<PAGE> 1
FORM 10-Q
----------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
JUNE 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
COMMISSION FILE NUMBER 1-5667
CABOT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-2271897
(State of Incorporation) (I.R.S. Employer Identification No.)
75 STATE STREET 02109-1806
BOSTON, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (617) 345-0100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
AS OF JUNE 30, 1997, THE COMPANY HAD 68,986,867 SHARES OF COMMON
STOCK, PAR VALUE $1 PER SHARE, OUTSTANDING.
<PAGE> 2
CABOT CORPORATION
INDEX
Part I. Financial Information Page No.
--------
Item 1. Financial Statements
Consolidated Statements of Income
Three Months Ended June 30, 1997 and 1996 3
Consolidated Statements of Income
Nine Months Ended June 30, 1997 and 1996 4
Consolidated Balance Sheets
June 30, 1997 and September 30, 1996 5
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1997 and 1996 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 14
-2-
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1.
<TABLE>
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30, 1997 and 1996
(Dollars in thousands)
UNAUDITED
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revenues:
Net sales and other operating revenues $398,580 $457,318
Interest and dividend income 1,897 2,171
-------- --------
Total revenues 400,477 459,489
-------- --------
Costs and expenses:
Cost of sales 274,205 318,510
Selling and administrative expenses 53,463 50,842
Research and technical service 20,400 21,301
Interest expense 11,347 10,571
Other charges, net 3,309 5,107
-------- --------
Total costs and expenses 362,724 406,331
-------- --------
Income before income taxes 37,753 53,158
Provision for income taxes (13,591) (19,668)
Equity in net income of affiliated companies 5,222 4,091
Minority interest (634) (1,831)
-------- --------
Net income 28,750 35,750
Dividends on preferred stock, net of tax
benefit of $520 and $635, respectively (813) (715)
-------- --------
Income applicable to primary common shares $ 27,937 $ 35,035
======== ========
Weighted average common shares outstanding (000):
Primary 70,111 72,710
Fully diluted (Note A) 76,206 78,808
Income per common share:
Primary $ 0.40 $ 0.48
======== ========
Fully diluted (Note A) $ 0.37 $ 0.45
======== ========
Dividends per common share $ 0.10 $ 0.09
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 4
<TABLE>
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended June 30, 1997 and 1996
(Dollars in thousands)
UNAUDITED
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revenues:
Net sales and other operating revenues $1,229,369 $1,391,621
Interest and dividend income 5,189 6,886
---------- ----------
Total revenues 1,234,558 1,398,507
---------- ----------
Costs and expenses:
Cost of sales 859,515 968,942
Selling and administrative expenses 160,249 150,120
Research and technical service 63,844 53,955
Interest expense 31,607 31,205
Other charges, net 6,912 13,874
---------- ----------
Total costs and expenses 1,122,127 1,218,096
---------- ----------
Income before income taxes 112,431 180,411
Provision for income taxes (40,475) (66,752)
Equity in net income of affiliated companies 13,100 12,747
Minority Interest (1,813) (4,390)
---------- ----------
Net income 83,243 122,016
Dividends on preferred stock, net of tax
benefit of $1,566 and $1,585, respectively (2,450) (2,479)
---------- ----------
Income applicable to primary common shares $ 80,793 $ 119,537
========== ==========
Weighted average common shares outstanding (000):
Primary 70,913 73,383
Fully diluted (Note A) 77,002 79,481
Income per common share:
Primary $ 1.14 $ 1.63
========== ==========
Fully diluted (Note A) $ 1.06 $ 1.52
========== ==========
Dividends per common share $ 0.30 $ 0.27
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 5
<TABLE>
CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and September 30, 1996
(Dollars in thousands)
ASSETS
<CAPTION>
June 30 September 30
1997 1996
(Unaudited)
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 51,449 $ 58,148
Accounts and notes receivable
(net of reserve for doubtful
accounts of $5,011 and $5,267) 304,719 363,763
Inventories:
Raw materials 78,496 71,061
Work in process 64,926 72,914
Finished goods 71,013 72,163
Other 41,621 44,292
---------- ----------
Total inventories 256,056 260,430
Prepaid expenses 21,717 17,408
Deferred income taxes 11,063 10,034
---------- ----------
Total current assets 645,004 709,783
---------- ----------
Investments:
Equity 82,718 79,372
Other 151,643 95,680
---------- ----------
Total investments 234,361 175,052
---------- ----------
