Market Overview

Cabot Corp Reports Third Quarter Fiscal 2018 Results

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Diluted EPS of $1.40 and Adjusted EPS of $1.06

Cabot
Corporation
(NYSE:CBT) today announced results for its third
quarter of fiscal year 2018.

Key Highlights

  • Diluted EPS of $1.40, compared to $0.73 in the same period of the
    prior year; Adjusted EPS of $1.06, up 28% year-over-year
  • Reinforcement Materials EBIT improved 45% versus prior year driven
    by strong commercial execution that delivered volume growth and higher
    unit margins
  • Performance Chemicals EBIT up 22% year-over-year from robust sales
    volumes and pricing gains in Specialty Carbons and Formulations
  • Continued commitment to returning cash to shareholders with $64
    million of dividends and share repurchases in the quarter
             
(In millions, except per share amounts)     Three Months Ended     Nine Months Ended

6/30/18

   

6/30/17

6/30/18

   

6/30/17

 
Net sales $ 854 $ 705 $ 2,392 $ 1,994
Net income attributable to Cabot Corporation $ 88 $ 47 $ (207 ) $ 176
 
 
Net earnings per share attributable to Cabot Corporation $ 1.40 $ 0.73 $ (3.36 )

$

2.78

Less: Certain items after tax per share $ 0.34 $ (0.10 ) $ (6.39 ) $ 0.22
Adjusted EPS     $ 1.06     $ 0.83       $ 3.03       $ 2.56
 

Commenting on the results, Cabot President and CEO Sean Keohane said, "I
am very pleased with the strong operating results this quarter as we
continue to drive our growth strategy. Reinforcement Materials delivered
another strong quarter with 45% growth in EBIT on a year-over-year basis
driven by expanded unit margins from our leadership position in Asia and
the delivery of volume growth and price improvements in our 2018
customer agreements. Performance Chemicals results improved compared to
the prior year quarter due to 17% higher sales volumes in Specialty
Carbons and Formulations and the successful realization of price
increases across the segment. Purification Solutions EBIT was lower than
the prior year quarter due to continued competitive intensity in mercury
removal applications, while results in Specialty Fluids benefited from
the ramp-up of projects in the Middle East and Africa." Keohane
continued, "In addition, we raised the dividend by 5% in May,
repurchased shares in the amount of $43 million during the quarter and
announced 300,000 metric tons of advantaged capacity additions
throughout the carbon black network."

Financial Detail

For the third quarter of fiscal 2018, net income attributable to Cabot
Corporation was $88 million ($1.40 per diluted common share). Net income
includes an after-tax charge of $5 million from certain items,
principally reflecting charges associated with executive transition
costs and restructuring activities during the quarter. Tax-related
certain items included a discrete tax benefit of $26 million. Adjusted
EPS for the third quarter of fiscal 2018 was $1.06 per share.

Segment Results

Reinforcement Materials -- Third quarter fiscal 2018 EBIT in
Reinforcement Materials increased by $23 million compared to the third
quarter of fiscal 2017. The increase in EBIT was principally driven by
continued strong volume growth globally, expanded unit margins in Asia,
and improved pricing and product mix from 2018 customer agreements.
Globally, volumes increased 6% year over year, with above-market growth
in all regions as indicated in the table below.

       
   

Third Quarter
Year over Year Change

Changes in Global Reinforcement Materials Volumes     6%
Asia 8%
Europe, Middle East, Africa 3%
Americas     5%
 

Performance Chemicals -- Third quarter fiscal 2018 EBIT in
Performance Chemicals increased by $10 million compared to the third
quarter of fiscal 2017 driven by strong commercial execution in both
pricing and volume growth. Volumes increased by 17% in the Specialty
Carbons and Formulations business and decreased 2% in the Metal Oxides
business year-over-year. The strong growth in Specialty Carbons &
Formulations was driven by above market growth in all product lines.

Purification Solutions – Third quarter fiscal 2018 EBIT in
Purification Solutions decreased by $4 million compared to the third
quarter of fiscal 2017 due to lower volumes and margins resulting from
continued competitive intensity in mercury removal and other North
American powdered activated carbon applications, partially offset by
lower fixed costs as a result of restructuring actions taken earlier in
the year.

Specialty Fluids – Third quarter fiscal 2018 EBIT in Specialty
Fluids decreased by $1 million compared to the third quarter of fiscal
2017 due to the mix of business compared to the prior year.

Cash Performance - The Company ended the third quarter of
fiscal 2018 with a cash balance of $131 million. During the third
quarter of fiscal 2018, cash flows from operating activities were $62
million, which included a $72 million increase in net working capital.
Capital expenditures for the third quarter of fiscal 2018 were $58
million. Additional uses of cash during the third quarter included $21
million for dividends and $43 million for repurchases of common stock.

Taxes – During the third quarter of fiscal 2018, the Company
recorded a tax benefit of $4 million for an effective tax rate of (3%)
and an operating tax rate of 21%. The benefit includes a $24 million net
benefit of certain items and discrete tax items primarily related to the
discrete benefit arising from a change in a valuation allowance.

Outlook
Commenting on the
outlook for the Company, Keohane said, "We are very pleased to deliver
another excellent quarter, reflecting the strength of our global
competitive position and we remain positive about the current business
environment. Looking ahead to the fourth quarter, we anticipate that
Reinforcement Materials will continue its robust performance supported
by our advantaged leadership position and our strong operational and
commercial execution. In Performance Chemicals, we expect to maintain
margins and continued strong volumes in Specialty Carbons and
Formulations, while we anticipate some impact on volumes and fixed costs
in Metal Oxides due to coordinated turnarounds with two of our fumed
silica feedstock providers in the quarter. Although the ongoing
competitive pressures will continue to impact results in the
Purification Solutions segment, we expect higher seasonal volumes in the
fourth quarter to improve results sequentially. In the Specialty Fluids
segment, we are expecting the continued ramp up of drilling activity on
recently awarded projects to drive improved results in the fourth
quarter. We continue to execute on our strategy and are poised to
deliver a very successful 2018 fiscal year."

