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, 2007
or
o 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 |
Two Seaport Lane |
|
|
Boston, Massachusetts |
|
02210-2019 |
(Address of principal executive offices) |
|
(Zip Code) |
Registrants 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 o
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. (Check one):
Large accelerated filer x |
|
Accelerated filer o |
|
Non-accelerated filer o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
As of August 2, 2007 the Company had 67,697,561 shares of common stock,
par value $1 per share, outstanding.
2
CONSOLIDATED STATEMENTS OF INCOME
Three and Nine Months Ended June 30, 2007 and 2006
|
|
Three Months |
|
Nine Months |
|
||||||||||||
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||||||
|
|
(In millions, except per share amounts) |
|
||||||||||||||
Net sales and other operating revenue |
|
|
$ |
649 |
|
|
|
$ |
666 |
|
|
$ |
1,941 |
|
$ |
1,880 |
|
Cost of sales |
|
|
543 |
|
|
|
551 |
|
|
1,547 |
|
1,574 |
|
||||
Gross profit |
|
|
106 |
|
|
|
115 |
|
|
394 |
|
306 |
|
||||
Selling and administrative expenses |
|
|
56 |
|
|
|
59 |
|
|
183 |
|
176 |
|
||||
Research and technical expenses |
|
|
17 |
|
|
|
14 |
|
|
49 |
|
41 |
|
||||
Income from operations |
|
|
33 |
|
|
|
42 |
|
|
162 |
|
89 |
|
||||
Interest and dividend income |
|
|
3 |
|
|
|
|
|
|
8 |
|
3 |
|
||||
Interest expense |
|
|
(8 |
) |
|
|
(6 |
) |
|
(26 |
) |
(19 |
) |
||||
Other income (expense) |
|
|
3 |
|
|
|
(2 |
) |
|
4 |
|
|
|
||||
Income from continuing operations before income taxes, equity in net income of affiliated companies and minority interest |
|
|
31 |
|
|
|
34 |
|
|
148 |
|
73 |
|
||||
Provision for income taxes |
|
|
(9 |
) |
|
|
(8 |
) |
|
(40 |
) |
(13 |
) |
||||
Equity in net income of affiliated companies, net of tax |
|
|
3 |
|
|
|
1 |
|
|
9 |
|
8 |
|
||||
Minority interest in net income, net of tax |
|
|
(4 |
) |
|
|
(2 |
) |
|
(11 |
) |
(9 |
) |
||||
Income from continuing operations |
|
|
21 |
|
|
|
25 |
|
|
106 |
|
59 |
|
||||
Loss from discontinued operations, net of tax |
|
|
(1 |
) |
|
|
|
|
|
(1 |
) |
|
|
||||
Income before cumulative effect of a change in accounting principle |
|
|
20 |
|
|
|
25 |
|
|
105 |
|
59 |
|
||||
Income from cumulative effect of a change in accounting principle, net of tax |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
||||
Net income |
|
|
20 |
|
|
|
25 |
|
|
105 |
|
61 |
|
||||
Dividends on preferred stock, net of tax benefit |
|
|
|
|
|
|
(1 |
) |
|
(1 |
) |
(2 |
) |
||||
Net income available to common shares |
|
|
$ |
20 |
|
|
|
$ |
24 |
|
|
$ |
104 |
|
$ |
59 |
|
Weighted-average common shares outstanding, in millions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
61 |
|
|
|
60 |
|
|
61 |
|
60 |
|
||||
Diluted |
|
|
68 |
|
|
|
69 |
|
|
68 |
|
69 |
|
||||
Income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income from continuing operations |
|
|
$ |
0.33 |
|
|
|
$ |
0.41 |
|
|
$ |
1.70 |
|
$ |
0.95 |
|
Loss from discontinued operations |
|
|
(0.01 |
) |
|
|
|
|
|
(0.01 |
) |
|
|
||||
Income before cumulative effect of a change in accounting principle |
|
|
$ |
0.32 |
|
|
|
$ |
0.41 |
|
|
$ |
1.69 |
|
$ |
0.95 |
|
Income from cumulative effect of a change in accounting principle |
|
|
|
|
|
|
|
|
|
|
|
0.04 |
|
||||
Net income per sharebasic |
|
|
$ |
0.32 |
|
|
|
$ |
0.41 |
|
|
$ |
1.69 |
|
$ |
0.99 |
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Income from continuing operations |
|
|
$ |
0.31 |
|
|
|
$ |
0.37 |
|
|
$ |
1.55 |
|
$ |
0.85 |
|
Loss from discontinued operations |
|
|
(0.01 |
) |
|
|
|
|
|
(0.01 |
) |
|
|
||||
Income before cumulative effect of a change in accounting principle |
|
|
$ |
0.30 |
|
|
|
$ |
0.37 |
|
|
$ |
1.54 |
|
$ |
0.85 |
|
Income from cumulative effect of a change in accounting principle |
|
|
|
|
|
|
|
|
|
|
|
0.04 |
|
||||
Net income per sharediluted |
|
|
$ |
0.30 |
|
|
|
$ |
0.37 |
|
|
$ |
1.54 |
|
$ |
0.89 |
|
Dividends per common share |
|
|
$ |
0.18 |
|
|
|
$ |
0.16 |
|
|
$ |
0.54 |
|
$ |
0.48 |
|
The accompanying notes are an integral part of these financial statements.
