UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

June 30, 2006

or

[    ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________

Commission file number 1-5667

Cabot Corporation

(Exact name of registrant as specified in its charter)

Delaware		04-2271897
(State of Incorporation)		(I.R.S. Employer Identification No.)
Two Seaport Lane		02210-2019
Boston, Massachusetts		(Zip Code)
(Address of principal executive offices)

 

Registrant’s telephone number, including area code:  (617) 345-0100

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes  [ X ]    No  [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ X ]                 Accelerated filer  [   ]                           Non-accelerated filer  [   ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [   ] No [ X ]

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.

As of August 1, 2006 the Company had 63,333,032 shares of Common

Stock, par value $1 per share, outstanding.

 

CABOT CORPORATION

INDEX

Part I.   Financial Information

			Page
Item 1.		Financial Statements
		Consolidated Statements of Operations for the Three Months and Nine Months Ended June 30, 2006 and 2005 (unaudited)	3
		Consolidated Balance Sheets as of June 30, 2006 and September 30, 2005 (unaudited)	4
		Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2006 and 2005 (unaudited)	6
		Consolidated Statement of Changes in Stockholders’ Equity for the Nine Months Ended June 30, 2006 (unaudited)	7
		Notes to Consolidated Financial Statements	8
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.		Controls and Procedures	43
Part II. Other Information
Item 1.		Legal Proceedings	44
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 6.		Exhibits	47
EX-10.1 Non-Employee Directors’ Stock Deferral Plan, dated July 14, 2006.
EX-31.1 Section 302 Certification of CEO
EX-31.2 Section 302 Certification of CFO
EX-32 Section 906 Certification of CEO and CFO

 

 

Part I.   Financial Information

Item 1.   Financial Statements

CABOT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended June 30, 2006 and 2005

(In millions, except per share amounts)

UNAUDITED

		Three Months Ended June 30,						Nine Months Ended June 30,
		2006			2005			2006			2005
Net sales and other operating revenues		$	666		$	545		$	1,880		$	1,567
Cost of sales		551			427			1,574			1,202
Gross profit		115			118			306			365
Selling and administrative expenses		59			63			176			173
Research and technical expenses		14			14			41			43
Goodwill asset impairment		—			—			—			90
Income from operations		42			41			89			59
Interest and dividend income		—			2			3			5
Interest expense		(6		)	(8		)	(19		)	(24		)
Other income (expense)		(2		)	1			—			5
Income from continuing operations before income taxes		34			36			73			45
Provision for income taxes		(8		)	(9		)	(13		)	(30		)
Equity in net income of affiliated companies, net of tax		1			2			8			6
Minority interest in net income, net of tax		(2		)	(3		)	(9		)	(9		)
Income from continuing operations		25			26			59			12
Cumulative effect of an accounting change, net of tax		—			—			2			—
Net income		25			26			61			12
Dividends on preferred stock, net of tax		(1		)	(1		)	(2		)	(2		)
Net income available to common shares		$	24		$	25		$	59		$	10
Weighted-average common shares outstanding:
Basic		60			60			60			60
Diluted		69			69			69			69
Income per common share:
Basic:
Continuing operations		$	0.41		$	0.43		$	0.95		$	0.18
Cumulative effect of an accounting change		—			—			0.04			—
Net income per share - basic		$	0.41		$	0.43		0.99			$	0.18
Diluted:
Continuing operations		$	0.37		$	0.39		$	0.85		$	0.18
Cumulative effect of an accounting change		—			—			0.04			—
Net income per share - diluted		$	0.37		$	0.39		$	0.89		$	0.18
Dividends per common share		$	0.16		$	0.16		$	0.48		$	0.48

 

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

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CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 2006 and September 30, 2005

(In millions)

ASSETS

UNAUDITED

 

		June 30,			September 30,
		2006			2005
Current assets:
Cash and cash equivalents		$	114		$	181
Short-term marketable securities investments		1			30
Accounts and notes receivable, net of reserve for doubtful accounts of $7 and $4		541			430
Inventories:
Raw materials		144			169
Work in process		120			134
Finished goods		145			151
Other		39			39
Total inventories		448			493
Prepaid expenses and other current assets		92			66
Assets held for sale		—			5
Deferred income taxes		50			41
Total current assets		1,246			1,246
Investments:
Equity affiliates		57			63
Long-term marketable securities and cost investments		3			6
Total investments		60			69
Property, plant and equipment		2,479			2,264
Accumulated depreciation and amortization		(1,530		)	(1,430		)
Net property, plant and equipment		949			834
Other assets:
Goodwill		35			25
Intangible assets, net of accumulated amortization of $9 and $9		5			6
Assets held for rent		39			37
Deferred income taxes		106			108
Other assets		58			49
Total other assets		243			225
Total assets		$	2,498		$	2,374