Earnings Call
The Company will
host a conference call with industry analysts at 2:00 p.m. Eastern time
on Tuesday, August 7, 2018. The call can be accessed through Cabot's
investor relations website at http://investor.cabot-corp.com

About Cabot Corporation
Cabot
Corporation (NYSE:CBT) is a global specialty chemicals and performance
materials company, headquartered in Boston, Massachusetts. The company
is a leading provider of rubber
and specialty
carbons
, activated
carbon
, inkjet
colorants
, cesium
formate drilling fluids
, masterbatches
and conductive compounds
, fumed
silica
, and aerogel.
For more information on Cabot, please visit the company's website
at: http://www.cabotcorp.com.
The Company encourages investors and potential investors to consult the
Cabot website regularly.

Forward-Looking Statements -- This earnings release contains
forward-looking statements. All statements that address expectations or
projections about the future, including with respect to our performance
in the fourth quarter of fiscal 2018 and the factors that we expect will
impact volumes, demand for our products, fixed costs and margins are
forward-looking statements. These statements are not guarantees of
future performance and are subject to risks, uncertainties, potentially
inaccurate assumptions, and other factors, some of which are beyond our
control and difficult to predict. If known or unknown risks materialize,
or should underlying assumptions prove inaccurate, our actual results
could differ materially from past results and from those expressed or
implied by forward-looking statements. Important factors that could
cause our results to differ materially from those expressed or implied
in the forward-looking statements include, but are not limited to
volatility in the price of energy and raw materials; competition from
other specialty chemical companies; safety, health and environmental
requirements; a significant adverse change in a customer relationship;
negative or uncertain worldwide or regional economic conditions;
unanticipated delays in site development projects; fluctuations in
foreign currency exchange and interest rates; and changes in global
trade policies. These factors are discussed more fully in the reports we
file with the Securities and Exchange Commission, particularly under the
heading "Risk Factors" in our annual report on Form 10-K for our fiscal
year ended September 30, 2017, filed with the SEC at www.sec.gov.
We assume no obligation to provide revisions to any forward-looking
statements should circumstances change, except as otherwise required by
securities and other applicable laws.

Use of Non-GAAP Financial Measures
To supplement Cabot's
consolidated financial statements presented on a generally accepted
accounting principle ("GAAP") basis, the preceding discussion of our
results and the accompanying financial tables report Adjusted EPS and
our operating tax rate, both of which are non-GAAP financial measures.
These non-GAAP financial measures are not computed in accordance with,
or as an alternative to, GAAP. A reconciliation of Adjusted EPS to net
income (loss) per share attributable to Cabot Corporation, the most
directly comparable GAAP financial measure, and a reconciliation of
operating tax rate to effective tax rate, the most directly comparable
GAAP financial measure, are provided in the table titled "Certain Items
and Reconciliation of Adjusted EPS and Operating Tax Rate."

Management believes these non-GAAP measures provide investors with
greater transparency to the information used by Cabot management in its
financial and operational decision-making, allow investors to see
Cabot's results through the eyes of management, and better enable
Cabot's investors to understand Cabot's operating performance and
financial condition.

Adjusted EPS. In calculating Adjusted EPS, we exclude from our
net income (loss) per share from continuing operations items of expense
and income that management does not consider representative of the
Company's business operations. Accordingly, reporting earnings on an
adjusted basis supplements the GAAP measure of performance and provides
additional information related to the underlying performance of the
business. For example, certain of the items we exclude are items that we
are required by GAAP to recognize in one period that relate to
activities extending over several periods or relate to single events
that management considers to be unusual and infrequent, although not
necessarily non-recurring. We refer to these items as "certain items."
Management believes excluding these items facilitates operating
performance comparisons from period to period by eliminating differences
caused by the existence and timing of certain expense and income items
that would not otherwise be apparent on a GAAP basis and evaluates the
Company's operating performance without the impact of these costs or
benefits. Management also uses Adjusted EPS as a key measure in
evaluating management performance for incentive compensation purposes.

The items of income and expense that we have excluded from our
calculations of Adjusted EPS, as applicable, but that have been included
in our GAAP net income (loss) per share, as applicable, are described
below.

  • Asset impairment charges, which primarily included charges associated
    with an impairment of goodwill or other long-lived assets.
  • Inventory Reserve Adjustment, which resulted from an evaluation
    performed as part of an impairment analysis.
  • Global restructuring activities, which included costs or benefits
    associated with cost reduction initiatives or plant closures and were
    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.
  • Legal and environmental reserves and matters, which consisted of costs
    or benefits for matters typically related to former businesses or that
    were otherwise incurred outside of the ordinary course of business.
  • Gains (losses) on sale of investments, which primarily related to the
    sale of investments accounted for under the cost-method.
  • Executive transition costs, which included incremental charges,
    including stock compensation charges, associated with the retirement
    or termination of employment of senior executives of the Company.
  • Acquisition and integration-related charges, which included
    transaction costs, redundant costs incurred during the period of
    integration, and costs associated with transitioning certain
    management and business processes to Cabot's processes.
  • Non-recurring gains (losses) on foreign currency, which primarily
    related to the impact of continued currency devaluations on our net
    monetary assets denominated in that currency.

Cabot does not provide a target GAAP EPS growth rate range or
reconciliation of the Adjusted EPS growth rate range with a GAAP EPS
growth 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 GAAP EPS in future periods.