3
CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
UNAUDITED
|
|
June 30, |
|
September 30, |
|
||||
|
|
(In millions) |
|
||||||
Current assets: |
|
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
229 |
|
|
$ |
189 |
|
|
Short-term marketable securities |
|
11 |
|
|
1 |
|
|
||
Accounts and notes receivable, net of reserve for
doubtful accounts of |
|
560 |
|
|
534 |
|
|
||
Inventories: |
|
|
|
|
|
|
|
||
Raw materials |
|
140 |
|
|
131 |
|
|
||
Work in process |
|
93 |
|
|
109 |
|
|
||
Finished goods |
|
158 |
|
|
139 |
|
|
||
Other |
|
41 |
|
|
41 |
|
|
||
Total inventories |
|
432 |
|
|
420 |
|
|
||
Prepaid expenses and other current assets |
|
74 |
|
|
75 |
|
|
||
Deferred income taxes |
|
34 |
|
|
36 |
|
|
||
Total current assets |
|
1,340 |
|
|
1,255 |
|
|
||
Investments: |
|
|
|
|
|
|
|
||
Equity affiliates |
|
62 |
|
|
59 |
|
|
||
Long-term marketable securities and cost investments |
|
3 |
|
|
3 |
|
|
||
Total investments |
|
65 |
|
|
62 |
|
|
||
Property, plant and equipment |
|
2,677 |
|
|
2,531 |
|
|
||
Accumulated depreciation and amortization |
|
(1,713 |
) |
|
(1,567 |
) |
|
||
Net property, plant and equipment |
|
964 |
|
|
964 |
|
|
||
Other assets: |
|
|
|
|
|
|
|
||
Goodwill |
|
34 |
|
|
31 |
|
|
||
Intangible assets, net of accumulated amortization of $11 and $10 |
|
4 |
|
|
5 |
|
|
||
Assets held for rent |
|
42 |
|
|
40 |
|
|
||
Deferred income taxes |
|
96 |
|
|
100 |
|
|
||
Other assets |
|
83 |
|
|
77 |
|
|
||
Total other assets |
|
259 |
|
|
253 |
|
|
||
Total assets |
|
$ |
2,628 |
|
|
$ |
2,534 |
|
|
The accompanying notes are an integral part of these financial statements.
4
CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES & STOCKHOLDERS EQUITY
UNAUDITED
|
June 30, |
|
September 30, |
|
|||||||
|
|
2007 |
|
2006 |
|
||||||
|
|
(In millions, except share |
|
||||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
||
Notes payable to banks |
|
|
$ |
68 |
|
|
|
$ |
58 |
|
|
Accounts payable and accrued liabilities |
|
|
398 |
|
|
|
384 |
|
|
||
Income taxes payable |
|
|
28 |
|
|
|
27 |
|
|
||
Deferred income taxes |
|
|
2 |
|
|
|
2 |
|
|
||
Current portion of long-term debt |
|
|
15 |
|
|
|
34 |
|
|
||
Total current liabilities |
|
|
511 |
|
|
|
505 |
|
|
||
Long-term debt |
|
|
437 |
|
|
|
459 |
|
|
||
Deferred income taxes |
|
|
18 |
|
|
|
20 |
|
|
||
Other liabilities |
|
|
295 |
|
|
|
286 |
|
|
||
Commitments and contingencies (Note G) |
|
|
|
|
|
|
|
|
|
||
Minority interest |
|
|
70 |
|
|
|
68 |
|
|
||
Stockholders equity: |
|
|
|
|
|
|
|
|
|
||
Preferred stock: |
|
|
|
|
|
|
|
|
|
||
Authorized: 2,000,000 shares of $1 par value |
|
|
|
|
|
|
|
|
|
||
Authorized: 200,000 shares |
|
|
49 |
|
|
|
56 |
|
|
||
Outstanding: 32,275 and 38,734 shares (aggregate redemption value of $32 and $39 at $1,000 per share) |
|
|
|
|
|
|
|
|
|
||
Less cost of 17,161 shares of preferred treasury stock |
|
|
(38 |
) |
|
|
(38 |
) |
|
||
Common stock: |
|
|
|
|
|
|
|
|
|
||
Authorized: 200,000,000
shares of $1 par value |
|
|
64 |
|
|
|
64 |
|
|
||
Less cost of 144,871 and 146,389 shares of common treasury stock |
|
|
(5 |
) |
|
|
(5 |
) |
|
||
Additional paid-in capital |
|
|
2 |
|
|
|
7 |
|
|
||
Retained earnings |
|
|
1,230 |
|
|
|
1,160 |
|
|
||
Deferred employee benefits |
|
|
(35 |
) |
|
|
(38 |
) |
|
||
Notes receivable for restricted stock |
|
|
(15 |
) |
|
|
(20 |
) |
|
||
Accumulated other comprehensive income |
|
|
45 |
|
|
|
10 |
|
|
||
Total stockholders equity |
|
|
1,297 |
|
|
|
1,196 |
|
|
||
Total liabilities and stockholders equity |
|
|
$ |
2,628 |
|
|
|
$ |
2,534 |
|
|
The accompanying notes are an integral part of these financial statements.