 

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

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CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 2006 and September 30, 2005

(In millions, except for share and per share amounts)

LIABILITIES & STOCKHOLDERS’ EQUITY

UNAUDITED

 

		June 30,			September 30,
		2006			2005
Current liabilities:
Notes payable to banks		$	44		$	34
Accounts payable and accrued liabilities		369			321
Income taxes payable		44			30
Deferred income taxes		1			1
Current portion of long-term debt		39			47
Total current liabilities		497			433
Long-term debt		458			463
Deferred income taxes		13			15
Other liabilities		292			307
Commitments and contingencies (Note I)
Minority interest		64			57
Stockholders’ equity:
Preferred stock:
Authorized: 2,000,000 shares of $1 par value
Series B ESOP Convertible Preferred Stock 7.75% Cumulative issued: 75,336 shares; outstanding: 57,043 and 61,068 shares (aggregate Redemption value of $40 and $44)		57			61
Less cost of shares of preferred treasury stock		(38		)	(38		)
Common stock:
Authorized: 200,000,000 shares of $1 par value Issued and outstanding: 63,452,646 and 62,971,872 shares		63			63
Less cost of shares of common treasury stock		(5		)	(5		)
Additional paid-in capital		21			32
Retained earnings		1,144			1,127
Unearned compensation		—			(41		)
Deferred employee benefits		(39		)	(42		)
Notes receivable for restricted stock		(15		)	(19		)
Accumulated other comprehensive loss		(14		)	(39		)
Total stockholders’ equity		1,174			1,099
Total liabilities and stockholders’ equity		$	2,498		$	2,374

 

The accompanying notes are an integral part of these financial statements

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CABOT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended June 30, 2006 and 2005

(In millions)

UNAUDITED

 

		2006			2005
Cash Flows from Operating Activities:
Net income		$	61		$	12
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Depreciation and amortization		92			106
Deferred tax provision		(3		)	5
Cumulative effect of an accounting change		(2		)	—
Equity in income of affiliated companies		(8		)	(6		)
Goodwill asset impairment		—			90
Other asset impairment charges		—			2
Non-cash compensation		20			21
Other non-cash charges, net		14			10
Changes in assets and liabilities (net of effect of acquisition):
Accounts and notes receivable		(67		)	(51		)
Inventory		55			(50		)
Prepayments and other assets		(8		)	8
Accounts payable and accrued liabilities		10			(27		)
Income taxes payable		(28		)	6
Other liabilities		(25		)	(25		)
Other, net		4			(7		)
Cash provided by operating activities		115			94
Cash Flows from Investing Activities:
Additions to property, plant and equipment		(144		)	(114		)
Cash paid for acquisition of affiliate, net of cash acquired		(19		)	—
Proceeds from sales of property, plant and equipment		8			1
Increase in assets held for rent		(2		)	(4		)
Purchase of marketable securities investments		(20		)	(94		)
Proceeds from sale and maturity of marketable securities investments		57			159
Cash used in investing activities		(120		)	(52		)
Cash Flows from Financing Activities:
Repayments of long-term debt		(43		)	(5		)
Proceeds from issuance of long-term debt		33			—
Increase in notes payable		7			3
Repayments of debt related to Cabot Japan		(21		)	—
Purchases of common stock		(8		)	(47		)
Proceeds from sales of common stock		7			3
Proceeds from cash contributions received from minority interest shareholders		2			4
Cash dividends paid to stockholders		(32		)	(32		)
Cash dividends paid to minority interest stockholders		(7		)	(8		)
Restricted stock loan repayments		2			2
Cash used in financing activities		(60		)	(80		)
Effect of exchange rate changes on cash		(2		)	—
Decrease in cash and cash equivalents		(67		)	(38		)
Cash and cash equivalents at beginning of period		181			159
Cash and cash equivalents at end of period		$	114		$	121

 

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

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CABOT CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

Nine Months Ended June 30, 2006

(In millions, except shares in thousands)

