-19”) was first reported and in January 2020, the World Health Organization (“WHO”) declared it a Public Health Emergency of International Concern. On March 11, 2020, the WHO characterized COVID-19 as a global pandemic, due to the continued increase in the number of cases and affected countries. In an effort to contain COVID-19 or slow its spread, governments around the world enacted various measures, including orders to close all businesses not deemed “essential,” isolate residents in their places of residence, and practice social distancing when engaging in essential activities. The coronavirus pandemic and the associated containment efforts have had a serious adverse impact on the economy, the severity and duration of which are uncertain. Government stabilization efforts will only partially mitigate the consequences.
The coronavirus pandemic has adversely affected and is expected to continue to adversely affect, our business, results of operations and cash flows. While most of our facilities have remained open given the “essential” status of many of our end-markets, such as infrastructure, agriculture and pharmaceutical production, we have operated at low production and utilization rates beginning late in the second fiscal quarter due to declined demand from the halt of customer operations within the tire and automotive sectors. Beginning during our second fiscal quarter, as the virus spread in China, we experienced volume declines principally in our Reinforcement Materials segment as operations at many of our customers’ plants in China were completely or partially curtailed. As the COVID-19 pandemic began to further spread around the globe, on the recommendation or mandate of public health officials, a number of our key customers, notably most automotive and tire manufacturers in the Americas and Europe, temporarily closed their manufacturing operations beginning in March 2020. As a result, in the third fiscal quarter, we experienced further volume declines in our Reinforcement Materials segment as well as volume declines and weaker product mix in our Performance Chemicals and Purification Solutions segments. In the third quarter, we also operated at significantly lower manufacturing levels at many of our plants and temporarily suspended operations or idled production lines at certain facilities to comply with government mandates to cease operations. Beginning at the end of March, the domestic automotive and tire end-markets in China began to restart operations, and in the months of May and June 2020, our major tire customers in the Americas and Europe slowly restarted their operations although, at lower than normal operating rates. Along with these improvements, volumes in our Reinforcement Materials segment improved from May to June, and continued to improve in July. Based on volumes to date in the fourth quarter, we expect improved results in our Reinforcement Materials segment for the quarter, as well as improved production and utilization rates, although not to normal levels. We also expect volumes in our Performance Chemicals segment to improve modestly in the fourth fiscal quarter from those in the third fiscal quarter. Despite certain indications that demand for our products is improving from the low demand levels we experienced in our third fiscal quarter, because the duration and scope of the COVID-19 pandemic continue to be uncertain we are unable to predict with certainty the speed and shape of a recovery to more normal customer demand levels for our products or more normal manufacturing operating levels at our facilities.
To date, the coronavirus pandemic has not affected our ability to adequately staff and maintain our operations and we have been able to continue to supply our customers around the globe. However, a prolonged duration of the pandemic could materially impair our ability to do so in the future. This is, particularly the case as the spread of the virus increases in certain geographies and with the possibility that government authorities may impose further mandatory closures, extend work-from-home orders and social distancing protocols, and seek voluntary facility closures and impose other restrictions to mitigate the further spread of the virus. Further, because we reduced inventory to respond to an unusually low customer demand environment, a prolonged duration of any future interruption in our manufacturing operations could impair our ability to meet customer demand in the future.
We took a number of actions during the third fiscal quarter to mitigate the impact of the coronavirus on our cash flow and results of operations and financial condition. While manufacturing operations were curtailed, we managed inventory levels, and reduced our manufacturing costs. We also reduced discretionary spending and net working capital with lower raw material costs and reductions in our accounts receivable and inventories. While our liquidity position remains strong, effective June 8, 2020, we amended our revolving credit agreements to temporarily increase the maximum leverage ratio permitted under those agreements to provide incremental headroom in light of the uncertainty in demand due to the coronavirus pandemic, as described in detail below under the heading “Cash Flow and Liquidity”. In addition, we have reduced our planned capital expenditures in fiscal 2020 to approximately $200 million, prioritizing growth projects in our Performance Additives business as well as necessary sustaining and compliance projects. We also suspended our share repurchases and do not anticipate repurchasing shares for the remainder of the fiscal year.
We expect COVID-19 to continue to have an adverse impact on our revenue as well as our overall profitability and may lead to an increase in inventory reserves, allowances for doubtful accounts, and valuation allowances on certain of our deferred tax assets. Additionally, if the business impacts of the COVID-19 pandemic carry on for an extended period, it could cause us to recognize impairments for certain long-lived assets including goodwill, intangible assets or property, plant and equipment.
ThirdSecond quarter of Fiscal 20202021 versus ThirdSecond quarter of Fiscal 2019—2020—Consolidated
Net Sales and Other Operating Revenues and Gross Profit
|
| Three Months Ended June 30 |
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| Nine Months Ended June 30 |
|
| Three Months Ended March 31 |
|
| Six Months Ended March 31 |
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|
| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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| (In millions) |
|
| (In millions) |
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Net sales and other operating revenues |
| $ | 518 |
|
| $ | 845 |
|
| $ | 1,955 |
|
| $ | 2,510 |
|
| $ | 842 |
|
| $ | 710 |
|
| $ | 1,588 |
|
| $ | 1,437 |
|
Gross profit |
| $ | 69 |
|
| $ | 170 |
|
| $ | 363 |
|
| $ | 514 |
|
| $ | 214 |
|
| $ | 153 |
|
| $ | 407 |
|
| $ | 294 |
|
NetThe $132 million increase in net sales and other operating revenues in the thirdsecond quarter of fiscal 2021 compared to the second quarter of fiscal 2020 decreased by $327 million compared to the third quarter of fiscal 2019. The third quarter of fiscal 2019 included $13 million of revenue for our Specialty Fluids business. The remaining $314 million decline in net sales was primarily driven by lowerhigher volumes ($22187 million), a lessfavorable impact from foreign currency translation ($24 million) and favorable price and product mix across all segments (combined $65 million), and the unfavorable impact from foreign currency translation ($18$15 million). The lowerhigher volumes in fiscal 2021 were driven by our Reinforcement Materials segmentstronger demand across all regions as compared to lower volumes in fiscal 2020 due to weaker demand related to declines in automotive and tire production resulting from the impact of the COVID-19 pandemic. Declines in automotive production also adversely impacted volumes in Specialty Carbons. The less favorable price and product mix was due to lowerdriven by higher prices from lowerhigher feedstock costs that are passed through to our customers in the Reinforcement Materials segment and unfavorablefavorable price and product mix in the Performance Chemicals segment due to more competitive pricingdriven by higher sales into automotive applications and weaker product mixtargeted growth initiatives.
The $151 million increase in the fumed metal oxides product line in Chinanet sales and Europe and the less favorable product mix in the specialty carbons product line from lower demand in automotive applications.
Net salesother operating revenues in the first ninesix months of fiscal 2021 compared to the first six months of fiscal 2020 declined by $555 million compared to the first nine months of fiscal 2019. The first nine months of fiscal 2019 included $56 million of revenue for our Specialty Fluids business. The remaining $499 million decline in net sales was driven by lowerhigher volumes primarily($108 million) in the Reinforcement Materials and Purification SolutionsPerformance Chemicals segments, favorable impact from foreign currency translation ($28533 million), a lessprimarily in the Performance Chemicals segment, and favorable price and product mix (combined $162$7 million), and the unfavorable impact from foreign currency translation ($38 million). across all segments. The less favorable price and product mix was due to lower priceshigher volumes in Reinforcement Materials due to the pass through of lower feedstock costs and a weaker product mix in the Performance Chemicals segment due to the more competitive pricing and weaker product mix in the fumed metal oxides product line in China and Europe and the less favorable product mix in our specialty carbons product line from lower demand in automotive applications. The lower volumesfiscal 2021 were driven by our Reinforcement Materials segment duestronger demand across all regions as compared to weak automotive and tire demand and the impact of the COVID-19 pandemic on demand. The lower volumes in the Purification Solutions segment wasfiscal 2020 due to lower sales in mercury removal and other industrial gas and air applications, due to historically low natural gas prices, and lower demand for automotive applications related to impactsdeclines resulting from COVID-19.the COVID-19 pandemic.