Property, plant and equipment, at cost 1,751,614 1,712,045
Accumulated depreciation (825,151) (809,053)
---------- ----------
Net property, plant and equipment 926,463 902,992
---------- ----------
Other assets:
Intangible assets, net of amortization 39,751 42,735
Deferred income taxes 2,648 2,402
Other assets 14,506 24,617
---------- ----------
Total other assets 56,905 69,754
---------- ----------
Total assets $1,862,733 $1,857,581
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 6
<TABLE>
CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and September 30, 1996
(Dollars in thousands)
LIABILITIES & STOCKHOLDERS' EQUITY
<CAPTION>
June 30 September 30
1997 1996
(Unaudited)
----------- ------------
<S> <C> <C>
Current liabilities:
Notes payable to banks $ 232,504 $ 233,779
Current portion of long-term debt 115,247 16,175
Accounts payable and accrued liabilities 216,156 250,749
U.S. and foreign income taxes payable 9,268 26,083
Deferred income taxes 1,012 918
---------- ----------
Total current liabilities 574,187 527,704
---------- ----------
Long-term debt 291,893 321,497
Deferred income taxes 97,373 88,320
Other liabilities 145,989 147,991
Commitments and contingencies (Note B)
Minority interest 24,810 27,138
Stockholders' Equity (Note C):
Preferred Stock:
Authorized: 2,000,000 shares of $1 par value
Series A Junior Participating Preferred Stock
Issued and outstanding: none
Series B ESOP Convertible Preferred Stock 7.75% Cumulative
Issued: 75,336 shares (aggregate redemption value
of $69,865 and $71,193) 75,336 75,336
Less cost of shares of preferred treasury stock (8,340) (6,565)
Common stock:
Authorized: 200,000,000 shares of $1 par value
Issued: 135,549,936 shares 135,550 135,550
Additional paid-in capital 24,841 23,618
Retained earnings 1,236,485 1,176,708
Less cost of common treasury stock
(including unearned amounts of $8,782 and $16,611) (712,354) (650,981)
Deferred employee benefits (62,974) (64,283)
Unrealized gain on marketable securities 48,752 29,874
Foreign currency translation adjustments (8,815) 25,674
---------- ----------
Total stockholders' equity 728,481 744,931
---------- ----------
Total liabilities and stockholders' equity $1,862,733 $1,857,581
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE> 7
<TABLE>
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended June 30, 1997 and 1996
(Dollars in thousands)
UNAUDITED
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 83,243 $ 122,016
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 81,199 73,194
Deferred tax provision (1,586) 123
Equity in net income of affiliated companies,
net of dividends received (4,460) (1,384)
Other, net 7,520 6,969
Changes in assets and liabilities, net of consolidation
of equity affiliates:
Increase in accounts receivable (38,044) (11,703)
Increase in inventory (2,497) (38,635)
Decrease in accounts payable and accruals (15,492) (24,924)
(Increase)/Decrease in prepayments and intangible assets (495) 2,029
Decrease in income taxes payable (17,391) (44,252)
Other, net 2,043 (1,652)
--------- ---------
Cash provided by operating activities 94,040 81,781
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant, property and equipment (131,888) (134,871)
Investments and acquisitions (21,387) (52,639)
Purchases of available-for-sale securities (11,271) --
Cash provided from consolidation of equity affiliates -- 9,306
Sales of property, plant and equipment 35,000 2,621
Other 552 1,223
--------- ---------
Cash used by investing activities (128,994) (174,360)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 90,000 11,258
Repayments of long-term debt (16,145) (27,568)
Increase in short-term debt 48,147 170,884
Purchases of treasury stock (72,896) (102,709)
Sales and issuance of treasury stock 4,175 8,828
Cash dividends paid to stockholders (23,466) (23,742)
--------- ---------
Cash provided by financing activities 29,815 36,951
--------- ---------
Effect of exchange rate changes on cash (1,560) (225)
--------- ---------
Decrease in cash and cash equivalents (6,699) (55,853)
Cash and cash equivalents at beginning of period 58,148 90,792
--------- ---------
Cash and cash equivalents at end of period $ 51,449 $ 34,939
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE> 8
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
A. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Cabot
Corporation and majority-owned and controlled domestic and foreign
subsidiaries. Investments in majority-owned affiliates where control does
not exist and investments in 20 percent to 50 percent-owned affiliates are
accounted for on the equity method. Intercompany transactions have been
eliminated.