UNAUDITED

		Preferred Stock, net of Treasury Stock					Common Stock, net of Treasury Stock					Additional Paid-in Capital			Retained Earnings			Unearned Compensation			Deferred Employee Benefits			Notes Receivable from Restricted Stock			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity			Comprehensive Income
(Dollars in millions)
2006		Shares		Cost			Shares		Cost
Balance at September 30, 2005		44		$	23		62,820		$	58		$	32		$	1,127		$	(41	)	$	(42	)	$	(19	)	$	(39	)	$	1,099
Net income															61																		$	61
Foreign currency translation adjustment																											18						18
Unrealized gain on derivative instruments																											7						7
Total comprehensive income																																	25
Comprehensive income																														86			$	86
Common dividends paid															(30		)													(30		)
Issuance of stock under employee
compensation plans, net of actual forfeitures							301		—			25																		25
Preferred stock conversion		(4	)	(4		)	589		—			4																		—
Purchase and retirement, common and treasury stock							(406	)	—			(7		)																(7		)
Preferred dividends paid to Employee Stock Ownership Plan, net of tax benefit															(2		)													(2		)
Principal payment by Employee Stock
Ownership Plan under guaranteed loan																					3									3
Reversal of unearned compensation due to
FAS 123 (R) implementation												(29		)	(12		)	41												—
Cumulative effect of change in accounting principle												(4		)																(4		)
Notes receivable for restricted stock —
repayments and forfeitures																								4						4
Balance at June 30, 2006		40		$	19		63,304		$	58		$	21		$	1,144		$	—		$	(39	)	$	(15	)	$	(14	)	$	1,174

 

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

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CABOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2006

Unaudited

A.           Basis of Presentation

The consolidated financial statements include the accounts of Cabot Corporation and its majority-owned and controlled U.S. and non-U.S. subsidiaries (“Cabot” or the “Company”). Intercompany transactions have been eliminated.

The unaudited consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and consequently do not include all disclosures required by Form 10-K. Additional information may be obtained by referring to Cabot’s Annual Report on Form 10-K for the fiscal year ended September 30, 2005 (“2005 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, 2006 and 2005. 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.

Certain amounts in fiscal 2005 have been reclassified to conform to the fiscal 2006 presentation.

B.           Significant Accounting Policies

Revenue Recognition

Cabot derives most of its revenues from the sale of rubber blacks, performance products, inkjet colorants, fumed metal oxides and tantalum and related products and from the rental and sale of cesium formate. Revenue from product sales is typically recognized when the product is shipped and title and risk of loss have passed to the customer. Revenue from the rental of cesium formate is recognized throughout the rental period based on the contracted rental amount. Customers are also billed and revenue is recognized, typically at the end of the job, for cesium formate product that is not returned. Other operating revenues, which represent less than ten percent of total revenues, include tolling, servicing and royalties for licensed technology.

Cabot’s revenue recognition policies are in accordance with Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition,” which establishes criteria that must be satisfied before revenue is realized or realizable and earned. Cabot recognizes revenue when persuasive evidence of a sales arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectibility is probable. Cabot generally is able to ensure that products meet customer specifications prior to shipment. If the Company is unable to determine that the product has met the specified objective criteria prior to shipment, the revenue is deferred until product acceptance has occurred.

Certain customer contracts contain price protection clauses that provide for the potential reduction in past or future sales prices. Cabot analyzes these contract provisions to determine if an obligation related to these clauses exists and records revenue net of any estimated price protection commitments.

Under certain multi-year supply contracts with declining prices and minimum volumes, Cabot recognizes revenue based on the estimated average selling price over the contract lives. At June 30, 2006 and September 30, 2005, Cabot had less than a million and $1 million, respectively, of revenue deferred related to certain supply agreements representing the difference between the billed price and the estimated average selling price. The revenue deferred will be recognized as customers purchase the contracted minimum volumes through calendar 2006.

The Company offers certain of its customers cash discounts and volume rebates as sales incentives. The discounts and volume rebates are recorded as a reduction of sales at the time revenue is recognized based on historical experience. Rebates are estimated and recorded based primarily on historical experience and contractual obligations. Cabot reviews its estimates for discounts and volume rebates, and the assumptions underlying the estimates are modified to reflect changes in facts and circumstances as appropriate.

Accounts and notes receivable as of June 30, 2006 and September 30, 2005 primarily include trade accounts receivable, which arise in the normal course of business, income tax receivables of $31 million and $23 million, respectively, and the current portion of notes receivable of $10 million and $6 million, respectively.

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CABOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

June 30, 2006

Unaudited

Trade receivables are recorded at the invoiced amount and do not bear interest. Certain receivables in one subsidiary may be settled through the receipt of bank issued non interest bearing notes. These notes totaled 64 million RMB ($8 million) and 42 million RMB ($5 million) as of June 30, 2006 and September 3, 2005, respectively, and are included in Accounts and notes receivable. Cabot periodically sells a portion of these notes receivables from customers related to one of its subsidiaries at a discount. These transactions are accounted for as sales under the provisions of FAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” The difference between the proceeds from the sale and the carrying value of the receivables is recognized as a loss on the sale of receivables and is included in other expense in the accompanying statements of operations.