5
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended June 30, 2007 and 2006
UNAUDITED
|
|
2007 |
|
2006 |
|
||
|
|
(In millions) |
|
||||
Cash Flows from Operating Activities: |
|
|
|
|
|
||
Net income |
|
$ |
105 |
|
$ |
61 |
|
Adjustments to reconcile net income to cash provided by (used in) operating activities: |
|
|
|
|
|
||
Depreciation and amortization |
|
108 |
|
92 |
|
||
Deferred tax provision |
|
(3 |
) |
(3 |
) |
||
Cumulative effect of a change in accounting principle |
|
|
|
(2 |
) |
||
Equity in net income of affiliated companies |
|
(9 |
) |
(8 |
) |
||
Minority interest in net income |
|
11 |
|
9 |
|
||
Non-cash compensation |
|
18 |
|
20 |
|
||
Equity affiliate dividend |
|
7 |
|
4 |
|
||
Other non-cash items |
|
1 |
|
5 |
|
||
Changes in assets and liabilities net of acquisitions: |
|
|
|
|
|
||
Accounts and notes receivable |
|
(9 |
) |
(67 |
) |
||
Inventories |
|
(7 |
) |
55 |
|
||
Prepaid expenses and other current assets |
|
5 |
|
(8 |
) |
||
Accounts payable and accrued liabilities |
|
(4 |
) |
10 |
|
||
Income taxes payable |
|
(1 |
) |
(28 |
) |
||
Other liabilities |
|
(2 |
) |
(25 |
) |
||
Other |
|
2 |
|
|
|
||
Cash provided by operating activities |
|
222 |
|
115 |
|
||
Cash Flows from Investing Activities: |
|
|
|
|
|
||
Additions to property, plant and equipment |
|
(81 |
) |
(144 |
) |
||
Acquisition of interest in equity affiliate |
|
|
|
(19 |
) |
||
Proceeds from sales of property, plant and equipment |
|
2 |
|
8 |
|
||
Increase in assets held for rent |
|
(3 |
) |
(2 |
) |
||
Purchases of marketable securities |
|
(95 |
) |
(20 |
) |
||
Proceeds from maturity of marketable securities |
|
85 |
|
57 |
|
||
Cash used in investing activities |
|
(92 |
) |
(120 |
) |
||
Cash Flows from Financing Activities: |
|
|
|
|
|
||
Borrowings under financing arrangements |
|
45 |
|
18 |
|
||
Repayments under financing arrangements |
|
(36 |
) |
(7 |
) |
||
Repayments of long-term debt |
|
(42 |
) |
(43 |
) |
||
Proceeds from long-term debt |
|
5 |
|
33 |
|
||
Decrease in notes payable to banks, net |
|
(2 |
) |
(4 |
) |
||
Repayments of debt related to Cabot Japan KK |
|
|
|
(21 |
) |
||
Proceeds from cash contribution received from minority interest shareholders |
|
|
|
2 |
|
||
Proceeds from sales of common stock |
|
10 |
|
7 |
|
||
Purchases of common stock(1) |
|
(33 |
) |
(8 |
) |
||
Cash dividends paid to minority interest stockholders |
|
(12 |
) |
(7 |
) |
||
Cash dividends paid to stockholders |
|
(35 |
) |
(32 |
) |
||
Proceeds from restricted stock loan repayments |
|
4 |
|
2 |
|
||
Cash used in financing activities |
|
(96 |
) |
(60 |
) |
||
Effect of exchange rate changes on cash |
|
6 |
|
(2 |
) |
||
Increase (decrease) in cash and cash equivalents |
|
40 |
|
(67 |
) |
||
Cash and cash equivalents at beginning of period |
|
189 |
|
181 |
|
||
Cash and cash equivalents at end of period |
|
$ |
229 |
|
$ |
114 |
|
(1) As of June 30, 2007, the Company had $5 million of unsettled purchases of common stock.
The accompanying notes are an integral part of these financial statements.
6
CABOT CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
Nine Months Ended June 30, 2007
(In millions, except shares in thousands)
UNAUDITED
|
|
|
|
|
|
|
|
|
|
|
|
Notes |
|
|
|
|
|
|
|
||||||||||||||||||||||
|
|
Preferred Stock, |
|
Common Stock, |
|
|
|
|
|
|
|
Receivable |
|
Accumulated |
|
|
|
|
|
||||||||||||||||||||||
|
|
Net of Treasury |
|
Net of Treasury |
|
Additional |
|
|
|
Deferred |
|
for |
|
Other |
|
Total |
|
Total |
|
||||||||||||||||||||||
|
|
Stock |
|
Stock |
|
Paid-in |
|
Retained |
|
Employee |
|
Restricted |
|
Comprehensive |
|
Stockholders |
|
Comprehensive |
|
||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
|
|
Shares |
|
Cost |
|
Shares |
|
Cost |
|
Capital |
|
Earnings |
|
Benefits |
|
Stock |
|
Income |
|
Equity |
|
Income |
|
||||||||||||||||||
Balance at September 30, 2006 |
|
|
39 |
|
|
$ 18 |
|
|
63,433 |
|
|
$ 59 |
|
|
$ 7 |
|
|
|
$ 1,160 |
|
|
|
$ (38 |
) |
|
|
$ (20 |
) |
|
|
$ 10 |
|
|
|
$ 1,196 |
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105 |
|
|
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
30 |
|
|
Change in unrealized gain on derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
5 |
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35 |
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140 |
|
|
|
$ 140 |
|
|
Common dividends paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34 |
) |
|
|
|
|
|
Issuance of stock under employee compensation plans,
net of |
|
|
|
|
|
|
|
|
235 |
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
Amortization of share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
Purchase and retirement of common and treasury stock |
|
|
|
|
|
|
|
|
(825 |
) |
|
(1 |
) |
|
(38 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39 |
) |
|
|
|
|
|
Preferred stock conversion |
|
|
(7 |
) |
|
(7 |
) |
|
946 |
|
|
1 |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividends paid to Employee Stock Ownership Plan, net of tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
Principal payment by Employee Stock Ownership Plan under guaranteed loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
Notes receivable for restricted stockpayments and forfeitures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
Balance at June 30, 2007 |
|
|
32 |
|
|
$ 11 |
|
|
63,789 |
|
|
$ 59 |
|
|
$ 2 |
|
|
|
$ 1,230 |
|
|
|
$ (35 |
) |
|
|
$ (15 |
) |
|
|
$ 45 |
|
|
|
$ 1,297 |
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
7
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2007
UNAUDITED
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 Cabots Annual Report on Form 10-K for the fiscal year ended September 30, 2006 (2006 10-K).