The 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 the Company's Form 10-K for the year ended September 30, 1996.
The financial information submitted herewith is unaudited and reflects all
adjustments which are, in the opinion of management, necessary to provide a
fair statement of the results for the interim periods ended June 30, 1997
and 1996. 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.
Earnings Per Share
The computation of fully diluted earnings per share considers the
conversion of the Company's Series B ESOP Convertible Preferred Stock held
by the Company's Employee Stock Ownership Plan, and also includes the
potentially dilutive effects of the Company's Equity Incentive Plan adopted
in 1989 and the 1996 Equity Incentive Plan.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings per Share (SFAS 128),
which is effective for periods ending after December 15, 1997, including
interim periods. This statement attempts to simplify current standards used
in the United States for computing earnings per share ("EPS") and make
them more comparable with international standards.
SFAS 128 replaces APB Opinion 15 and related interpretations (APB 15). SFAS
128 simplifies the computation of EPS by replacing the presentation of
primary earnings per share with a presentation of basic EPS. Basic EPS
includes no dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution of securities
that could share in the earnings of an entity, similar to fully diluted EPS
under APB 15. While management has not calculated the impact of the new
standard, it is not expected to be material.
B. COMMITMENTS AND CONTINGENCIES
The Company has various lawsuits, claims and contingent liabilities. In the
opinion of the Company, although final disposition of all of its suits and
claims may impact the Company's financial statements in a particular
period, they should not, in the aggregate, have a material adverse effect
on the Company's financial position.
-8-
<PAGE> 9
<TABLE>
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
June 30, 1997
UNAUDITED
C. STOCKHOLDERS' EQUITY
The following table summarizes the changes in stockholders' equity for the nine months ended June 30, 1997.
(Dollars in thousands)
<CAPTION>
Preferred Stock Preferred Common Stock
--------------- Treasury Stock ------------ Additional
Shares -------------- Shares Paid-in Retained
Issued Value Shares Cost Issued Value Capital Earnings
------ ----- ------ ---- ------ ----- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1996 75,336 $75,336 5,744 $(6,565) 135,549,936 $135,550 $23,618 $1,176,708
Net income 83,243
Common stock dividends paid (21,016)
Issuance of treasury stock under
employee compensation plans (363)
Purchase of treasury stock - common
Purchase of treasury stock - preferred 793 (1,775)
Sale of treasury stock to Cabot Retirement
Incentive Savings Plan 1,586
Preferred stock dividends paid to Employee
Stock Ownership Plan, net of tax (2,450)
Principal payment by Employee Stock
Ownership Plan under guaranteed loan
Amortization of unearned compensation
Unrealized gain, net of deferred tax
Foreign currency translation adjustments
------ ------- ----- ------- ----------- -------- ------- ----------
Balance at June 30, 1997 75,336 $75,336 6,537 $(8,340) 135,549,936 $135,550 $24,841 $1,236,485
====== ======= ===== ======= =========== ======== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
Common Unrealized Foreign
Treasury Stock Deferred Gain/(loss) Currency Total
-------------- Unearned Employee Marketable Translation Stockholders'
Shares Cost Compensation Benefits Securities Adjustments Equity
------ ---- ------------ -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1996 63,960,725 $(634,370) $(16,611) $(64,283) $29,874 $25,674 $744,931
Net income 83,243
Common stock dividends paid (21,016)
Issuance of treasury stock under
employee compensation plans (182,221) 794 1,033 1,464
Purchase of treasury stock - common 2,893,767 (71,121) (71,121)
Purchase of treasury stock - preferred (1,775)
Sale of treasury stock to Cabot Retirement
Incentive Savings Plan (109,202) 1,125 2,711
Preferred stock dividends paid to Employee
Stock Ownership Plan, net of tax (2,450)
Principal payment by Employee Stock
Ownership Plan under guaranteed loan 1,309 1,309
Amortization of unearned compensation 6,796 6,796
Unrealized gain, net of deferred tax 18,878 18,878
Foreign currency translation adjustments (34,489) (34,489)
---------- --------- -------- -------- ------- -------- --------
Balance at June 30, 1997 66,563,069 $(703,572) $ (8,782) $(62,974) $48,752 $ (8,815) $728,481
========== ========= ======== ======== ======= ======== ========
</TABLE>
-9-
<PAGE> 10
CABOT CORPORATION
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
I. RESULTS OF OPERATIONS
Sales and operating profit by industry segment are shown in the accompanying
table on page 13.