Operating Tax Rate. Our "operating tax rate" represents the tax
rate on our recurring operating results. This rate excludes discrete tax
items, which are unusual or infrequent items that are excluded from the
estimated annual effective tax rate and other tax items, including the
impact of the timing of losses in certain jurisdictions, cumulative tax
rate adjustments and the impact of the items of expense and income we
identify as certain items on both our operating income and the tax
provision. Management believes that the operating tax rate is useful
supplemental information because it helps our investors compare our tax
rate year to year on a consistent basis and to understand what our tax
rate on current operations would be without the impact of these items.

Explanation of Terms Used

Product Mix. The term "product mix" refers to the mix of types
and grade of products sold or the mix of geographic regions where
products are sold, and the positive or negative impact this has on the
revenue or profitability of the business or segment.

Net Working Capital. The term "net working capital" includes
accounts receivable, inventory and accounts payable and accrued
liabilities.

                         
               
CABOT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
                         
                         
Periods ended June 30 Three Months Nine Months
Dollars in millions, except per share amounts (unaudited)     2018     2017     2018     2017
 
Net sales and other operating revenues $ 854 $ 705 $ 2,392 $ 1,994
 
Cost of sales (A)   654     544     1,824     1,505  
 
Gross profit 200 161 568 489
 
Selling and administrative expenses 74 63 221 191
 
Research and technical expenses 17 14 48 40
 
Long-lived assets impairment charge 162
 
Goodwill impairment charge           92      
 
Income (loss) from operations 109 84 45 258
 
Other income (expense)
 
Interest and dividend income 2 3 8 7
 
Interest expense (14 ) (13 ) (41 ) (39 )
 
Other income (expense)   (2 )   (6 )   4     (5 )
 
Total other income (expense)   (14 )   (16 )   (29 )   (37 )
 
Income (loss) from continuing operations before income taxes and
equity in
earnings of affiliated companies 95 68 16 221
 
(Provision) benefit for income taxes (A)(B) 4 (16 ) (194 ) (33 )
 
Equity in earnings of affiliated companies, net of tax       3     2     6  
 
Net income (loss) 99 55 (176 ) 194
 
Net income (loss) attributable to noncontrolling interests   11     8     31     18  
 
Net income (loss) attributable to Cabot Corporation $ 88   $ 47   $ (207 ) $ 176  
 
Diluted earnings per share of common stock
attributable to Cabot Corporation
 
Net income (loss) attributable to Cabot Corporation (A)(C) $ 1.40 $ 0.73 $ (3.36 ) $ 2.78
 
Weighted average common shares outstanding
 
Diluted (C) 62.3 62.7 61.8 62.8
 
(A)Fiscal 2017 amounts have been recast to reflect the
retrospective application of the Company's election to change its
inventory valuation method of accounting for its U.S. carbon black
inventories from the last-in, first-out ("LIFO") method to the
first-in, first-out ("FIFO") method, which resulted in a decrease in
Cost of sales of $2 million, an increase to the (Provision) benefit
for income taxes of less than $(1) million and an increase in Net
income (loss) attributable to Cabot Corporation per diluted common
share of $0.02 per share for the three months ended June 30, 2017.
For more detail on the transition from the LIFO method to the FIFO
method, please refer to the Company's 10-Q filings.
 
 
(B)Included within the (Provision) benefit for income
taxes for the three and nine months ended June 30, 2018,
respectively, is a tax (charge) benefit in the amount of $(2)
million and $28 million associated with the long-lived asset
impairment charge that was recorded in the second quarter of fiscal
2018.
 
(C)The weighted average common shares outstanding used to
calculate earnings per share for the nine months ended June 30, 2018
excludes approximately 1 million shares as those shares would be
antidilutive due to the Company's net loss position.

                         
               
CABOT CORPORATION SUMMARY RESULTS BY SEGMENTS
                         
                         
Periods ended June 30 Three Months Nine Months
Dollars in millions, except per share amounts (unaudited)     2018     2017     2018     2017
 
Sales
 
Reinforcement Materials $ 466 $ 367 $ 1,307 $ 1,014
 
Performance Chemicals 274 229 771 662
Specialty Carbons and Formulations 195 154 548 454
 
Metal Oxides 79 75 223 208
 
Purification Solutions 70 71 206 207
 
Specialty Fluids   12     12     24     30  
 
Segment sales 822 679 2,308 1,913
 
Unallocated and other (A)   32     26     84     81  
 
Net sales and other operating revenues $ 854   $ 705   $ 2,392   $ 1,994  
 
Segment Earnings Before Interest and Taxes (B)
 
Reinforcement Materials $ 74 $ 51 $ 215 $ 145
 
Performance Chemicals 56 46 160 146
 
Purification Solutions (6 ) (2 ) (6 ) 4
 
Specialty Fluids   3     4     (2 )   6  
 
Total Segment Earnings Before Interest and Taxes 127 99 367 301
 
Unallocated and Other
 
Interest expense (14 ) (13 ) (41 ) (39 )
 
Certain items (C) (3 ) (2 ) (260 ) (2 )
 
Unallocated corporate costs (15 ) (11 ) (45 ) (37 )
 
General unallocated income (expense) (D)(E) (2 ) (3 ) 4
 
Less: Equity in earnings of affiliated companies       (3 )   (2 )   (6 )
 
Income (loss) from continuing operations before income taxes and
equity in
earnings of affiliated companies 95 68 16 221
 
(Provision) benefit for income taxes (including tax certain items) (D) 4 (16 ) (194 ) (33 )
 
Equity in earnings of affiliated companies       3     2     6  
 
Net income (loss) 99 55 (176 ) 194
 
Net income attributable to noncontrolling interests   11     8     31     18  
 
Net income (loss) attributable to Cabot Corporation $ 88   $ 47   $ (207 ) $ 176  
 
Diluted earnings per share of common stock
attributable to Cabot Corporation
 
Net income (loss) attributable to Cabot Corporation (D)(F) $ 1.40 $ 0.73 $ (3.36 ) $ 2.78
 
Adjusted earnings per share
 
Adjusted EPS (D)(G) $ 1.06 $ 0.83 $ 3.03 $ 2.56
 
Weighted average common shares outstanding
 
Diluted (F) 62.3 62.7 61.8 62.8
 
(A)Unallocated and Other reflects royalties, other
operating revenues, external shipping and handling fees, the impact
of the corporate adjustment for unearned revenue, the removal of
100% of the sales of an equity method affiliate, and discounting
charges for certain Notes receivable.
 