Cabot maintains allowances for doubtful accounts based on an assessment of the collectibility of specific customer accounts, the aging of accounts receivable and other economic information on both an historical and prospective basis. Customer account balances are charged against the allowance for doubtful accounts when Cabot determines it is probable the receivable will not be recovered. Changes made in the allowance during both the third fiscal quarter of 2006 and 2005 were not material.

Shipping and handling charges related to sales transactions are recorded as sales revenue when billed to customers or included in the sales price in accordance with Emerging Issues Task Force (“EITF”) 00-10, “Accounting for Shipping and Handling Fees and Costs.” Shipping and handling costs are included in cost of sales.

Assets Held for Sale

Cabot classifies its long-lived assets as held for sale when management commits to a plan to sell the assets, the assets are ready for immediate sale in their present condition, an active program to locate buyers has been initiated, the sale of the assets is probable and expected to be completed within one year, the assets are marketed at reasonable prices in relation to their fair values and it is unlikely that significant changes will be made to the plan to sell the assets. The Company measures long-lived assets to be disposed of by sale at the lower of the carrying amount and fair value, less cost to sell.

During the second quarter of fiscal 2006, Cabot sold the property, plant and equipment assets related to the Supermetals Business’s direct finished tantalum sputtering target business to Tosoh SMD, a division of Tosoh Corporation. These assets were recorded at their fair value and classified as assets held for sale at December 31, 2005. There was no gain or loss recognized upon completion of the sale.

Last-In First-Out (“LIFO”) Liquidation

During the third quarter of 2006, inventory quantities were reduced at the Company’s U.S. Supermetals site.  This reduction led to a liquidation of LIFO inventory quantities carried at lower costs, that were prevailing in prior years, as compared with the cost of current fiscal year purchases through June 30, 2006. This resulted in a decrease of cost of goods sold of $2 million and an increase of net income by approximately $1 million, or $0.02 per share, for the three and nine months ended June 30, 2006.

C.                                    Stock-Based Compensation

Cabot established the 2006 Long-Term Incentive Plan (the “2006 Plan”) in order to provide equity-based compensation to the Company’s key employees, advisors and consultants. The 2006 Plan was approved by Cabot’s stockholders on March 9, 2006 and replaces the 1996 Equity Incentive Plan and the 1999 Equity Incentive Plan. Although the 2006 Plan allows Cabot to issue various forms of equity, Cabot expects to use the 2006 Plan primarily to issue shares of restricted stock and stock options under its long-term incentive compensation program. The terms of awards made under this program are generally determined by the Compensation Committee of the Board of Directors. As the program has been administered since 1992, participants are granted a specific number of shares of common stock (the “Grant Number”) that the participant may then elect either (i) to purchase as shares of restricted stock at a percentage of the market price of such stock on the date of grant (which in the last six years has been 30%) or (ii) to receive as non-qualified stock options for a number of shares of common stock equal to two times the Grant Number, exercisable at 100% of the market price of such stock on the date of grant. Both the purchased restricted stock and the stock options granted under the program are subject to a three-year vesting period. Stock options granted under the program expire five years from the date of grant. Variations of the restricted stock awards are made to international employees in order to provide benefits comparable to U.S. employees. Approximately 1.0 million restricted stock awards were granted under the 2006 Plan and there are approximately 3.4 million shares available for future grants at June 30, 2006. No new awards may be granted under either the 1996 Equity Incentive Plan or the 1999 Equity Incentive Plan, but there remain outstanding certain awards previously granted under these plans.

Through fiscal year 2005, Cabot followed Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations, which resulted in the accounting for grants of awards to employees at their intrinsic value in the consolidated financial statements. On October 1, 2005, Cabot adopted FAS No. 123(R), “Accounting for Stock-Based Compensation,” using the modified prospective method, which permits the provisions of FAS 123(R) to be applied to the consolidated financial statements on a going-forward basis. Prior periods have not been restated. FAS 123(R)

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CABOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

June 30, 2006

Unaudited

requires companies to recognize share-based payments to employees as compensation expense on a fair value method. Under the fair value recognition provisions of FAS 123(R), stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the service period, which generally represents the vesting period. The fair value of stock options is calculated using the Black-Scholes option-pricing model and the fair value of restricted stock is based on intrinsic value. The expense recognized over the service period is required to include an estimate of the awards that will be forfeited. Previously, and as permitted under APB 25, Cabot recorded the impact of forfeitures as they occurred. In connection with the adoption of FAS 123(R), during the first quarter of fiscal year 2006, Cabot recorded a $2 million gain (after-tax) from the cumulative effect of the change from recording forfeitures as they occur to estimating forfeitures during the service period. In addition, the previously recorded unearned compensation balance of $41 million that existed as of the date of adoption and which was included as a component of stockholders’ equity, was reclassified to additional paid-in capital and retained earnings.