The financial information submitted in this Form 10-Q is unaudited and reflects all adjustments that are, in the opinion of management, necessary to provide a fair statement of the results for the interim periods ended June 30, 2007 and 2006. 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 the fiscal 2006 cash flow presentation have been reclassified to conform to the fiscal 2007 cash flow presentation as follows:
|
|
Nine Months Ended |
|
||||||||
|
|
As previously |
|
As reclassified |
|
||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
||
Minority interest in net income |
|
|
$ |
|
|
|
|
$ |
9 |
|
|
Other non-cash items |
|
|
14 |
|
|
|
5 |
|
|
||
Equity affiliate dividend |
|
|
|
|
|
|
4 |
|
|
||
Other |
|
|
4 |
|
|
|
|
|
|
||
Total |
|
|
$ |
18 |
|
|
|
$ |
18 |
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
||
Borrowings under financing arrangements |
|
|
$ |
|
|
|
|
$ |
18 |
|
|
Repayments under financing arrangements |
|
|
|
|
|
|
(7 |
) |
|
||
Increase (decrease) in notes payable to banks, net |
|
|
7 |
|
|
|
(4 |
) |
|
||
Total |
|
|
$ |
7 |
|
|
|
$ |
7 |
|
|
B. Significant Accounting Policies
Revenue Recognition
Cabot derives most of its revenues from the sale of rubber blacks, performance products, fumed metal oxides, 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 contracted rental terms. 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.
8
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2007
UNAUDITED
Cabots revenue recognition policies are in compliance 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.
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. These underlying assumptions are modified to reflect changes in facts and circumstances as appropriate.
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.
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 a historical and prospective basis. Customer account balances are charged against the allowance when it is probable the receivable will not be recovered. Changes in the allowance during the three and nine months ended June 30, 2007 and 2006 were not material. There is no off-balance sheet credit exposure related to customer receivable balances.
Financial Instruments
Cabots financial instruments consist primarily of cash and cash equivalents, short-term and long-term debt, and derivative instruments. The carrying values of Cabots financial instruments approximate fair value with the exception of long-term debt, which is generally recorded at face value, except for a portion that has been designated with a derivative instrument as subject to a fair value hedge. The fair values of derivative instruments are based on quoted market prices. Derivative financial instruments are used to manage certain of Cabots foreign currency and interest rate exposures, which exist as part of the Companys on-going business operations. Cabot does not enter into financial instruments for speculative purposes, nor does Cabot hold or issue any financial instruments for trading purposes. Derivative financial instruments are accounted for in accordance with Financial Accounting Standard (FAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by FAS No. 138, Accounting for Derivative Instruments and Hedging Activites and related interpretations (FAS 133), and are measured and recorded at fair value on the consolidated balance sheets. Cabot formally documents the relationships between hedging instruments and hedged items, as well as its risk management objective.
9
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2007
UNAUDITED
Hedge accounting is followed for derivatives that have been designated and qualify as fair value, cash flow or net investment hedges. For fair value hedges, the Company records in the current period earnings (i) changes in the fair value of highly effective derivatives and (ii) changes in the fair value of the hedged liabilities that are attributable to the hedged risks. For cash flow hedges, changes in the fair value of the effective portion of the derivatives gains or losses are reported in other comprehensive income and changes in the fair value of the ineffective portion are reported in current period earnings. For net investment hedges, changes in the fair value of the effective portion of the derivatives gains or losses are reported as foreign currency translation gains or losses in other comprehensive income while changes in the ineffective portion are reported in current period earnings. The gains or losses on derivative instruments reported in other comprehensive income are reclassified to earnings in the period in which earnings are affected by the underlying item. From time to time, the Company may enter into certain derivative instruments that may not be designated as hedges under FAS 133. 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.