(B)Segment EBIT is a measure used by Cabot's Chief
Operating Decision-Maker to measure consolidated operating results,
assess segment performance and allocate resources. Segment EBIT
includes equity in earnings of affiliated companies, royalty income,
and allocated corporate costs.
 
(C)Details of Certain items are presented in the Certain
Items and Reconciliation of Adjusted EPS and Operating Tax Rate
table.
 
(D)Fiscal 2017 amounts have been recast to reflect the
retrospective application of the Company's election to change its
inventory valuation method of accounting for its U.S. carbon black
inventories from the LIFO method to the FIFO method, which resulted
in a decrease in General unallocated income (expense) of $2 million,
an increase to the (Provision) benefit for income taxes of less than
$(1) million, an increase in Net income (loss) attributable to Cabot
Corporation per diluted common share of $0.02 per share and an
increase in Adjusted earnings per share of $0.02 per share for the
three months ended June 30, 2017. For more detail on the transition
from the LIFO method to the FIFO method, please refer to the
Company's 10-Q filings.
 
 
(E)General unallocated income includes foreign currency
transaction gains (losses), interest income, dividend income and the
profit related to the corporate adjustment for unearned revenue.
 
(F)The weighted average common shares outstanding used to
calculate earnings per share for the nine months ended June 30, 2018
excludes approximately 1 million shares as those shares would be
antidilutive due to the Company's net loss position.
 
(G)Adjusted EPS is a non-GAAP measure, and a
reconciliation of Adjusted EPS to GAAP EPS is presented in the
Certain Items and Reconciliation of Adjusted EPS and Operating Tax
Rate table.

             
       
CABOT CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
             
             
June 30, September 30,
Dollars in millions (unaudited)     2018     2017
 
Current assets:
 
Cash and cash equivalents $ 131 $ 280
 
Accounts and notes receivable, net of reserve for doubtful accounts
of $9 and $9
664 527
 
Inventories: (A)
 
Raw materials 122 93
 
Work in process 3 2
 
Finished goods 311 293
 
Other   46   45
 
Total inventories 482 433
 
Prepaid expenses and other current assets   65   59
 
Total current assets 1,342 1,299
 
Property, plant and equipment, net 1,248 1,305
 
Goodwill 92 154
 
Equity affiliates 51 56
 
Intangible assets, net 96 137
 
Assets held for rent 116 104
 
Deferred income taxes (A) 68 237
 
Other assets   44   46
 
Total assets $ 3,057 $ 3,338
 

(A)Fiscal 2017 amounts have been recast to reflect the
retrospective application of the Company's election to change its
inventory valuation method of accounting for its U.S. carbon black
inventories from the LIFO method to the FIFO method, which
resulted in an increase in Total inventories of $37 million and a
decrease in Deferred income taxes of $13 million.

             
       
CABOT CORPORATION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
             
           

 

June 30, September 30,
Dollars in millions, except share and per share amounts
(unaudited)
    2018     2017
 
Current liabilities:
 
Short-term borrowings $ 312 $ 7
 
Accounts payable and accrued liabilities 491 457
 
Income taxes payable 25 22
 
Current portion of long-term debt 36 256
 
Redeemable preferred stock   26      
 
Total current liabilities   890     742  
 
Long-term debt 630 661
 
Deferred income taxes 1 38
 
Other liabilities 247 245
 
Redeemable preferred stock 27
 
Stockholders' equity:
 
Preferred stock:
Authorized: 2,000,000 shares of $1 par value
Issued and Outstanding: None and none
 
Common stock:
Authorized: 200,000,000 shares of $1 par value
Issued: 61,759,181 and 62,087,627 shares
Outstanding: 61,558,577 and 61,884,347 shares 62 62
 
Less cost of 200,604 and 203,280 shares of common treasury stock (7 ) (6 )
 
Additional paid-in capital
 
Retained earnings (A) 1,417 1,707
 
Accumulated other comprehensive income   (313 )   (259 )
 
Total Cabot Corporation stockholders' equity 1,159 1,504
 
Noncontrolling interests   130     121  
 
Total stockholders' equity   1,289     1,625  
 
Total liabilities and stockholders' equity $ 3,057   $ 3,338  
 

(A)Fiscal 2017 amounts have been recast to reflect the
retrospective application of the Company's election to change its
inventory valuation method of accounting for its U.S. carbon black
inventories from the LIFO method to the FIFO method, which
resulted in an increase in Retained earnings of $24 million.