Gross profit decreasedincreased by $101$61 million in the thirdsecond quarter of fiscal 20202021 compared to the thirdsecond quarter of fiscal 2019. Excluding2020. Gross profit increased by $113 million in the impactfirst six months of fiscal 2021 compared to the divestiturefirst six months of our Specialty Fluids business, thefiscal 2020. The gross profit declineincrease in both comparative periods was primarily due to lowerhigher volumes from Reinforcement Materials due to declining demand from weaker automotive and tire production related to the impacts of the COVID-19 pandemic on demand. Gross profit decreased by $151 million in the first nine months of fiscal 2020 compared to the first nine months of fiscal 2019. Excluding the impact of the divestiture of our Specialty Fluids business, the gross profit decline was primarily due to lower volumes in Reinforcement Materials and Purification Solutions and lower unit margins in the Reinforcement Materials and Performance Chemicals segments.
Selling and Administrative Expenses
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| Three Months Ended June 30 |
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| Nine Months Ended June 30 |
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| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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| (In millions) |
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Selling and administrative expenses |
| $ | 52 |
|
| $ | 65 |
|
| $ | 230 |
|
| $ | 208 |
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|
| Three Months Ended March 31 |
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| Six Months Ended March 31 |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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| (In millions) |
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Selling and administrative expenses |
| $ | 71 |
|
| $ | 114 |
|
| $ | 132 |
|
| $ | 178 |
|
Selling and administrative expenses decreased by $13$43 million and $46 million in the thirdsecond quarter and first six months of fiscal 20202021, respectively, compared to the same periodperiods of fiscal 2019,2020, primarily due to a decrease in the accrual for incentive compensation and other cost reduction activities in the current fiscal year. Selling and administrative expense increased by $22 million in the first nine months of fiscal 2020 compared to the same period of fiscal 2019, primarily due to the $50 million charge related to a legal settlement recorded during the second quarter of fiscal 2020,2020. The decrease was partially offset by a decrease in the accrual forincreased incentive compensation and other cost reduction activities in the current fiscal year.compensation.
Research and Technical Expenses
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| Three Months Ended June 30 |
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| Nine Months Ended June 30 |
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| 2020 |
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| 2019 |
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Research and technical expenses |
| $ | 13 |
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| $ | 16 |
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| $ | 41 |
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| $ | 47 |
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| Three Months Ended March 31 |
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| Six Months Ended March 31 |
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| 2020 |
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| 2021 |
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| 2020 |
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| (In millions) |
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Research and technical expenses |
| $ | 15 |
|
| $ | 14 |
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| $ | 29 |
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| $ | 28 |
|
Research and technical expenses decreasedincreased by $3 million and $6$1 million in each of the thirdsecond quarter and the first ninesix months of fiscal 2020, respectively,2021 compared to the same periods of fiscal 2019, due to cost reduction activities in the current fiscal year.2020.
Interest and Dividend Income, Interest Expense and Other Income (Expense)
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| Three Months Ended June 30 |
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| Nine Months Ended June 30 |
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| Three Months Ended March 31 |
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| (In millions) |
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| (In millions) |
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Interest and dividend income |
| $ | 1 |
|
| $ | 2 |
|
| $ | 7 |
|
| $ | 6 |
|
| $ | 2 |
|
| $ | 3 |
|
| $ | 4 |
|
| $ | 6 |
|
Interest expense |
| $ | (13 | ) |
| $ | (14 | ) |
| $ | (41 | ) |
| $ | (43 | ) |
| $ | (13 | ) |
| $ | (14 | ) |
| $ | (25 | ) |
| $ | (28 | ) |
Other income (expense) |
| $ | (3 | ) |
| $ | — |
|
| $ | (6 | ) |
| $ | (6 | ) |
| $ | 1 |
|
| $ | (1 | ) |
| $ | (8 | ) |
| $ | (3 | ) |
Interest and dividend income decreased $1 million and $2 million in the thirdsecond quarter of fiscal 2021 and for the six months ended March 31, 2021, respectively, as compared to the same periods of fiscal 2020, primarily due to lower interest rates.
Interest expense decreased $1 million and $3 million in the second quarter of fiscal 2021 and for the six months ended March 31, 2021, respectively, as compared to the same periods of fiscal 2020, primarily due to lower interest rates.
Other income (expense) changed by $2 million in the second quarter of fiscal 2021 compared to the same period of fiscal 2019,2020, primarily due to lower interest rates. reduced pension cost and a favorable impact from foreign currency translation.For the ninesix months ended June 30, 2020, Interest and dividendMarch 31, 2021, Other income increased $1(expense) changed by $5 million primarily due to interest earned from higher interest rates on cash deposits in South America.
Interest expense decreased $1 million in the third quarter of fiscal 2020 compared to the same period of fiscal 20192020. The change was primarily due to lower interest rates. Forsettlement of the nine months ended June 30, 2020, interest expense decreased $2 million as compared to the same period of fiscal 2019, primarily due to lower average debt balances.
Other income (expense) changed by $3 millionU.S. cash balance pension plan in the thirdfirst quarter of fiscal 2020 compared to the third quarter of fiscal 2019, primarily due to the unfavorable impact of foreign currency translation. Other income (expense) remained consistent in the first nine months of fiscal 2020 compared to the same period of fiscal 2019.2021.
(Provision) Benefit for Income Taxes and Reconciliation of Effective Tax Rate to Operating Tax Rate
|
| Three Months Ended June 30 |
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| Nine Months Ended June 30 |
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| Three Months Ended March 31 |
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| Six Months Ended March 31 |
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| 2020 |
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| 2020 |
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| 2021 |
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| 2020 |
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|
| (Dollars in millions) |
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| (Dollars in millions) |
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(Provision) benefit for income taxes |
| $ | 5 |
|
| $ | (30 | ) |
| $ | (9 | ) |
| $ | (43 | ) |
| $ | (34 | ) |
| $ | (10 | ) |
| $ | (63 | ) |
| $ | (14 | ) |
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Effective tax rate |
|
| 51 | % |
|
| 43 | % |
|
| 17 | % |
|
| 23 | % |
|
| 29 | % |
|
| 81 | % |
|
| 29 | % |
|
| 22 | % |
Impact of discrete tax items(1): |
|
|
|
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|
|
|
|
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|
|
| - |
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|
| 15 | % |
|
| 1 | % |
|
| 22 | % |
Unusual or infrequent items |
|
| — | % |
|
| (22 | )% |
|
| 11 | % |
|
| 3 | % | ||||||||||||||||
Items related to uncertain tax positions |
|
| (27 | )% |
|
| — | % |
|
| 16 | % |
|
| 2 | % | ||||||||||||||||
Other discrete tax items |
|
| 11 | % |
|
| 4 | % |
|
| 3 | % |
|
| — | % | ||||||||||||||||
Impact of certain items |
|
| (6 | )% |
|
| (2 | )% |
|
| (18 | )% |
|
| (5 | )% |
|
| (1 | )% |
|
| (67 | )% |
|
| (2 | )% |
|
| (15 | )% |
Operating tax rate |
|
| 29 | % |
|
| 23 | % |
|
| 29 | % |
|
| 23 | % |
|
| 28 | % |
|
| 29 | % |
|
| 28 | % |
|
| 29 | % |
(1) | For purposes of determining our Operating Tax Rate for the three and six months ended March 31, 2021, the impact of discrete tax items included a net discrete tax benefit of $1 million and $3 million, respectively. For the three and |
|
|
|
|
|
|
For fiscal year 2020,2021, the Operating tax rate is expected to be in the range of 29%27% to 30%29%. We are not providing 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.