THREE MONTHS ENDED JUNE 30, 1997 VERSUS
THREE MONTHS ENDED JUNE 30, 1996
Net income for the third quarter of fiscal year 1997 was $28.7 million ($0.37
per fully diluted common share), compared to $33.4 million ($0.42 per fully
diluted common share), excluding the results of a divested business, in the same
quarter a year ago. Net sales and other operating revenues increased 3% to
$398.6 million from last year's $388.0 million on the same basis. Operating
profit was $55.9 million for the quarter compared to $67.7 million in the same
quarter a year ago. To form a comparative basis, 1996 amounts exclude the
results of TUCO INC. ("TUCO"), the Company's former coal handling subsidiary.
TUCO was divested in September, 1996. For the three months ended June 30, 1996,
TUCO revenues and operating profit were $69.3 million and $3.6 million,
respectively ($0.03 per fully diluted common share).
In the Specialty Chemicals and Materials Group, sales for the three month period
ended June 30, 1997 increased 4% to $372.4 million from $359.7 million last
year, on 12% greater volumes. Volumes during the quarter were greater than the
year ago period in each of the Company's chemical businesses. Overall, global
volumes in the Company's carbon black business increased 12%. However, lower
year-to-year selling prices in certain carbon black markets offset the effect of
increased volumes. Lower selling prices affected earnings primarily in the
Company's European and Pacific Asia carbon black markets. Prices in the European
and Pacific Asia markets were down 6% and 11% year-to-year, respectively.
The Group reported operating profit of $58.7 million for the third quarter,
compared to $68.6 million for the third quarter of 1996. The decrease in
operating profit was primarily the result of a decline in the financial
performance of the Company's carbon black business. Lower selling prices,
coupled with higher feedstock costs as a result of the continued strengthening
of the U.S. dollar, resulted in reduced margins year-to-year in the Company's
European and Pacific Asia carbon black markets. In North America, the effect of
8% greater volumes during the quarter was more than offset by higher plant
operating costs associated with implementing new production technologies and
higher depreciation charges resulting primarily from environmental compliance
investments.
The Company's Performance Materials Division ("CPM"), which manufactures high
grade tantalum products, experienced an 8% increase in volume in the third
quarter compared to the same quarter a year ago resulting from increased demand
from the U.S. electronics industry. CPM reported a positive year-to-year
earnings comparison, its first since the second quarter of 1996. Although
margins were squeezed by increased ore costs, cost savings initiatives put into
place during the first and second quarters of the current fiscal year resulted
in the favorable earnings comparison.
The Cab-O-Sil fumed silica business experienced a 9% increase in global volumes
in the third quarter versus the third quarter of 1996. Greater volumes were
offset somewhat by increased operating costs caused by higher than normal
maintenance costs and increased investments in research and development.
Research and development and marketing costs associated with new products were
flat in the third quarter compared to the third quarter a year ago. The Company
spent approximately $2 million less on carbon black projects and $2 million more
on other new business initiatives.