                         
               
CABOT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                         
                         
Periods ended June 30 Three Months Nine Months
Dollars in millions (unaudited)     2018     2017     2018     2017
 
Cash Flows from Operating Activities:
 
Net income (loss) (A) $ 99 $ 55 $ (176 ) $ 194
 
Adjustments to reconcile net income to cash provided by operating
activities:
 
Depreciation and amortization 38 39 117 115
 
Other non-cash charges, net (A)(B) (22 ) 402 (23 )
 
Changes in assets and liabilities:
 
Changes in certain working capital items (A)(C) (72 ) 29 (187 ) (91 )
 
Changes in other assets and liabilities, net 18 7 (21 ) (13 )
 
Cash dividends received from equity affiliates   1     3     8     9  
 
Cash provided by (used in) operating activities   62     133     143     191  
 
Cash Flows from Investing Activities:
 
Additions to property, plant and equipment (58 ) (41 ) (167 ) (86 )
 
Cash paid for acquisition of business, net of cash acquired of $1 (64 )
 
Other investing activities, net   4     (1 )   20     (3 )
 
Cash used in investing activities   (54 )   (42 )   (211 )   (89 )
 
Cash Flows from Financing Activities:
 
Change in debt, net 44 (9 ) 53 (2 )
 
Cash dividends paid to common stockholders (21 ) (19 ) (60 ) (57 )
 
Other financing activities, net (B)   (41 )   (24 )   (62 )   (35 )
 
Cash used in financing activities   (18 )   (52 )   (69 )   (94 )
 
Effect of exchange rates on cash   (38 )   26     (12 )   (10 )
 
Increase (decrease) in cash and cash equivalents (48 ) 65 (149 ) (2 )
 
Cash and cash equivalents at beginning of period   179     133     280     200  
 
Cash and cash equivalents at end of period $ 131   $ 198   $ 131   $ 198  
 
(A)Fiscal 2017 amounts have been recast to reflect the
retrospective application of the Company's election to change its
inventory valuation method of accounting for its U.S. carbon black
inventories from the LIFO method to the FIFO method, which resulted
in an increase in Net income (loss) of $2 million, an increase in
Other non-cash charges, net of less than $1 million and a decrease
in Changes in certain working capital items of $2 million for the
three months ended June 30, 2017.
 
(B)Fiscal 2017 amounts have been recast to reflect the
retrospective change related to cash flow presentation of excess tax
benefits from stock based compensation under the new stock
compensation guidance adopted in the first quarter of fiscal 2018,
which resulted in the reclassification of $1 million and $8 million
for tax benefits from stock based compensation awards from cash
flows from financing activities to cash flows from operating
activities in the Condensed Consolidated Statements of Cash Flows
for the three and nine months ended June 30, 2017, respectively.
 
(C)Includes Accounts and notes receivable, Inventories,
and Accounts payable and accrued liabilities.

                                     
CABOT CORPORATION
                                                           
Fiscal 2017 Fiscal 2018  
Dollars in millions,
except per share amounts (unaudited)     Dec. Q.     Mar. Q.     June Q.   Sept. Q.     FY Dec. Q.     Mar. Q.     June Q.     Sept. Q.     FY
 
Sales
Reinforcement Materials $ 295 $ 352 $ 367 $ 367 $ 1,381 $ 387 $ 454 $ 466

$

$ 1,307
Performance Chemicals 205 228 229 246 908 229 268 274

771
Specialty Carbons and Formulations 138 162 154 169 623 160 193 195 548
Metal Oxides 67 66 75 77 285 69 75 79 223
Purification Solutions 69 67 71 74 281 70 66 70 206
Specialty Fluids   11         7         12         11         41     6         6         12               24  
Segment Sales 580 654 679 698 2,611 692 794 822 2,308
Unallocated and other (A)   31         24         26         25         106     28         24         32               84  
 
Net sales and other operating revenues $ 611       $ 678       $ 705       $ 723       $ 2,717   $ 720       $ 818       $ 854      

$

    $ 2,392  
 
Segment Earnings Before Interest and Taxes (B)
Reinforcement Materials $ 40 $ 54 $ 51 $ 48 $ 193 $ 62 $ 79 $ 74

$

$ 215
Performance Chemicals 49 51 46 55 201 47 57 56 160
Purification Solutions 4 2 (2 ) 2 6 6 (6 ) (6 ) (6 )
Specialty Fluids   2                 4         3         9     (2 )       (3 )       3               (2 )
Total Segment Earnings Before Interest and Taxes 95 107 99 108 409 113 127 127 367
 
Unallocated and Other
Interest expense (13 ) (13 ) (13 ) (14 ) (53 ) (13 ) (14 ) (14 ) (41 )
Certain items (C) (2 ) (1 ) (3 ) 7 (264 ) (3 ) (260 )
Unallocated corporate costs (12 ) (14 ) (11 ) (13 ) (50 ) (14 ) (16 ) (15 ) (45 )
General unallocated income (expense) (D)(E) 7 (1 ) (2 ) (1 ) 3 (3 ) (3 )
Less: Equity in earnings of affiliated companies   (2 )       (1 )       (3 )       (1 )       (7 )   (1 )       (1 )                     (2 )
 
Income (loss) from continuing operations before income taxes and
equity in earnings of affiliated companies 75 78 68 78 299 92 (171 ) 95 16
(Provision) benefit for income taxes (including tax certain items) (D) (18 ) 1 (16 ) (33 ) (205 ) 7 4 (194 )
Equity in earnings of affiliated companies   2         1         3         1         7     1         1                       2  
 
Net income (loss) 59 80 55 79 273 (112 ) (163 ) 99 (176 )
 
Net income (loss) attributable to noncontrolling interests   4         6         8         7         25     10         10         11        

      31  
 
Net income (loss) attributable to Cabot Corporation $ 55       $ 74       $ 47       $ 72       $ 248   $ (122 )     $ (173 )     $ 88      

$

 

 

$

(207 )
 
Diluted earnings per share of common stock
attributable to Cabot Corporation
Net income (loss) attributable to Cabot Corporation (D)(F) $ 0.86 $ 1.19 $ 0.73 $ 1.13 $ 3.91 $ (1.98 ) $ (2.80 ) $ 1.40 $ $ (3.36 )
 
Adjusted earnings per share
Adjusted EPS (D)(G) $ 0.85 $ 0.88 $ 0.83 $ 0.98 $ 3.54 $ 0.93 $ 1.04 $ 1.06 $ $ 3.03
 
Weighted average common shares outstanding
Diluted (F) 62.8 62.8 62.7 62.5 62.7 61.9 61.8 62.3

61.8
 
(A)Unallocated and other reflects royalties, other
operating revenues, external shipping and handling fees, the impact
of the corporate adjustment for unearned revenue, the removal of
100% of the sales of an equity method affiliate and discounting
charges for certain Notes receivable.
 