We file U.S. federal and state and non-U.S. income tax returns in jurisdictions with varying statutes of limitations. We are under audit in a number of jurisdictions. It is possible that some of these audits will be resolved in fiscal 20202021 and could impact our anticipated effective tax rate. We have filed our tax returns in accordance with the tax laws, in all material respects, in each jurisdiction and maintain tax reserves for uncertain tax positions.
Equity in Earnings of Affiliated Companies and Net Income (Loss) Attributable to Noncontrolling Interests
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
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| Three Months Ended March 31 |
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| Six Months Ended March 31 |
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|
| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
| ||||||||
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| (In millions) |
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| (In millions) |
| ||||||||||||||||||||||||||
Equity in earnings of affiliated companies, net of tax |
| $ | 1 |
|
| $ | 1 |
|
| $ | 2 |
|
| $ | 1 |
|
| $ | 1 |
|
| $ | 1 |
|
| $ | 1 |
|
| $ | 1 |
|
Net income (loss) attributable to noncontrolling interests, net of tax |
| $ | 1 |
|
| $ | 8 |
|
| $ | 10 |
|
| $ | 22 |
|
| $ | 10 |
|
| $ | 4 |
|
| $ | 20 |
|
| $ | 9 |
|
Equity in earnings of affiliated companies, net of tax, remained consistentflat in both the thirdsecond quarter and the first six months of fiscal 20202021 compared to the same periodperiods of fiscal 2019. Equity in earnings of affiliated companies, net of tax, increased by $1 million in the first nine months of fiscal 2020 compared to the same period of fiscal 2019. The $2 million of income in the first nine months of fiscal 2020 relates to income from our equity affiliates in India and Mexico. In fiscal 2019, this income was consistent with fiscal 2020, but also included losses from our equity affiliate in Venezuela, which has since been impaired.2020.
Net income (loss) attributable to noncontrolling interests, net of tax, decreasedincreased by $7$6 million and $11 million in the thirdsecond quarter of fiscal 20202021 and $12 million infor the first ninesix months of fiscal 2020ended March 31, 2021, respectively, as compared to the same periods ofin fiscal 2019,2020 primarily due to the lowerhigher profitability from our joint ventures in China and Czech Republic.China.
Net Income Attributable to Cabot Corporation
In the thirdsecond quarter and first ninesix months of fiscal 2020,2021, we reported netNet income (loss) attributable to Cabot Corporation of $(6)$75 million and $34$135 million, or $(0.12)$1.30 per diluted common share and $0.59$2.36 per diluted common share, respectively. This compares to netNet income (loss) attributable to Cabot Corporation of $32$(1) million and $124$40 million, or $0.55$(0.01) per diluted common share and $2.08$0.70 per diluted common share, respectively, in the thirdsecond quarter and first ninesix months of fiscal 2019.2020. The higher net lossincome in the thirdsecond quarter of fiscal 2021 and first six months of fiscal 2021 compared with the same periods in fiscal 2020 is primarily due to lower Segmentimproved EBIT due to the impact of the COVID-19 pandemic on demand. The lower net income in the first nine months ofReinforcement Materials and Performance Chemicals segments. In addition, results for these periods in fiscal 2020 is primarily due to lower Segment EBIT due to the impact of the COVID-19 pandemic on demand andincluded a $50 million charge related to a legal settlement recorded in the second quarter of fiscal 2020.charge.
The net income (loss) attributable to Cabot Corporation for the third quarter and first nine months of fiscal 2019 includes impairment charges associated with our divested Specialty Fluids business which did not recur in fiscal 2020.
ThirdSecond quarter of Fiscal 20202021 versus ThirdSecond quarter of Fiscal 2019—2020—By Business Segment
Income (loss) before income taxes and equity in earnings of affiliated companies, certain items, other unallocated items, and Total segment EBIT for the three and ninesix months ended June 30,March 31, 2021 and 2020 and 2019 are set forth in the table below. The details of certain items and other unallocated items are shown below and in Note NM of our Notes to the Consolidated Financial Statements.
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended March 31 |
|
| Six Months Ended March 31 |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||||||||||
Income (loss) before income taxes and equity in earnings of affiliated companies |
| $ | (11 | ) |
| $ | 69 |
|
| $ | 51 |
|
| $ | 188 |
|
| $ | 118 |
|
| $ | 12 |
|
| $ | 217 |
|
| $ | 62 |
|
Less: Certain items |
|
| (7 | ) |
|
| (14 | ) |
|
| (74 | ) |
|
| (61 | ) |
|
| (1 | ) |
|
| (56 | ) |
|
| (12 | ) |
|
| (67 | ) |
Less: Other unallocated items |
|
| (22 | ) |
|
| (29 | ) |
|
| (74 | ) |
|
| (80 | ) |
|
| (30 | ) |
|
| (27 | ) |
|
| (60 | ) |
|
| (52 | ) |
Total segment EBIT |
| $ | 18 |
|
| $ | 112 |
|
| $ | 199 |
|
| $ | 329 |
|
| $ | 149 |
|
| $ | 95 |
|
| $ | 289 |
|
| $ | 181 |
|
In the thirdsecond quarter of fiscal 2020,2021, Income (loss) before income taxes and equity in earnings of affiliated companies decreasedincreased by $80$106 million and Total segment EBIT decreasedincreased by $94$54 million. IncludedThe increase in Income (loss) before income taxes and equity earnings of affiliated companies was driven by increased Total segment EBIT and a $50 million charge in the thirdsecond quarter of fiscal 2019 is $2 million of EBIT2020 related to our Specialty Fluids business, which we divested in the third quarter of fiscal 2019. Excluding the Specialty Fluids impact, Total Segment EBIT decreased $92 million.a legal settlement. The decreaseincrease in Total segment EBIT iswas driven by lowerhigher volumes and unit margins, partially offset by higher fixed costs in each of our three segments and lower margins inthe Reinforcement Materials and Performance Chemicals partially offset by lower fixed costs. Lowersegments. Higher volumes in the Reinforcement Materials ($7528 million) and Performance Chemicals segment ($17 million) were driven by stronger demand across all regions and key end markets due to continued market recovery from the COVID-19 pandemic. Higher unit margins in the Reinforcement Materials segment ($4 million) were primarily due to weaker automotive and tire demand and lower volumesprice increases in Asia ahead of rising feedstock costs. Higher unit margins in the Performance Chemicals segment ($714 million) were primarilylargely due to weaker automotive demand, in each case related to the impacts from the COVID-19 pandemic. Lower volumes in Purification Solutions ($8 million) were due to weaker demand in mercury removal applications and the impact of the COVID-19 pandemic on the demand for automotive applications. Lower margins in Reinforcement Materials ($17 million) were primarily due to the rapid decline of global feedstock costs, which resulted in a temporary pricing and cost mismatch, and regional mix, partially offset by lower raw material costs. Lower margins in Performance Chemicals ($9 million) were primarily due to lower pricing in our fumed metal oxides product line and a less favorable product mix in our specialty carbons and fumed metal oxide product line. Lower fixed costs ($32 million) were driven by lower production volumes and other cost reduction actions.lines due to higher demand in more specialized applications.