The Company recognized the full impact of its share-based compensation plans in the consolidated statements of income for the three and nine months ended June 30, 2007 and 2006 under FAS No. 123(R), Share-Based Payments, and did not capitalize any such costs on the consolidated balance sheets, as such costs that qualified for capitalization were not material. The following table presents share-based compensation expenses included in the accompanying consolidated statements of income:
|
|
Three months |
|
Nine months |
|
||||||||||||||||
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||||||||||
|
|
(Dollars in millions) |
|
||||||||||||||||||
Cost of sales |
|
|
$ |
2 |
|
|
|
$ |
2 |
|
|
|
$ |
6 |
|
|
|
$ |
7 |
|
|
Selling and administrative expenses |
|
|
3 |
|
|
|
3 |
|
|
|
11 |
|
|
|
10 |
|
|
||||
Research and technical expenses |
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
2 |
|
|
||||
Share-based compensation expense before tax |
|
|
$ |
5 |
|
|
|
$ |
6 |
|
|
|
$ |
18 |
|
|
|
$ |
19 |
|
|
D. Goodwill and Other Intangible Assets
The carrying amount of goodwill attributable to each reportable segment with goodwill balances and the changes in those balances during the nine months ended June 30, 2007 are as follows:
|
|
Carbon Black |
|
Metal Oxides |
|
Total |
|
|||||||||
|
|
(Dollars in millions) |
|
|||||||||||||
Balance at September 30, 2006 |
|
|
$ |
21 |
|
|
|
$ |
10 |
|
|
|
$ |
31 |
|
|
Foreign currency translation adjustment |
|
|
2 |
|
|
|
1 |
|
|
|
3 |
|
|
|||
Balance at June 30, 2007 |
|
|
$ |
23 |
|
|
|
$ |
11 |
|
|
|
$ |
34 |
|
|
10
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2007
UNAUDITED
As required by FAS No. 142, Goodwill and Other Intangibles, (FAS No. 142) impairment tests are performed at least annually. The Company performed its annual FAS No. 142 impairment assessment as of March 31, 2007 and determined that there was no impairment.
Cabot does not have any indefinite-lived intangible assets. At June 30, 2007 and September 30, 2006, Cabot had $4 million and $5 million of finite-lived intangible assets, respectively. Intangible assets are amortized over their estimated useful lives, which range from two to fifteen years, with a weighted average period of ten years. Amortization relative to these intangibles is expected to aggregate to less than $1 million per year over the next five years.
Net periodic defined benefit pension and other postretirement benefit costs include the following:
|
|
Three Months Ended June 30 |
|
||||||||||||||||||||||||||||||||||
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||||||||||||||||||||||||||
|
|
Pension Benefits |
|
Postretirement Benefits |
|
||||||||||||||||||||||||||||||||
|
|
U.S. |
|
Foreign |
|
U.S. |
|
Foreign |
|
U.S. |
|
Foreign |
|
U.S. |
|
Foreign |
|
||||||||||||||||||||
|
|
(Dollars in millions) |
|
||||||||||||||||||||||||||||||||||
Service cost |
|
|
$ |
1 |
|
|
|
$ |
2 |
|
|
|
$ |
2 |
|
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Interest cost |
|
|
2 |
|
|
|
3 |
|
|
|
2 |
|
|
|
3 |
|
|
1 |
|
|
1 |
|
|
1 |
|
|
1 |
|
|
||||||||
Expected gain on plan assets |
|
|
(2 |
) |
|
|
(3 |
) |
|
|
(3 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Recognized loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
||||||||
Amortization of actuarial (gain) loss |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Amortization of prior service cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
||||||||
Net periodic benefit cost |
|
|
$ |
1 |
|
|
|
$ |
3 |
|
|
|
$ |
1 |
|
|
|
$ |
3 |
|
|
$ |
2 |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
|
|
Nine Months Ended June 30 |
|
||||||||||||||||||||||||||||||||||
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||||||||||||||||||||||||||
|
|
Pension Benefits |
|
Postretirement Benefits |
|
||||||||||||||||||||||||||||||||
|
|
U.S. |
|
Foreign |
|
U.S. |
|
Foreign |
|
U.S. |
|
Foreign |
|
U.S. |
|
Foreign |
|
||||||||||||||||||||
|
|
(Dollars in millions) |
|
||||||||||||||||||||||||||||||||||
Service cost |
|
|
$ |
3 |
|
|
|
$ |
5 |
|
|
|
$ |
5 |
|
|
|
$ |
4 |
|
|
$ |
2 |
|
|
$ |
|
|
|
$ |
2 |
|
|
$ |
|
|
|
Interest cost |
|
|
6 |
|
|
|
9 |
|
|
|
5 |
|
|
|
8 |
|
|
4 |
|
|
1 |
|
|
4 |
|
|
1 |
|
|
||||||||
Expected gain on plan assets |
|
|
(7 |
) |
|
|
(8 |
) |
|
|
(8 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Recognized loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
||||||||
Amortization of actuarial (gain) loss |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Amortization of prior service cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
(1 |
) |
|
|
|
|
||||||||
Net periodic benefit cost |
|
|
$ |
2 |
|
|
|
$ |
8 |
|
|
|
$ |
2 |
|
|
|
$ |
8 |
|
|
$ |
5 |
|
|
$ |
1 |
|
|
$ |
7 |
|
|
$ |
1 |
|
|
Closure of Waverly, WV Carbon Black Facility
In June 2007, Cabot announced that it would close its carbon black manufacturing facility in Waverly, West Virginia. The decision to close the facility was driven by changes in the North American tire manufacturing industry. Site operations are expected to cease by the middle of calender year 2008. The
11
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2007
UNAUDITED
total charges related to closing the plant are expected to be approximately $22 million, which includes an anticipated net gain on the sale of land where the facility is located. This gain is expected to be less than $1 million. The $22 million includes approximately $2 million for severence and employee benefits, $17 million for accelerated depreciation of the facility assets and $3 million for demolition of the facility. All the charges associated with closing the plant are related to the rubber blacks and performance products product lines. As of June 30, 2007, Cabot has recorded $3 million of these charges, which were primarily associated with accelerated depreciation of the facility assets, and expects to record an additional $5 million of charges during the remainder of fiscal 2007. The Company anticipates that the remaining $14 million of charges will be recorded over the next two fiscal years in connection with the closure, demolition and site remediation. The Company expects to make cash payments of $3 million and $2 million in fiscal 2008 and 2009, respectively.