(B)Segment EBIT is a measure used by Cabot's Chief
Operating Decision-Maker to measure consolidated operating results,
assess segment performance and allocate resources. Segment EBIT
includes equity in earnings of affiliated companies, royalty income,
and allocated corporate costs.
 
(C)Details of certain items are presented in the Certain
Items and Reconciliation of Adjusted EPS and Operating Tax Rate
table.
 
(D)Fiscal 2017 full year amounts have been recast to
reflect the retrospective application of the Company's election to
change its inventory valuation method of accounting for its U.S.
carbon black inventories from the LIFO method to the FIFO method,
which resulted in an increase in General unallocated income of $11
million, an increase in (Provision) benefit for income taxes of ($4)
million, an increase in Net income (loss) attributable to Cabot
Corporation per diluted common share of $0.11 per share and an
increase in Adjusted earnings per share of $0.11 per share. For more
detail on the transition from the LIFO method to the FIFO method,
please refer to the Company's 10-Q filings.
 
 
(E)General unallocated income (expense) includes foreign
currency transaction gains (losses), interest income, dividend
income and the profit related to the corporate adjustment for
unearned revenue.
(F)The weighted average common shares outstanding used to
calculate earnings per share for all periods in fiscal 2018, except
for the three months ended June 30, 2018, excludes approximately 1
million shares as those shares would be antidilutive due to the
Company's net loss position in those periods.
 
(G)Adjusted EPS is a non-GAAP measure, and a
reconciliation of Adjusted EPS to GAAP EPS is presented in the
Certain Items and Reconciliation of Adjusted EPS and Operating Tax
Rate table.

                                           
                 
CABOT CORPORATION CERTAIN ITEMS AND RECONCILIATION OF ADJUSTED
EPS AND OPERATING TAX RATE
                                           
                                           
TABLE 1: DETAIL OF CERTAIN ITEMS                                  
Periods ended June 30 Three Months     Nine Months
Dollars in millions, except per share amounts (unaudited) 2018     2017     2018     2017
 

Certain items before and after income taxes

 
Impairment of goodwill and long-lived assets

$

$

$ (254 )

$

Inventory reserve adjustment (13 )

Global restructuring activities (1 ) (1 ) 7 (3 )
Legal and environmental matters and reserves (6 ) 2
Gains (losses) on sale of investments 10
Executive transition costs (1 ) (1 )
Acquisition and integration-related charges (1 )
Non-recurring gains (losses) on foreign exchange (1 ) (1 )
Other certain items   (1 )               (2 )        
Total certain items, pre-tax (3 ) (2 ) (260 ) (2 )
 
Tax impact of certain items (A)   (2 )               28          
Certain items after tax (excluding discrete tax items)   (5 )       (2 )       (232 )       (2 )
 
Certain items after tax per share impact (excluding discrete tax
items)
$ (0.08 ) $ (0.02 ) $ (3.72 ) $ (0.01 )
 
Tax-related certain items
 
Discrete tax items   26         (5 )       (164 )       15  
 
 
Total tax-related certain items   26         (5 )       (164 )       15  
Total tax-related certain items per share impact 0.42 (0.08 ) (2.65 ) 0.23
                               
 
Total certain items after tax $ 21       $ (7 )     $ (396 )     $ 13  
Total certain items after tax per share impact $ 0.34 $ (0.10 ) $ (6.37 ) $ 0.22
                               
 
 
                                           
TABLE 2: CERTAIN ITEMS STATEMENT OF OPERATIONS LINE ITEM                          
Periods ended June 30 Three Months     Nine Months
Dollars in millions, Pre-Tax (unaudited) 2018     2017     2018     2017
 

Statement of Operations Line Item (B)

 
Cost of sales $ (3 ) $ (1 ) $ (14 ) $ (3 )
 
Selling and administrative expenses (2 ) 2
 
Other income (expense) (1 ) 10 (1 )
Long-lived assets impairment charge (162 )
Goodwill impairment charge           (92 )    
Total certain items, pre-tax $ (3 ) $ (2 ) $ (260 ) $ (2 )
 
 
                                           
TABLE 3: RECONCILIATION OF TAX CERTAIN ITEMS                                  
Periods ended June 30 Three Months     Nine Months
Dollars in millions (unaudited) 2018     2017     2018     2017
 

Reconciliation of Provision for income
taxes, excluding certain

items, to Provision for income taxes

 
 
(Provision) benefit for income taxes (C) $ 4 $ (16 ) $ (194 ) $ (33 )
 
Less: Tax impact of certain items (2 ) 28
 
Less: Tax-related certain items 26 (5 ) (164 ) 15
                               
(Provision) benefit for income taxes, excluding certain items $ (20 )     $ (11 )     $ (58 )     $ (48 )
                                           
TABLE 4: RECONCILIATION OF OPERATING TAX RATE                                  
Periods ended June 30 Three Months     Nine Months Forecast
Dollars in millions (unaudited) 2018     2017     2018     2017 2018
 

Reconciliation of the effective tax rate to
the operating tax rate

 
 
(Provision) benefit for income taxes (C) $ 4 $ (16 ) $ (194 ) $ (33 ) N/A
 
Effective tax rate (3 )% 23 % 1202 % 14 % 200 %
23.00
Impact of discrete tax items: (D)
Unusual or infrequent items 3 % (4 )% (1143 )% 7 % (171 )%
Items related to uncertain tax positions (1 )% (2 )% (13 )% % (2 )%
Other discrete tax items 23 % 5 % 136 % % 20 %
Impact of certain items   (1 )%       (1 )%       (161 )%       %   (26 )%
Operating tax rate   21 %       21 %       21 %       21 %   21 %
                                           