In the first ninesix months of fiscal 2020,2021, Income (loss) before income taxes and equity in earnings of affiliated companies decreased $137increased by $155 million and total Segment EBIT decreased by $130 million. Included in the first nine months of fiscal 2019 is $24 million of EBIT related to our Specialty Fluids business, which we divested in the third quarter of fiscal 2019. Excluding the Specialty Fluids impact, Total segment EBIT decreased $106increased by $108 million. The decrease in Total segment EBIT was driven by lower volumes in Reinforcement Materials and Purification Solutions and lower margins in Performance Chemicals, partially offset by lower fixed costs. Lower volumes in Reinforcement Materials ($101 million) were primarily due to weaker automotive and tire demand and the impacts of the COVID-19 pandemic on demand while lower volumes in Purification Solutions ($20 million) were due to lower volumes in mercury removal applications and the impact of the COVID-19 pandemic on demand for automotive applications. Lower fixed costs ($30 million) were driven by lower production volumes and other cost reduction actions. The decreaseincrease in Income (loss) before income taxes and equity earnings of affiliated companies also reflectswas driven by increased Total segment EBIT and a $50 million charge in the second quarter of fiscal 2020 related to a legal settlement entered into duringsettlement. The increase in Total segment EBIT was driven by higher volumes and unit margins. Higher volumes in the nine monthsPerformance Chemicals ($30 million) and Reinforcement Materials segments ($28 million) were driven by stronger demand across all regions due to continued market recovery from the COVID-19 pandemic. Higher unit margins in the Reinforcement Materials segment ($37 million) were primarily due to price increases in Asia ahead of fiscal 2020.rising feedstock costs. Higher unit margins in the Performance Chemicals segment ($17 million) were largely due to favorable product mix in our specialty carbons and specialty compounds product lines.
Certain Items
Details of the certain items for the thirdsecond quarter and first ninesix months of fiscal 20202021 and fiscal 20192020 are as follows:
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended March 31 |
|
| Six Months Ended March 31 |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||||||||||
Employee benefit plan settlement and other charges (Note D) |
| $ | 1 |
|
| $ | (1 | ) |
| $ | (5 | ) |
| $ | (3 | ) | ||||||||||||||||
Global restructuring activities (Note J) |
|
| (1 | ) |
|
| (5 | ) |
|
| (4 | ) |
|
| (13 | ) | ||||||||||||||||
Acquisition and integration-related charges |
|
| (1 | ) |
|
| (1 | ) |
|
| (2 | ) |
|
| (2 | ) | ||||||||||||||||
Legal and environmental matters and reserves |
| $ | (1 | ) |
| $ | — |
|
| $ | (51 | ) |
| $ | (1 | ) |
|
| — |
|
|
| (51 | ) |
|
| — |
|
|
| (50 | ) |
Global restructuring activities (Note K) |
|
| (3 | ) |
|
| (4 | ) |
|
| (16 | ) |
|
| (15 | ) | ||||||||||||||||
Employee benefit plan settlements |
|
| (2 | ) |
|
| — |
|
|
| (5 | ) |
|
| 3 |
| ||||||||||||||||
Acquisition and integration-related charges |
|
| (1 | ) |
|
| (1 | ) |
|
| (3 | ) |
|
| (5 | ) | ||||||||||||||||
Specialty Fluids loss on sale and asset impairment charge (Note C) |
|
| — |
|
|
| (8 | ) |
|
| (1 | ) |
|
| (28 | ) | ||||||||||||||||
Specialty Fluids loss on sale and asset impairment charges |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) | ||||||||||||||||
Indirect tax settlement credits |
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 3 |
|
Equity affiliate investment impairment charge |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11 | ) | ||||||||||||||||
Other |
|
| — |
|
|
| (1 | ) |
|
| (1 | ) |
|
| (4 | ) |
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| (1 | ) |
Total certain items, pre-tax |
|
| (7 | ) |
|
| (14 | ) |
|
| (74 | ) |
|
| (61 | ) |
|
| (1 | ) |
|
| (56 | ) |
|
| (12 | ) |
|
| (67 | ) |
Tax-related certain items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax impact of certain items |
|
| 2 |
|
|
| 1 |
|
|
| 12 |
|
|
| 4 |
|
|
| (4 | ) |
|
| 8 |
|
|
| (2 | ) |
|
| 10 |
|
Discrete tax items |
|
| 2 |
|
|
| (14 | ) |
|
| 15 |
|
|
| 10 |
|
|
| 1 |
|
|
| 3 |
|
|
| 3 |
|
|
| 13 |
|
Total tax-related certain items |
|
| 4 |
|
|
| (13 | ) |
|
| 27 |
|
|
| 14 |
|
|
| (3 | ) |
|
| 11 |
|
|
| 1 |
|
|
| 23 |
|
Total certain items, after tax |
| $ | (3 | ) |
| $ | (27 | ) |
| $ | (47 | ) |
| $ | (47 | ) |
| $ | (4 | ) |
| $ | (45 | ) |
| $ | (11 | ) |
| $ | (44 | ) |
The tax impact of certain items is determined by (1) starting with the current and deferred income tax expense or benefit included in Net income (loss) 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, as defined under the heading “Definition of Terms and Non-GAAP Financial Measures”, to adjusted earnings.
Other Unallocated Items
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended March 31 |
|
| Six Months Ended March 31 |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||||||||||
Interest expense |
| $ | (13 | ) |
| $ | (14 | ) |
| $ | (41 | ) |
| $ | (43 | ) |
| $ | (13 | ) |
| $ | (14 | ) |
| $ | (25 | ) |
| $ | (28 | ) |
Unallocated corporate costs |
|
| (10 | ) |
|
| (14 | ) |
|
| (32 | ) |
|
| (39 | ) |
|
| (16 | ) |
|
| (12 | ) |
|
| (29 | ) |
|
| (22 | ) |
General unallocated income (expense) |
|
| 2 |
|
|
| — |
|
|
| 1 |
|
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| (5 | ) |
|
| (1 | ) |
Less: Equity in earnings of affiliated companies, net of tax |
|
| 1 |
|
|
| 1 |
|
|
| 2 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
Total other unallocated items |
| $ | (22 | ) |
| $ | (29 | ) |
| $ | (74 | ) |
| $ | (80 | ) |
| $ | (30 | ) |
| $ | (27 | ) |
| $ | (60 | ) |
| $ | (52 | ) |
A discussion of items that we refer to as “other unallocated items” can be found under the heading “Definition of Terms and Non-GAAP Financial Measures”. The balances of unallocated corporate costs are primarily comprised of expenditures related to managing a public company that are not allocated to the segments and corporate business development costs related to ongoing corporate projects. The balances of General unallocated income (expense) consist of gains (losses) arising from foreign currency transactions, net of other foreign currency risk management activities, the profit or loss related to the corporate adjustment for unearned revenue, and the impact of including the full operating results of a contractual joint venture in Purification Solutions segment EBIT.