Stock-based Compensation

Prior to the adoption of FAS No. 123(R), Cabot included in its financial statements the stock-based compensation disclosure requirements of FAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” The following table illustrates the effect the fair value recognition provisions of FAS No. 123, “Accounting for Stock Based Compensation” would have had on net earnings per share for the three and nine months ended June 30, 2005.

 

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CABOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

June 30, 2006

Unaudited

Stock-based employee compensation expense was $4 million and $12 million after tax for the three and nine months ending June 30, 2006, respectively. The Company recognized the full impact of its stock-based employee compensation in the consolidated statements of operations for the nine months ended June 30, 2006 under FAS 123(R) and did not capitalize any such costs on the consolidated balance sheets because those that qualified for capitalization were not material. The following table presents stock-based compensation expenses included in the Company’s consolidated statement of operations:

 

Stock Options- As of June 30, 2006, Cabot has $2 million of total unrecognized compensation cost related to non-vested options granted under the Company’s equity incentive plans. That cost is expected to be recognized over a weighted-average period of 1.76 years.

Restricted Stock- As of June 30, 2006, Cabot has $42 million of total unrecognized compensation cost related to non-vested restricted stock granted under the Company’s equity incentive plans. That cost is expected to be recognized over a weighted-average period of 1.81 years.

Equity Incentive Plan Activity

The following tables summarize the total stock option and restricted stock activity in the equity incentive plans for the three and nine months ended June 30, 2006:

 

 

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CABOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

June 30, 2006

Unaudited

 

Stock Options

The following table summarizes information related to the outstanding and vested options on June 30, 2006:

 

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, based on the closing price of the Company’s common stock ($34.52) on June 30, 2006, which would have been received by the option holders had all option holders exercised their options on that date.

The following table summarizes information related to the total intrinsic value of options exercised during the three and nine months ended June 30, 2006:

 

The Company settles employee stock option exercises with newly issued common shares. The total fair value of the options vested during the three and nine months ended June 30, 2006 was $6 million.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of the options at the grant date. There were approximately 93,000 options granted during the three and nine months ended June 30, 2006. The fair values of options outstanding on June 30, 2006 were calculated using the following assumptions:

 

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CABOT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

June 30, 2006

Unaudited

The expected stock price volatility assumption was determined using the historical volatility of the Company’s common stock over the expected life of the option.

D.           Acquisitions

Cabot had a 50:50 joint venture arrangement with Showa Denko K.K. in an entity called Showa Cabot K.K. (“SCK”). On November 8, 2005, Cabot purchased Showa Denko K.K.’s 50% joint venture interest in SCK for $19 million and renamed the entity Cabot Japan K.K (“Cabot Japan”). In addition, as part of the acquisition, Cabot assumed approximately $26 million of SCK’s debt obligations and approximately $10 million of unfunded pension liabilities.

Prior to the acquisition, Cabot’s investment in SCK was accounted for as an equity method investment. Included in Cabot’s consolidated results for the period ended June 30, 2006 are 50% of the operating results of SCK from October 1, 2005 through November 7, 2005 and 100% of the operating results of Cabot Japan from November 8, 2005 through June 30, 2006.

The fair value of the assets acquired and liabilities and debt assumed represents the 50% of SCK that Cabot purchased. A preliminary allocation of the purchase price is as follows:

(Dollars in millions)
Cash paid		$	19
Accounts receivable		$	20
Inventories		3
Deferred income taxes		7
Investments in marketable securities		1
Property, plant and equipment		26
Total assets acquired		$	57
Accounts payable and accrued expenses		27
Notes payable		12
Pension obligation		10
Total liabilities assumed		$	49
Net assets acquired		$	8
Excess purchase price		$	11

 

At June 30, 2006, the excess purchase price related to the acquisition of SCK has been included as a component of goodwill in the accompanying consolidated balance sheets. The allocation of the purchase price is based on preliminary estimates of the fair value of the net assets acquired, and is subject to revision. The allocation is not yet finalized as management is still in the process of performing the valuation of tangible and intangible assets and pension obligations with the assistance of independent valuation specialists. The allocation will be finalized during the fourth quarter of fiscal 2006.

13