Cost Reduction Initiatives
In September 2006, Cabot announced a global restructuring plan principally aimed at reducing the fundamental cost structure of its rubber blacks and performance products product lines. These initiatives include streamlining the Companys sales, manufacturing, technical service and certain functional groups through a workforce reduction. Implementation began in September 2006 and has been substantially completed. The total number of employees impacted by the cost reductions was approximately 130, with the majority having left the Company by September 30, 2006.
During the third quarter of fiscal 2007, due partly to ongoing weakness in the Supermetals Business, the decision was made to terminate the employment of eight employees in that Business. This resulted in a charge of less than $1 million for severance and related benefits during the three months ended June 30, 2007.
All charges associated with these actions have been recorded in accordance with FAS No. 112, Employers Accounting for Postemployment Benefits or FAS No. 146, Accounting for the Costs Associated with Exit or Disposal Activities, as appropriate. Cabot expects to make cash payments related to these charges of approximately $2 million and less than $1 million during the remainder of fiscal 2007 and in fiscal 2008, respectively.
Details of this restructuring activity and the related reserve during the three months ended June 30, 2007 are as follows:
|
|
Severance |
|
|||
|
|
(Dollars in millions) |
|
|||
Reserve at March 31, 2007 |
|
|
$ |
4 |
|
|
Charges |
|
|
|
|
|
|
Cash Paid |
|
|
(2 |
) |
|
|
Reserve at June 30, 2007 |
|
|
$ |
2 |
|
|
12
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2007
UNAUDITED
Details of this restructuring activity and the related reserve during the nine months ended June 30, 2007 are as follows:
|
|
Severance |
|
|||
|
|
(Dollars in millions) |
|
|||
Reserve at September 30, 2006 |
|
|
$ |
9 |
|
|
Charges |
|
|
4 |
|
|
|
Cash Paid |
|
|
(11 |
) |
|
|
Reserve at June 30, 2007 |
|
|
$ |
2 |
|
|
Closure of Altona, Australia Carbon Black Facility
In October 2004, Cabot initiated a plan to shut down its Altona, Australia carbon black manufacturing facility due to an indication by Cabots raw materials supplier that it would cease supply in September 2005, as well as the decline of the carbon black business in Australia. Production at this facility ceased on October 3, 2005. Through June 30, 2007, Cabot has recorded charges associated with this restructuring of approximately $28 million, which is expected to be partly offset by gains on the sale of the land where the facility was located. The gain on the sale of the land has not yet been reflected in the consolidated statement of income. All charges associated with this restructuring are related to the rubber blacks and performance products product lines and have been recorded in the consolidated statements of income since October 2004. No further material charges are expected related to this restructuring. The Company has $1 million of reserves remaining which is expected to be paid during fiscal 2008 in connection with the final remediation and restoration of the property.
As of June 30, 2007, the reserve balances for the cost reduction initiatives and the Altona, Australia plant closing are included in accrued expenses in the accompanying consolidated balance sheets.
Restructuring costs were recorded in the consolidated statements of income for the three and nine months ended June 30, 2007 and 2006 as follows:
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||||||||||
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||||||||||
|
|
(Dollars in millions) |
|
||||||||||||||||||
Net sales and other operating revenue |
|
|
$ |
|
|
|
|
$ |
|
|
|
|
$ |
|
|
|
|
$ |
1 |
|
|
Cost of sales |
|
|
(3 |
) |
|
|
(1 |
) |
|
|
(7 |
) |
|
|
(3 |
) |
|
||||
Selling and administrative expense |
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(2 |
) |
|
||||
Total |
|
|
$ |
(3 |
) |
|
|
$ |
(1 |
) |
|
|
$ |
(8 |
) |
|
|
$ |
(4 |
) |
|
13
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2007
UNAUDITED
G. Commitments and Contingencies
Purchase Commitments
Cabot has entered into long-term purchase agreements for various key raw materials in the Carbon Black, Metal Oxides and Supermetals Businesses. The table below includes all of the Companys long-term purchase commitments, including new agreements entered into during the third quarter of fiscal 2007:
|
|
(Dollars |
|
|||
2007 |
|
|
$ |
254 |
|
|
2008 |
|
|
288 |
|
|
|
2009 |
|
|
156 |
|
|
|
2010 |
|
|
107 |
|
|
|
2011 |
|
|
97 |
|
|
|
Thereafter |
|
|
703 |
|
|
|
Total future purchase commitments |
|
|
$ |
1,605 |
|
|
Contingencies
Cabot is a defendant or potentially responsible party in various lawsuits and environmental proceedings wherein substantial amounts are claimed or at issue.
Environmental Liabilities
As of June 30, 2007 and September 30, 2006, Cabot had approximately $12 million and $13 million, respectively, reserved for environmental matters primarily related to divested businesses. These reserves represent Cabots best estimate of its share of costs likely to be incurred at those sites where costs are reasonably estimable based on its analysis of the extent of clean up required, alternative clean up methods available, abilities of other responsible parties to contribute and its interpretation of laws and regulations applicable to each site. At June 30, 2007, $4 million of the $12 million reserved for the environmental matters are recognized on a discounted basis and are being accreted up to the undiscounted liability through interest expense over the expected cash flow period. Cash payments related to these liabilities were $1 million and $3 million, respectively, for the three and nine months ended June 30, 2007.