Reinforcement Materials
Sales and EBIT for Reinforcement Materials for the thirdsecond quarter and first ninesix months of fiscal 20202021 and 20192020 were as follows:
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended March 31 |
|
| Six Months Ended March 31 |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||||||||||
Reinforcement Materials Sales |
| $ | 197 |
|
| $ | 461 |
|
| $ | 931 |
|
| $ | 1,363 |
|
| $ | 434 |
|
| $ | 355 |
|
| $ | 809 |
|
| $ | 734 |
|
Reinforcement Materials EBIT |
| $ | (5 | ) |
| $ | 72 |
|
| $ | 103 |
|
| $ | 195 |
|
| $ | 89 |
|
| $ | 61 |
|
| $ | 177 |
|
| $ | 108 |
|
Sales in Reinforcement Materials decreasedincreased by $264$79 million in the thirdsecond quarter of fiscal 20202021 compared to the same period of fiscal 2019,2020, primarily due to lowerhigher volumes ($19562 million), a less favorable price and product mix (combined $56$9 million), and the unfavorablea favorable impact from foreign currency translation ($138 million). The higher volumes in fiscal 2021 were driven by stronger demand across all regions as compared to lower volumes were primarilyin fiscal 2020 due to weaker automotive and tire demand declines resulting from the impact of the COVID-19 pandemic. The less favorable pricingprice and product mix was primarily due to the pass-through of lowerhigher prices from higher feedstock prices.costs that are passed through to our customers.
In the first ninesix months of fiscal 2020,2021, sales in Reinforcement Materials decreasedincreased by $432$75 million when compared to the first ninesix months of fiscal 2019.2020. The decreaseincrease was primarily driven by lowerdue to higher volumes ($27367 million), and a less favorable price and product mix (combined $133 million), and the unfavorable impact from foreign currency translation ($266 million). The higher volumes in fiscal 2021 were driven by stronger demand across all regions as compared to lower volumes were primarilyin fiscal 2020 due to weaker automotive and tire demand and the impacts ofdeclines resulting from the COVID-19 pandemic on demand. The less favorable price and product mix was due to the pass-through of lower feedstock prices.pandemic.
EBIT in Reinforcement Materials decreased $77 million in the thirdsecond quarter of fiscal 20202021 increased $28 million compared to the same period of fiscal 2019.2020. During the thirdsecond quarter of fiscal 2020,2021, the segment had 42%18% higher volumes ($28 million). The higher volumes in fiscal 2021 were driven by stronger demand across all regions as compared to lower volumes ($75 million), lower unit margins ($18 million), and an unfavorable impact from foreign currency translation ($4 million), partially offset by lower fixed costs ($20 million). The lower volumes were primarilyin fiscal 2020 due to weaker tire and automotive demand declines resulting from the impacts of COVID-19. Unit margins were negatively impacted by slower turns of inventory and lower energy center revenue as a result of reduced sales volumes and lower feedstock prices offset by favorable pricing from 2020 tire customer agreements. Lower fixed costs were driven by lower production volumes and other cost reduction actions.COVID-19 pandemic.
EBIT in Reinforcement Materials decreased $92increased $69 million in the first ninesix months of fiscal 20202021 compared to the same period of fiscal 2019.2020. The decreaseincrease was driven by lower volumes ($101 million), lowerhigher unit margins ($637 million), higher volumes ($28 million), and an unfavorablea favorable impact from foreign currency translation ($5 million), which were partially offset by lower fixed costs ($20 million). Lower volumes were primarily due to weaker automotive and tire demand and the impacts from COVID-19. UnitThe higher unit margins were negatively impacted by slower turns of inventory and lower energy center revenue as a result of reduced sales volumes and lower feedstock prices offset by favorable pricing from 2020 tire customer agreements. Lower fixed costs were driven by improved pricing and product mix in Asia. The higher volumes in fiscal 2021 were driven by stronger demand across all regions as compared to lower production volumes in fiscal 2020 due to demand declines resulting from the COVID-19 pandemic.
We expect demand to remain strong in the second half of the fiscal year. We also anticipate higher feedstock costs flow-through in Asia and other cost reduction actions.higher fixed costs in the second half as compared to the first half of the fiscal year for planned plant maintenance activities.
Performance Chemicals
Sales and EBIT for Performance Chemicals for the thirdsecond quarter and first ninesix months of fiscal 20202021 and 20192020 were as follows:
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended March 31 |
|
| Six Months Ended March 31 |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||||||||||
Performance Additives Sales |
| $ | 151 |
|
| $ | 172 |
|
| $ | 489 |
|
| $ | 518 |
|
| $ | 203 |
|
| $ | 168 |
|
| $ | 387 |
|
| $ | 338 |
|
Formulated Solutions Sales |
|
| 69 |
|
|
| 79 |
|
|
| 218 |
|
|
| 218 |
|
|
| 91 |
|
|
| 77 |
|
|
| 174 |
|
|
| 149 |
|
Performance Chemicals Sales |
| $ | 220 |
|
| $ | 251 |
|
| $ | 707 |
|
| $ | 736 |
|
| $ | 294 |
|
| $ | 245 |
|
| $ | 561 |
|
| $ | 487 |
|
Performance Chemicals EBIT |
| $ | 21 |
|
| $ | 37 |
|
| $ | 93 |
|
| $ | 111 |
|
| $ | 58 |
|
| $ | 31 |
|
| $ | 112 |
|
| $ | 72 |
|
Sales in Performance Chemicals decreasedincreased by $31$49 million in the thirdsecond quarter of fiscal 20202021 compared to the same period of fiscal 2019,2020, primarily due to a lessincreased volumes ($30 million), the favorable impact from foreign currency translation ($13 million), and favorable price and product mix (combined $15 million), lower volumes ($12 million), and the unfavorable impact from foreign currency translation ($4$5 million). The lesshigher volumes were primarily due to stronger demand across our key product lines and inventory replenishment by our customers. The favorable price and product mix was primarily due to a more competitive pricing environment and weaker product mixhigher demand in the fumed metal oxides product line in China and Europe and weaker product mixautomotive applications in our specialty carbons product line from lower demandand in automotive applications. The lower volumes were driven by the specialty carbons and specialty compounds product lines due to lower demand in automotive applications driven by the impact of COVID-19 on demand.targeted growth initiatives.
In the first ninesix months of fiscal 2020,2021, sales in Performance Chemicals decreased $29increased $74 million when compared to the same period of fiscal 2019.2020. The decreaseincrease was primarily due to a less favorable price and product mix (combined $46higher volumes ($51 million), and the unfavorablefavorable impact from foreign currency translation ($1021 million), partially offset by higher volumes ($27 million). The less favorable price and product mix was primarily due to a more competitive pricing environment and weaker product mix in the fumed metal oxides product line in China and Europe and weaker product mix in our specialty carbons product line from lower demand in automotive applications. The higher volumes were primarily due to higherstronger demand in the specialty carbons and specialty compoundsacross our key product lines in the first two quarters of the fiscal year.and inventory replenishment by our customers.
EBIT in Performance Chemicals decreasedincreased by $16$27 million in the thirdsecond quarter of fiscal 2021 compared to the second quarter of fiscal 2020 compared to the third quarter of fiscal 2019 primarily due to lowerincreased volumes ($17 million), and higher unit margins ($914 million), partially offset by higher fixed cost ($5 million). Increased volumes resulted from increased demand across key product lines and inventory replenishment by our customers. Favorable unit margins were driven by a more competitive pricing environmentour specialty carbons and weaker product mix in the fumed metal oxides product line in China and Europe and lower volumes ($7 million) in the specialty carbons and specialty compounds product lines due to lowerfrom higher demand in automotive applicationsmore specialized applications.Increased fixed costs were driven by the impact of COVID-19 on demand.higher depreciation related to a new fumed metal oxides plant.