TABLE 5: RECONCILIATION OF ADJUSTED EPS BY QUARTER FOR FISCAL
2018 and FISCAL 2017
       
Fiscal 2018(E)
Periods ended (unaudited) Dec. Q     Mar. Q     Jun. Q     Sept. Q     FY 2018

Reconciliation of Adjusted EPS to GAAP EPS

Net income (loss) per share attributable to Cabot Corporation $ (1.98 ) $ (2.80 ) $ 1.40 $ $ (3.36 )
Less: Certain items after tax per share (2.89 ) (3.82 ) 0.34 (6.37 )
Less: Dilutive impact of shares (F)   (0.02 )       (0.02 )                       (0.02 )
Adjusted earnings per share $ 0.93 $ 1.04 $ 1.06 $ $ 3.03
 
Fiscal 2017(E)
Periods ended (unaudited) Dec. Q     Mar. Q     Jun. Q     Sept. Q   FY 2017

Reconciliation of Adjusted EPS to GAAP EPS

Net income (loss) attributable to Cabot Corporation (C)(G) $ 0.86 $ 1.19 $ 0.73 $ 1.13 $ 3.91
Less: Certain items after tax per share   0.01         0.31         (0.10 )       0.15         0.37  
Adjusted earnings per share (C)(G) $ 0.85 $ 0.88 $ 0.83 $ 0.98 $ 3.54
 
(A)The tax effect of certain items is determined by (1)
starting with the current and deferred income tax expense or
benefit, included in Net income attributable to Cabot Corporation,
and (2) subtracting the tax expense or benefit on "adjusted
earnings". Adjusted earnings is defined as the pre-tax income
attributable to Cabot Corporation excluding certain items. The tax
expense or benefit on adjusted earnings is calculated by applying
the operating tax rate, which includes both current and deferred
taxes, as defined under the section Use of Non-GAAP Financial
Measures of the earnings release.
 
 
(B)This table indicates the line items where certain
items are recorded in the Consolidated Statements of Operations.
 
(C)Fiscal 2017 amounts have been recast to reflect the
retrospective application of the Company's election to change its
inventory valuation method of accounting for its U.S. carbon black
inventories from the LIFO method to the FIFO method, which resulted
in an increase in Net income (loss) attributable to Cabot
Corporation per diluted common share of $0.02 per share and an
increase in Adjusted earnings per share of $0.02 per share for the
three months ended June 30, 2017. For more detail on the transition
from the LIFO method to the FIFO method, please refer to the
Company's 10-Q filings.
 
 
(D)The nature of the discrete tax items for the periods
ended June 30, 2018 and 2017 was as follows: (i) Unusual or
infrequent items during the three and nine months ended June 30,
2018 consisted of the net tax impacts resulting from the enactment
of H.R. 1, commonly referred to as the Tax Cuts and Jobs Act of 2017
(net tax benefit of $4 million and net tax expense of $185 million,
respectively), net tax impacts from cash management activities,
foreign exchange gain/loss on the remeasurement of a deferred tax
liability, as well as impacts related to stock compensation
deductions. Additionally, unusual or infrequent items during the
three and nine months ended June 30, 2018 and 2017 included the tax
impact of excludible foreign exchange gains and losses in certain
jurisdictions. Unusual or infrequent items during the three and nine
months ended June 30, 2017 included the net tax impacts from excess
foreign tax credits upon repatriation of previously taxed foreign
earnings and the accrual of U.S. tax on certain foreign earnings;
(ii) Items related to uncertain tax positions during the three and
nine months ended June 30, 2018 and 2017 including net tax impacts
from the reversal of accruals for uncertain tax positions due to the
expiration of statutes of limitations and the settlement of tax
audits, the accrual of interest on uncertain tax positions, the
refinement of the accrual for existing uncertain tax positions
(fiscal 2018 only) and the accrual of a prior year uncertain tax
position (fiscal 2017 only); (iii) Other discrete tax items during
the three and nine months ended June 30, 2018 included changes in
valuation allowances on beginning of year tax balances.
Additionally, other discrete tax items during the three and nine
months ended June 30, 2018 and 2017 included net tax impacts from
various return to provision adjustments related to tax return
filings, changes in non-U.S. tax laws and as a result of audit
settlements (fiscal 2018 only).
 
 
(E)Per share amounts are calculated after tax and, where
applicable, noncontrolling interest, net of tax.
 
(F)Due to the Company's net loss position, GAAP EPS for
all periods in fiscal 2018, except for the three months ended June
30, 2018, has been calculated using basic weighted average shares
for both basic and diluted GAAP EPS. However, in order to provide an
Adjusted Non-GAAP EPS with a weighted average share figure that is
consistent with all other periods presented, the Company has
included this reconciling item to quantify the difference between
basic and diluted weighted average shares. This reconciling item is
applicable to individual periods presented but does not sum
cumulatively. The net loss for the nine months ended June 30, 2018
is driven by a discrete tax item and impairment charges, so the
Company believes this approach provides the most comparable
presentation possible.
 
 
(G)Fiscal 2017 full year amounts have been recast to
reflect the retrospective application of the Company's election to
change its inventory valuation method of accounting for its U.S.
carbon black inventories from the LIFO method to the FIFO method,
which resulted in an increase in Net income (loss) attributable to
Cabot Corporation per diluted common share of $0.11 per share and an
increase in Adjusted earnings per share of $0.11 per share.