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 AOs 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. As more fully described in the Companys 2006 10-K, Cabots respirator liabilities involve claims for personal injury, including asbestosis and silicosis, allegedly resulting from the use of AO respirators that are alleged to have been negligently designed or labeled. As of June 30, 2007, there were approximately 55,000 claimants in pending cases asserting claims against AO in connection with respiratory products. In
14
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2007
UNAUDITED
the third quarter of fiscal 2003, Cabot recorded a reserve to cover the Companys expected share of liability for existing and future respirator liability claims. The book value of the reserve is being accreted up to the undiscounted liability through interest expense over the expected cash flow period, which is through 2049, and, at June 30, 2007, is approximately $18 million (or $28 million on an undiscounted basis). Cash payments related to this liability were $1 million in both the three and nine months ended June 30, 2007.
Carbon Black Antitrust Litigation
Cabot, Phelps Dodge Corporation, Colombian Chemicals Co., Degussa Enginerred Carbons, LP, Degussa AG and Degussa Corporation (the Defendants) are named Defendants in a class action antitrust lawsuit pending in U.S. Federal District Court for the District of Massachusetts. As more fully described in the 2006 10-K, the plaintiffs in the federal case allege that the Defendants conspired to fix, raise, maintain or stabilize prices for carbon black sold in the United States during a specified period. Based on settlement discussions with the plaintiffs in this federal action, Cabot recorded a reserve of $10 million associated with this action in its March 31, 2007 consolidated financial statements. The reserve was unchanged as of June 30, 2007. In June 2007, Cabot agreed to settle the federal class action for $10 million. The settlement received preliminary approval from the federal court in July 2007 and Cabot made a $10 million settlement payment, which is being held in escrow pending final court approval of the settlement. A hearing regarding final approval is scheduled for September 2007.
Cabot and the other Defendants are also the named Defendants in class action antitrust lawsuits pending in several state courts brought by purported classes of indirect purchasers of carbon black and in a single federal case brought by a party that did not join the federal class action. The plaintiffs in the state cases assert violations under the applicable state laws for conduct that is similar to what was alleged in the federal case. Cabot believes it has valid defenses to all of these claims and will continue to assert them vigorously.
Beryllium Claims
Cabot is a party to several pending actions in connection with its discontinued beryllium operations. Cabot entered the beryllium industry through an acquisition in 1978. The Company ceased manufacturing beryllium products at one of the acquired facilities in 1979, and the balance of its former beryllium business was sold to NGK Metals, Inc. in 1986. As more fully described in the 2006 10-K, the actions are pending in several state and federal courts, and involve claims for personal injury, medical monitoring and product liability resulting from alleged contact with beryllium in various ways. During the third quarter of fiscal 2007, Cabot participated in court-ordered mediation discussions with the parties in two of the personal injury cases pending in the Pennsylvania State Court of Common Pleas. Settlements have been reached in both of these cases. Cabot recorded a reserve of less than $1 million in its June 30, 2007 consolidated financial statements for the settlement of these two actions. In March 2007, the Pennsylvania Court of Common Pleas entered an order requiring final pretrial conferences to be held between November 2007 and February 2008 in all of the currently pending Pennsylvania state court personal injury and medical monitoring cases. Cabot believes it has valid defenses to all of the beryllium actions and will continue to assert them vigorously. In addition, there is a contractual indemnification obligation running from NGK to Cabot in connection with many of the pending beryllium matters. As a result of that indemnity obligation, NGK has participated with Cabot in many of the beryllium settlements.
15
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2007
UNAUDITED
Other Matters
In September 2005, AVX Corporation filed a lawsuit in the Massachusetts Superior Court alleging that Cabot has improperly administered the supply agreement entered into between the Company and AVX in 2001 (the 2001 Supply Agreement). In particular, AVX claims that Cabot has not provided all of the price relief due to AVX pursuant to most-favored nation (MFN) pricing provisions in the 2001 Supply Agreement. Discovery in the case is on-going, but to date AVX has claimed that it is owed an additional $28 million in MFN credit. In early April 2007, Cabot and AVX filed cross-motions for summary judgment on two key disputed issues in the litigation. A hearing on the motions took place on May 1, 2007. Cabot believes it has valid defenses to all of AVXs claims against the Company and will continue to assert them vigorously.
The Company has various other lawsuits, claims and contingent liabilities arising in the ordinary course of its business, including a number of claims asserting premises liability for asbestos exposure, and in respect of its divested businesses. In Cabots opinion, although final disposition of some or all of these other suits and claims may impact the Companys consolidated financial statements in a particular period, they should not, in the aggregate, have a material adverse effect on the Companys consolidated financial position.
Guarantee Agreements
Cabot has provided certain indemnities pursuant to which it may be required to make payments to an indemnified party in connection with certain transactions and agreements. In connection with certain acquisitions and divestitures, Cabot has provided routine indemnities with respect to such matters as environmental, tax, insurance, product and employee liabilities. In connection with various other agreements, including service and supply agreements, Cabot may provide routine indemnities for certain contingencies and routine warranties. Cabot is unable to estimate the maximum potential liability for these types of indemnities as a maximum obligation is not explicitly stated in most cases and the amounts, if any, are dependent upon the outcome of future contingent events, the nature and likelihood of which cannot be reasonably estimated. The duration of the indemnities varies, and in many cases is indefinite. Cabot has not recorded any liability for these indemnities in its consolidated financial statements, except as otherwise disclosed above under Contingencies.