EBIT in Performance Chemicals decreasedincreased by $18$40 million in the first ninesix months of fiscal 20202021 when compared to the same period of fiscal 20192020 primarily due to lowerincreased volumes ($30 million), higher unit margins ($1517 million), and the unfavorablea favorable impact of inventory comparisonsfrom foreign currency translation ($106 million), partially offset by higher volumesfixed costs ($1012 million). LowerHigher volumes across all product lines resulted from continuing strength in demand and inventory replenishment by our customers. Favorable unit margins were due to a more competitive pricing environment and weaker product mix in the fumed metal oxides product line in China and Europe and weaker product mix in our specialty carbons product line due to lower demand in automotive applications. The higher volumes were driven by our specialty carbons and specialty compounds product lines due to higher demand in automotive applications and in targeted growth initiatives. Increased fixed costs were driven by higher depreciation from the specialty carbonsstartup of our new fumed metal oxides plant and specialty compounds product lines incertain one-time plant costs.
Looking ahead to the first two quarterssecond half of the fiscal year, we anticipate overall demand to remain strong. However, we anticipate demand into automotive applications to moderate in the second half of the fiscal year as compared to the first half of the fiscal year due to the semi-conductor chip shortage and higher volumes aligned with new capacity in our fumed metal oxides product line.fixed costs due to the timing of spending.
Purification Solutions
Sales and EBIT for Purification Solutions for the thirdsecond quarter and first ninesix months of fiscal 20202021 and 20192020 were as follows:
|
| Three Months Ended June 30 |
|
| Nine Months Ended June 30 |
|
| Three Months Ended March 31 |
|
| Six Months Ended March 31 |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
|
| (In millions) |
|
| (In millions) |
| ||||||||||||||||||||||||||
Purification Solutions Sales |
| $ | 63 |
|
| $ | 73 |
|
| $ | 186 |
|
| $ | 210 |
|
| $ | 63 |
|
| $ | 64 |
|
| $ | 122 |
|
| $ | 123 |
|
Purification Solutions EBIT |
| $ | 2 |
|
| $ | 1 |
|
| $ | 3 |
|
| $ | (1 | ) |
| $ | 2 |
|
| $ | 3 |
|
| $ | — |
|
| $ | 1 |
|
Sales in Purification Solutions decreased by $10$1 million in the thirdsecond quarter of fiscal 20202021 compared to the same period of fiscal 20192020 due to lower volumes ($155 million), partially offset by favorable impact from foreign currency translation ($3 million) and improved pricing and a more favorable product mix (combined $5$1 million). The lower volumes were primarily due to lower sales in mercury removal other industrial gas and air applications and automotive applications impacted by lower demand due to COVID-19.products.
SaleSales in Purification Solutions decreased $24by $1 million in the first ninesix months of fiscal 20202021 when compared to the same period of fiscal 20192020 due to lower volumes ($3910 million) and, partially offset by the unfavorablefavorable impact from foreign currency translation ($25 million), partially offset byand improved pricing and a more favorable product mix (combined $17$4 million). The lower volumes were primarily due to lower sales in mercury removal other industrial gas and air applications and automotive applications impacted by lower demand due to COVID-19.products.
EBIT in Purification Solutions increaseddecreased by $1 million in the second quarter of fiscal 2021 compared to the second quarter of fiscal 2020 due to lower volumes ($3 million), and an unfavorable impact of changing inventory levels ($3 million), partially offset by lower fixed costs ($5 million). The lower volumes were primarily due to lower sales in mercury removal products. Reduced fixed cost were driven by the sale of our mine in Marshall, TX and the related long-term activated carbon supply agreement.
EBIT in Purification Solutions decreased by $1 million in the first quartersix months of fiscal 2021 when compared to the same period of fiscal 2020 compared to the third quarter of fiscal 2019 due to higher unit marginsan unfavorable impact of changing inventory levels ($38 million), and lower fixed costsvolumes ($6 million) as a result of prior year restructuring activities and an insurance recovery of approximately $1 million,, partially offset by lower volumesfixed costs ($811 million) and higher unit margins ($2 million). The lower volumes were primarily due to a decrease in demand in mercury removal products, while the higher unit margins were primarily due to an improved product mix and higher prices. The lower volumesReduction in fixed costs were primarily duedriven by the sale of our mine in Marshall, TX and the related long-term activated carbon supply agreement.
As we look to lower sales in mercury removal, other industrial gas and air applications and automotive applications impacted by lower demand due to COVID-19.
the second half of the fiscal year, we expect EBIT in Purification Solutions improved by $4 million in the first nine months of fiscal 2020 when compared to the same period of fiscal 2019 duecontinue to benefit from higher unit margins ($13 million) and, lower fixed costs ($11 million) as a result of prior year restructuring activities, partially offset by lower volumes ($20 million). The higher unit margins were primarily due to an improved product mix and higher prices while the lower volumes were primarily due to lower sales in mercury removal, other industrial gas and air applications and automotive applications impacted by lower demand due to COVID-19.seasonal volumes.
Specialty Fluids
We divested our Specialty Fluids business on June 28, 2019. Refer to our fiscal 2019 10-K filing for further details. Sales and EBIT for Specialty Fluids for the third quarter and first nine months of fiscal 2020 and 2019 were as follows:
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| Three Months Ended June 30 |
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| Nine Months Ended June 30 |
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| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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Specialty Fluids Sales |
| $ | — |
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| $ | 13 |
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| $ | — |
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| $ | 56 |
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Specialty Fluid EBIT |
| $ | — |
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| $ | 2 |
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| $ | — |
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| $ | 24 |
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Cash Flows and Liquidity
Overview
Our liquidity position, as measured by cash and cash equivalents plus borrowing availability, decreased by $97$127 million during the first ninesix months of fiscal 2020,2021, which was largely attributable to capital expenditures, the acquisitiontermination of Shenzhen Sanshun Nano New Materials Co., Ltd (“SUSN”our $100 million unsecured revolving credit agreement (the “Canadian Credit Agreement”), share repurchases and cash dividends,higher net working capital, partially offset by lower net working capital.higher business earnings. As of June 30, 2020,March 31, 2021, we had cash and cash equivalents of $162$146 million and borrowing availability under our revolving credit agreements of $1.2 billion.
We have access to borrowings under the following threetwo credit agreements:
| • | $1 billion unsecured revolving credit agreement (the “JPM Credit Agreement”) with JPMorgan Chase Bank, N.A., as Administrative Agent, Citibank, N.A., as Syndication Agent, and the other lenders party thereto, which matures in October 2022. The JPM Credit Agreement provides liquidity for working capital and general corporate purposes and supports our commercial paper program. |
| • |
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| €300 million unsecured revolving credit agreement (the “Euro Credit Agreement” |
AtDuring the second fiscal quarter of 2021, we terminated our election, loans$100 million unsecured revolving credit agreement with TD Bank, NA, as Lender, which had a maturity date of September 2021. The Canadian Credit Agreement provided liquidity for working capital and general corporate purposes for certain of our Canadian subsidiaries. We had no borrowings under the Credit Agreements bear interest at LIBOR plus an applicable margin of between 0.68% and 1.20%, depending on our credit ratings,this agreement during either fiscal 2021 or at the prime rate plus an applicable margin of between 0.00% and 0.20%, depending on our credit ratings, and at similar applicable rates for foreign currency borrowings.2020.