                                       
                   
CABOT CORPORATION RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
                                       
                                       
Fiscal 2018 (A)
Dec. Q     Mar. Q     Jun. Q     Sept. Q       FY 2018

Reconciliation of Adjusted EPS to GAAP EPS

Net income (loss) per share attributable to Cabot Corporation $ (1.98 ) $ (2.80 ) $ 1.40 $

$ (3.36 )
Less: Certain items after tax (2.89 ) (3.82 ) 0.34 (6.37 )
Less: Dilutive impact of shares (B)   (0.02 )       (0.02 )                       (0.02 )
Adjusted earnings per share $ 0.93       $ 1.04       $ 1.06       $       $ 3.03  
 
(A)Per share amounts are calculated after tax and, where
applicable, noncontrolling interest, net of tax.
(B)Due to the Company's Net Loss position, GAAP EPS for
all periods in fiscal 2018, except for the three months ended June
30, 2018, has been calculated using basic weighted average shares
only to avoid anti-dilution. However, in order to provide an
Adjusted Non-GAAP EPS with a weighted average share figure that is
consistent with all other periods presented, the Company has
included this reconciling item to quantify the difference between
basic and diluted weighted average shares. This reconciling item is
applicable to individual periods presented but does not sum
cumulatively. The net loss for the nine months ended June 30, 2018
is driven by a discrete tax item and impairment charges so the
Company believes this approach provides the most comparable
presentation possible.
   
 
 
                                       
Dollars in millions Fiscal 2018
Dec. Q     Mar. Q     Jun. Q     Sept. Q     FY 2018

Reconciliation of Segment EBIT to Net
Income and Segment EBITDA Margin

Net income (loss) attributable to Cabot Corporation $ (122 ) $ (173 ) $ 88

$

$ (207 )
Net income (loss) attributable to noncontrolling interests 10 10 11 31
Equity in earnings of affiliated companies, net of tax (1 ) (1 ) (2 )
Income from discontinued operations, net of tax                                    
Provision (benefit) for income taxes   205         (7 )       (4 )      

        194  
Income (loss) from continuing operations before income taxes and
equity in earnings of affiliated companies
$ 92       $ (171 )     $ 95      

$

      $ 16  
Interest expense 13 14 14 41
Certain items (7 ) 264 3 260
Unallocated corporate costs 14 16 15 45
General unallocated (income) expense 3 3
Equity in earnings of affiliated companies   1         1                         2  
Total Segment EBIT $ 113       $ 127       $ 127      

$

      $ 367  
Plus: Total Depreciation & Amortization 39 40 38 117
Plus: Adjustments to Depreciation (C)           1         (1 )                
Total Segment EBITDA $ 152 $ 168 $ 164

$

$ 484
Less: Unallocated Corporate Costs   (14 )       (16 )       (15 )               (45 )
Adjusted EBITDA $ 138       $ 152       $ 149      

$

      $ 439  
 
(C)Adjustments to depreciation includes the addition of
the depreciation expense of a contractual joint venture in
Purification Solutions less accelerated depreciation expense not
allocated to a business.
   
 
                                       
Dollars in millions Dec. Q     Mar. Q     Jun. Q     Sept. Q     FY 2018
Reinforcement Materials EBIT $ 62 $ 79 $ 74

$

$ 215
Plus: Depreciation & Amortization   17         18         18                 53  
Reinforcement Materials EBITDA $ 79 $ 97 $ 92

$

$ 268
Reinforcement Materials Sales $ 387       $ 454       $ 466      

$

      $ 1,307  
Reinforcement Materials EBITDA Margin       20 %       21 %       20 %       %       21 %
                                       
Dollars in millions Dec. Q     Mar. Q     Jun. Q     Sept. Q     FY 2018
Performance Chemicals EBIT $ 47 $ 57 $ 56

$

$ 160
Plus: Depreciation & Amortization   12         12         12                 36  
Performance Chemicals EBITDA $ 59 $ 69 $ 68

$

$ 196
Performance Chemicals Sales $ 229       $ 268       $ 274      

$

      $ 771  
Performance Chemicals EBITDA Margin       26 %       26 %       25 %       %       25 %
                                       
Dollars in millions Dec. Q     Mar. Q     Jun. Q     Sept. Q     FY 2018
Purification Solutions EBIT $ 6 $ (6 ) $ (6 )

$

$ (6 )
Plus: Depreciation & Amortization   10         10         7                 27  
Purification Solutions EBITDA $ 16 $ 4 $ 1

$

$ 21
Purification Solutions Sales $ 70       $ 66       $ 70      

$

      $ 206  
Purification Solutions EBITDA Margin       23 %       6 %       1 %       %       10 %
                                       
Dollars in millions Dec. Q     Mar. Q     Jun. Q     Sept. Q     FY 2018
Specialty Fluids EBIT $ (2 ) $ (3 ) $ 3

$

$ (2 )
Plus: Depreciation & Amortization           1         1                 2  
Specialty Fluids EBITDA $ (2 ) $ (2 ) $ 4

$

$

Specialty Fluids Sales $ 6       $ 6       $ 12      

$

      $ 24  
Specialty Fluids EBITDA Margin       (33 )%       (33 )%       33 %       %      

%
                                       
Dollars in millions Fiscal 2018

Reconciliation of Discretionary Free Cash
Flow

Dec. Q     Mar. Q     Jun. Q     Sept. Q     FY 2018
 
Cash flow from operating activities (D) $ 45 $ 36 $ 62

$

$ 143
Less: Changes in net working capital (E) (50 ) (65 ) (72 ) (187 )
Less: Sustaining and compliance capital expenditures   42         34         39                 115  
Discretionary Free Cash Flow $ 53       $ 67       $ 95      

$

      $ 215  
 
(D)As provided in the Condensed Consolidated Statements
of Cash Flows.
(E)Defined as changes in accounts receivable, inventory
and accounts payable and accrued liabilities as presented on the
Condensed Consolidated Statements of Cash Flows.
   

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