16
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2007
UNAUDITED
Basic and diluted earnings per share (EPS) were calculated as follows:
|
|
Three Months |
|
Nine Months |
|
||||||||
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
||||
|
|
(In millions, except |
|
||||||||||
Basic EPS: |
|
|
|
|
|
|
|
|
|
||||
Income available to common shares (numerator) |
|
$ |
20 |
|
$ |
24 |
|
$ |
104 |
|
$ |
59 |
|
Weighted average common shares outstanding |
|
64 |
|
63 |
|
64 |
|
63 |
|
||||
Less: contingently issuable shares(1) |
|
(3 |
) |
(3 |
) |
(3 |
) |
(3 |
) |
||||
Adjusted weighted average common shares (denominator) |
|
61 |
|
60 |
|
61 |
|
60 |
|
||||
Income from continuing operations |
|
$ |
0.33 |
|
$ |
0.41 |
|
$ |
1.70 |
|
$ |
0.95 |
|
Loss per share from discontinued operations |
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
||||
Income per share from cumulative effect of a change in accounting principle |
|
|
|
|
|
|
|
0.04 |
|
||||
Net income per sharebasic |
|
$ |
0.32 |
|
$ |
0.41 |
|
$ |
1.69 |
|
$ |
0.99 |
|
Diluted EPS: |
|
|
|
|
|
|
|
|
|
||||
Income available to common shares |
|
$ |
20 |
|
$ |
24 |
|
$ |
104 |
|
$ |
59 |
|
Dividends on preferred stock, net of tax benefit(2) |
|
|
|
1 |
|
1 |
|
2 |
|
||||
Income available to common shares plus assumed conversions (numerator) |
|
$ |
20 |
|
$ |
25 |
|
$ |
105 |
|
$ |
61 |
|
Adjusted weighted average common shares outstanding |
|
61 |
|
60 |
|
61 |
|
60 |
|
||||
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
||||
Assumed conversion of preferred stock(3) |
|
5 |
|
6 |
|
5 |
|
6 |
|
||||
Common shares issuable(4)(5) |
|
2 |
|
3 |
|
2 |
|
3 |
|
||||
Adjusted weighted average shares (denominator) |
|
68 |
|
69 |
|
68 |
|
69 |
|
||||
Income from continuing operations |
|
$ |
0.31 |
|
$ |
0.37 |
|
$ |
1.55 |
|
$ |
0.85 |
|
Loss per share from discontinued operations |
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
||||
Income per share from cumulative effect of a change in accounting principle |
|
|
|
|
|
|
|
0.04 |
|
||||
Net income per sharediluted |
|
$ |
0.30 |
|
$ |
0.37 |
|
$ |
1.54 |
|
$ |
0.89 |
|
(1) Represents outstanding restricted stock issued under Cabots equity incentive plans.
(2) Represents dividends paid on preferred stock that would not be paid on the common stock issued upon conversion of the preferred stock.
(3) Represents the shares of common stock that would be issued upon conversion of the preferred stock.
(4) Represents incremental shares for the assumed vesting of outstanding restricted stock and exercise of stock options outstanding under Cabots equity incentive plans.
(5) For the three months ended June 30, 2007 no options to purchase shares of common stock were excluded in the calculation of diluted earnings per share. For the nine months ended June 30, 2007, options to purchase 39,400 shares of common stock were excluded from the calculation of diluted earnings per share because those options exercise prices were greater than the average market price of Cabot common stock during the relevant period. For the three and nine months ended June 30, 2006, options to purchase 107,600 shares of common stock were excluded from the calculations of diluted earnings per share because those options exercise prices were greater than the average market price of Cabot common stock during the relevant period.
17
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 2007
UNAUDITED
I. Financial Information by Segment
Cabot is organized into four reportable segments: the Carbon Black Business, the Metal Oxides Business, the Supermetals Business, and the Specialty Fluids Business. The following table provides financial information by segment for the three and nine months ended June 30, 2007 and 2006:
|
|
Carbon |
|
Metal |
|
Supermetals |
|
Specialty |
|
Segment |
|
Unallocated |
|
Consolidated |
|
|||||||||||||||||||
|
|
(Dollars in millions) |
|
|||||||||||||||||||||||||||||||
Three months ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net sales and other operating revenues(2) |
|
$ |
506 |
|
|
$ |
67 |
|
|
|
$ |
48 |
|
|
|
$ |
16 |
|
|
|
$ |
637 |
|
|
|
$ |
12 |
|
|
|
$ |
649 |
|
|
Income (loss) before taxes(3) |
|
$ |
25 |
|
|
$ |
9 |
|
|
|
$ |
|
|
|
|
$ |
7 |
|
|
|
$ |
41 |
|
|
|
$ |
(10 |
) |
|
|
$ |
31 |
|
|
Three months ended June 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net sales and other operating revenues(2) |
|
$ |
514 |
|
|
$ |
66 |
|
|
|
$ |
66 |
|
|
|
$ |
12 |
|
|
|
$ |
658 |
|
|
|
$ |
8 |
|
|
|
$ |
666 |
|
|
Income (loss) before taxes(3) |
|
$ |
23 |
|
|
$ |
6 |
|
|
|
$ |
9 |
|
|
|
$ |
5 |
|
|
|
$ |
43 |
|
|
|
$ |
(9 |
) |
|
|
$ |
34 |
|
|
Nine months ended June 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net sales and other operating revenues(2) |
|
$ |
1,484 |
|
|
$ |
200 |
|
|