As of June 30, 2020,March 31, 2021, we were in compliance with our debt covenants under the Credit Agreements, which, with limited exceptions, generally require us to comply on a quarterly basis with a leverage test requiring consolidated total debt not to exceed consolidated EBITDA (earnings before interest, taxes, depreciation and amortization) for the four quarters then ending by more than 3.50 to 1.00. Because of the uncertainty of the overall financial impact of the COVID-19 pandemic and to increase our financial flexibility, we amended the Credit Agreements as of June 8, 2020 to, among other things: (a)changes, set the consolidated total debt to consolidated EBITDA ratio at 4.50 to 1.00 for the fiscal quarters ending September 30, 2020 through June 30, 2021, and (b) reduce the lien basket for other permitted liens securing Indebtedness (as defined in the Credit Agreements) in an aggregate amount at any time outstanding to 5% of Consolidated Tangible Net Worth (as defined in the Credit Agreements), at any time through and including June 30, 2021. As part of these amendments, we agreed to pay a 10 basis point fee on the consenting lenders’ commitments under the JPM Credit Agreement and the Euro Credit Agreement.
A significant portion of our business occurs outside the U.S. and our cash generation does not always align geographically with our cash needs. The vast majority of our cash and cash equivalent holdings tend to be held outside the U.S. Cash held by foreign subsidiaries is generally used to finance the subsidiaries’ operational activities and future investments. We typically issue commercial paper throughout the year to manage our short-term U.S. cash needs. During the second quarter of fiscal 2020, one of our short-term credit ratings was downgraded, which temporarily decreased our access to, and increased our cost to borrow through, the commercial paper market, and we instead borrowed under our revolving credit agreements. During the third quarter of fiscal 2020, the commercial paper market stabilized and we are currently using a combination of commercial paper and revolving credit facility borrowings to meet our U.S. cash needs. We generally reduce our commercial paper balance and, if applicable, borrowings under the Credit Agreements, at quarter-end using cash derived from customer collections, settlement of intercompany balances and short-term intercompany loans. In the event thatIf additional funds are needed in the U.S., we expect to be able to repatriate funds or to access additional debt under our revolving credit facilities. As of June 30, 2020, ourMarch 31, 2021, there were no borrowings on the JPM Credit Agreement totaled $75 million, and we had $13 million of commercial paper outstanding.Agreement. As of June 30, 2020,March 31, 2021, our borrowings under the Euro Credit Agreement totaled $144$140 million and there were no borrowings outstanding under the Canadian Credit Agreement.we had $44 million of commercial paper outstanding.
We generally manage our cash and debt on a global basis to provide for working capital requirements as needed by region or site. Cash and debt are generally denominated in the local currency of the subsidiary holding the assets or liabilities, except where there are operational cash flow reasons to hold non-functional currency or debt.
In light ofWe continue to actively manage the uncertain economic environment created bybusiness throughout the ongoing COVID-19 pandemic among other actions we have taken to preserve our liquidity position, we have deferred capital spending where possible and delayed spending on some of our growth projects. With these decisions, we currently expect our capital expenditures for fiscal 2020 to be approximately $200 million in the aggregate to be used primarily for sustaining and compliance capital projects at our operating facilities as well as for growth projects in Performance Chemicals. In addition, during the second quarter of fiscal 2020, we suspended our share repurchase activity, and we do not anticipate repurchasing our shares for the remainder of fiscal 2020.
Although we cannot predict the duration or scope of the COVID-19 pandemic and its impact on our customers and suppliers, we are actively managing the business to maintain cash flow and we anticipate sufficient liquidity from (i) cash on hand; (ii) cash flows from operating activities; and (iii) cash available from our revolving credit facilitiesCredit Agreements and our commercial paper program to meet our operational and capital investment needs and financial obligations for the foreseeable future. The liquidity we derive from cash flows from operations is, to a large degree, predicated on our ability to collect our receivables in a timely manner, the cost of our raw materials, and our ability to manage inventory levels.
The following discussion of the changes in our cash balance refers to the various sections of our Consolidated Statements of Cash Flows.
Cash Flows from Operating Activities
Cash provided by operating activities, which consists of net income adjusted for the various non-cash items included in income, changes in working capital and changes in certain other balance sheet accounts, totaled $278$86 million in the first ninesix months of fiscal 20202021 compared to $166$129 million of cash provided by operating activities during the same period of fiscal 2019.2020.
Cash provided by operating activities in the first ninesix months of fiscal 2021 was driven by business earnings excluding the non-cash impact of depreciation and amortization of $77 million, which was partially offset by an increase in net working capital of $179 million. The increase in net working capital was driven by an increase in accounts receivable due to higher sales, an increase in inventory driven by a higher cost of raw materials, and a $32.6 million cash payment made in the first quarter of fiscal 2021 related to a respirator litigation settlement in fiscal 2020 as discussed in Note G.
Cash provided by operating activities in the first six months of fiscal 2020 was driven primarily by our net incomebusiness earnings excluding $55 million of $44non-cash items, which includes depreciation and amortization of $78 millionand a decrease in Accounts and notes receivable of $172 million, the non-cash impact of depreciation and amortization of $117 million and a decrease in our Inventories of $74$56 million, partially offset by a decrease in Accounts payable and accrued liabilities of $68 million, an increase in Prepaid expenses and other current assets of $25$33 million and the non-cash impact of a deferred tax benefit of $20 million.
Cash provided by operating activities in the first nine months of fiscal 2019 was driven primarily by our net income of $146 million, the non-cash impacts of depreciation and amortization of $110 million, the loss on the sale of the Specialty Fluids business of $28 million and the impairment of our investment in our Venezuelan equity affiliate of $11 million. Partially offsetting these factors were a decrease in Accounts payable and accrued liabilities of $65 million, a decrease in Income taxes payable of $24 million, a decrease in Other liabilities of $27 million and the non-cash impact of a deferred tax benefit of $20 million..
In addition to the factors noted above, the following other elements of operations have a bearing on operating cash flows:
Restructurings — As of June 30, 2020,March 31, 2021, we had $9$6 million of total restructuring costs in accrued expenses in the Consolidated Balance Sheets related to certain of our global restructuring activities. In the first ninesix months of fiscal 2020,2021, we paid $13$5 million related to these restructuring activities, and we expect to make additional cash payments of approximately $4$6 million in fiscal 20202021 and $11$8 million thereafter.
LegalLitigation Matters — As of June 30, 2020,March 31, 2021, we had a $21$22 million reserve for existingpending and future respirator claims that we expect to pay over multiple years. During the second quarter of fiscal 2020, we settled a large group of respirator claims for $65.2 million. We paid $32.6 million related to these settled claims during the third quarter of fiscal 2020, and the remaining $32.6 million payable will be paid in the first quarter of fiscal 2021. We also have other lawsuits, claims and contingent liabilities arising in the ordinary course of business.
Cash Flows from Investing Activities
Investing activities consumed $252$66 million of cash in the first ninesix months of fiscal 20202021 compared to $33$126 million of cash consumed during the same period of fiscal 2019. Inin the first ninesix months of fiscal 2020,2020. In both periods, investing activities primarily consisted of $162 million of capital expenditures for sustaining and compliance capital projects at our operating facilities as well as capacity expansion capital expenditures. In the first six months of fiscal 2021, capacity expansion capital expenditures were primarily in Reinforcement Materials and Performance Chemicals, $84 million, netand in the same period of cash acquired forfiscal 2020 they were primarily in Performance Chemicals and Reinforcement Materials. In addition, in the SUSN acquisition in Aprilfirst six months of fiscal 2020, andwe paid $8 million for the plant that we acquired from NSCCNippon Steel Carbon Co., Ltd. in September 2018.
In the nine months ended June 30, 2019, investing activities consumed $33 million of cash, which was primarily driven by $155 million of capitalCapital expenditures for fiscal 2021 are expected to be approximately $200 million. Our planned capital spending program for fiscal 2021 is primarily for sustaining, compliance and complianceimprovement capital projects at our operating facilities as well as capacity expansion capital expenditures in Reinforcement Materials and Performance Chemicals, partially offset by proceeds from the sale of the Specialty Fluids business of $130 million, net of cash held in escrow of $5 million.Chemicals.
Cash Flows from Financing Activities
Financing activities consumed $37$27 million of cash in the first ninesix months of fiscal 20202021 compared to $146$10 million of cash consumedprovided during the same period of fiscal 2019.2020. In the first ninesix months of fiscal 2021, financing activities primarily consisted of dividend payments to stockholders of $40 million and net repayments from borrowings under our revolvers of $17 million, which consisted of proceeds of $100 million less repayments of $117 million.
In the first six months of fiscal 2020, financing activities primarily consisted of the repaymentnet proceeds from borrowings under our revolvers of $15$147 million, which consisted of other long-term debt,proceeds of $197 million less repayments of $50 million, share repurchases of $44 million, dividend payments to stockholders of $60 million, dividend payments to noncontrolling interests of $26$40 million, and the repayment of $20$33 million of commercial paper, partially offset by the net proceeds from borrowings under our revolvers of $125 million.
In the first nine months of fiscal 2019, financing activities primarily consisted of share repurchases of $144 million, dividend payments to stockholders of $60 million, the repayment of $75 million of long-term debt, the repayment of $176 million of commercial paper, and the redemption of $25 million of preferred stock held by our former NHUMO joint venture partner, partially offset by the proceeds from the issuance of our registered notes and borrowing under our European revolver in the aggregate of $344 million.paper.
Off-Balance Sheet Arrangements
As of June 30, 2020,March 31, 2021, we had no material transactions that meet the definition of an off-balance sheet arrangement.
Forward-Looking Information
This report on Form 10-Q contains “forward-looking statements” under the Federal securities laws. These forward-looking statements address expectations or projections about the future, including our expectations for future financial performance and the factors we expect to impact our results of operations, including howthe factors we expect the COVID-19 pandemic to impact demand forresults in our products, our results of operationsReinforcement Materials, Performance Chemicals, and our cash flows and our related mitigation efforts; growthPurification Solutions segment in the battery market; when we expect the NSCC Carbon plant upgrades to be completed;second half of fiscal 2021; the amount and the timing of the contingent consideration we expect to pay related to the SUSN acquisition; the amount and timing of the charge to earnings we will record and the cash outlays we will make in connection with our reorganization and the closing of certain manufacturing facilities, restructuring initiatives and under our transformation plan for our Purification Solutions business; our estimated future amortization expenses for our intangible assets; when we expect to make payments under the settlement agreement we entered into settling certain respirator liability claims; the timing of expected payments from our reserve for existingpending and future respirator claims; the amount of any future gain or loss we may record upon the settlement,our entry into cross-currency swaps and the timing of the completion, of certain defined benefit obligations and pension plan terminations;other financial instruments to manage foreign currency risks; the sufficiency of our cash on hand, cash provided from operations and cash available under our credit facilities and commercial paper program to fund our cash requirements; our expectations regarding our ability to repatriate funds or access additional debt under our revolving credit facilities; uses of available cash including anticipated capital spending, share repurchases, and future cash outlays associated with long-term contractual obligations;spending; our expected operating tax rate for fiscal 2020;2021; and the possible outcome of legal proceedings. From time to time, we also provide forward-looking statements in other materials we release to the public and in oral statements made by authorized officers.
Forward-looking 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 or difficult to predict. If known or unknown risks materialize, our actual results could differ materially from those expressed in the 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.estimated with certainty. Factors that will influence the impact on our business and operations include the duration and extent of the pandemic, the extentlevel and timing of imposed or recommended containmentvaccine distribution around the world and mitigation measures,its impact on the economic recovery and growth, the degree of disruption in our supply chain from global logistics matters resulting from the COVID-19 pandemic, and the general economic consequences of the pandemic.
In addition to factors described elsewhere in this report, the following are some of the factors that could cause our actual results to differ materially from those expressed in our forward-looking statements: changes in raw material costs; lower than expected demand for our products; changes inindustry capacity utilization and competition from other specialty chemical companies; safety, health and environmental requirements and related constraints imposed on our business; volatility in the U.S.; the loss of one or more of our important customers; our inability to complete capacity expansions or other development projects; theprice and availability of energy and raw materials; oura significant adverse change in a customer relationship or the failure of a customer to perform its obligations under agreements with us; failure to developachieve growth expectations from new products, orapplications and technology developments; failure to keep pace with technological developments; fluctuations in currency exchange rates; patent rights of others; stock and credit market conditions; the timely commercialization of products under development (which may be disrupted or delayed by technical difficulties, market acceptance, competitors’ new products, as well as difficulties in movingrealize benefits from the experimental stage to the production stage); demand for our customers’ products; competitors’ reactions to market conditions; unanticipated disruptions or delays in plant operations or development projects; delays in the successful integration of structural changes, including acquisitions, alliances, or joint ventures; severe weather events that cause business interruptions, including plant and power outagesventures or disruptions in supplier or customer operations;achieve our portfolio management objectives; negative or uncertain worldwide or regional economic conditions and market opportunities, including from trade relations or global health matters; litigation or legal proceedings; tax rates and fluctuations in foreign currency exchange and interest rates; our inability to complete capacity expansions or other development projects; and the accuracy of the assumptions we used in establishing reserves for environmental matters and for our share of liability for respirator claims; and the outcome of pending litigation.claims. These other factors and risks are discussed more fully in our 20192020 10-K our Quarterly Report for the quarterly period ended March 31, 2020 and in our subsequent SEC filings.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Information about market risks for the period ended June 30, 2020March 31, 2021 does not differ materially from that discussed under Item 7A of our 20192020 10-K.
Item 4. | Controls and Procedures |
As of June 30, 2020,March 31, 2021, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of that date.
There were no changes in our internal controlcontrols over financial reporting that occurred during our fiscal quarter ended June 30, 2020March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As permitted by the rules and regulations of the Securities and Exchange Commission we excluded from our assessment the internal controls over financial reporting at Shenzhen Sanshun Nano New Materials Co., Ltd (“SUSN”), which was acquired on April 1, 2020, for the period ended March 31, 2021. As a result of the COVID-19 pandemic, certain of our employees have been working remotely and certain manufacturing sites have been operating with limited personnel on-site. We have not identified any material changes in our internal control over financial reporting as a result of these changes to the working environment. We are continually monitoring and assessing the COVID-19 situation to determine any potential impacts on the design and operating effectiveness of our internal controls over financial reporting.
Part II. Other Information
Item 6. | Exhibits |
Exhibit No. |
| Description |
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Exhibit 3.1 |
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Exhibit 3.2
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Exhibit 10.1*† |
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Exhibit 31.1* |
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Exhibit 31.2* |
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Exhibit 32** |
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Exhibit 101.INS* |
| Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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Exhibit 101.SCH* |
| Inline XBRL Taxonomy Extension Schema Document. |
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Exhibit 101.CAL* |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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Exhibit 101.DEF* |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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Exhibit 101.LAB* |
| Inline XBRL Taxonomy Extension Label Linkbase Document. |
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Exhibit 101.PRE* |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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Exhibit 104* |
| The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended |
* | Filed herewith. |
** | Furnished herewith. |
† | Management contract or compensatory plan or arrangement. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| CABOT CORPORATION | |
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Date: |
| By: | /s/ Erica McLaughlin |
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| Erica McLaughlin |
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| Senior Vice President and Chief Financial Officer |
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| (Duly Authorized Officer) |
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Date: |
| By: | /s/ Lisa m. Dumont |
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| Lisa M. Dumont |
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| Vice President and Controller (Chief Accounting Officer) |
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