In the Energy Group, sales for the quarter ended June 30, 1997 decreased 7% from
$28.3 million in 1996 to $26.2 million. A $2.8 million loss was reported,
compared with a loss of $0.9 million in the third
-10-
<PAGE> 11
CABOT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
THREE MONTHS ENDED JUNE 30, 1997 VERSUS
THREE MONTHS ENDED JUNE 30, 1996 (CONTINUED)
quarter of 1996. As noted above, the amounts discussed here for 1996 exclude the
results of TUCO. Volumes of the liquefied natural gas ("LNG") business were flat
from the year ago quarter. A warm winter caused lower gas prices in the
Northeast U.S. during the quarter and lower demand for storage refill.
NINE MONTHS ENDED JUNE 30, 1997 VERSUS
NINE MONTHS ENDED JUNE 30, 1996
The Company has reported negative year-to-year earnings comparisons for each of
the first three quarters of the year. This has been caused by carbon black
pricing in Europe and Pacific Asia, by the effect of a strong U.S. dollar, and
by our continued commitment to fund new product development. Due to volume
increases in the Company's chemical businesses during the year, we have narrowed
the unfavorable earnings variance in each successive quarter.
For the nine months ended June 30, 1997, net income was $83.2 million ($1.06 per
fully diluted common share) compared to $113.6 million ($1.41 per fully diluted
common share), excluding the results of a divested business, in the same period
a year ago. Net sales increased 4% to $1,229.4 million from $1,185.8 million
last year on the same basis. To form a comparative basis, 1996 amounts exclude
the results of TUCO. For the nine months ended June 30, 1996, TUCO revenues and
operating profit were $205.8 million and $10.0 million, respectively ($0.08 per
fully diluted common share). Also excluded from the 1996 results is a $3.3
million gain associated with the reduction of the Company's ownership interest
in the Trinidad liquefaction joint venture ($0.03 per fully diluted common
share).
In the Specialty Chemicals and Materials Group, sales for the nine month period
ended June 30, 1997 decreased slightly to $1,071.8 million from $1,074.0 million
in the same period a year ago. Overall chemical sales volumes were favorable
year-to-year, particularly in the third quarter. However, the earnings effect of
increased volumes was more than offset by reduced selling prices, primarily in
the Company's European and Pacific Asia carbon black businesses.
Operating profit for the Group decreased 28% to $153.5 million from $212.8
million last year. As stated above, weaker carbon black pricing in Europe and
Pacific Asia, the effects of a strong U.S. dollar and higher new product
development spending accounted for most of the earnings decrease. Increased
research and development and marketing costs associated with new product
development and new business and market development initiatives accounted for
approximately $14 million of the year-to-year operating profit decrease.
Operating profits were affected most by price reductions made during the year
and higher year-to-year feedstock costs (in local currency terms), which the
Company did not recover from its customers in its European and Pacific Asia
carbon black businesses. Also contributing to the negative earnings were volume
declines experienced by CPM during the first half of the fiscal year due to the
lingering effects of the slowdown of the U.S. electronics industry. However,
increased demand in the U.S. electronics industry accounted for 8% greater
volumes in CPM during the third quarter versus the same quarter of last year.
In the Energy Group, sales increased 41% to $157.6 million from $111.8 million
and operating profit improved 55% to $10.4 million from $6.7 million in the same
period a year ago. As noted above, the results discussed here for 1996 exclude
the results of TUCO and the $3.3 million gain. Operating results improved
largely due to higher gas prices and greater availability of LNG.
On June 30, 1997 Atlantic LNG Company of Trinidad and Tobago ("Atlantic LNG")
signed a $600 million loan agreement to finance the construction of its
LNG export facility in Trinidad. Construction on the
-11-
<PAGE> 12
CABOT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
NINE MONTHS ENDED JUNE 30, 1997 VERSUS
NINE MONTHS ENDED JUNE 30, 1996 (CONTINUED)
Trinidad project began in the second quarter of 1996. First production is
expected in the second quarter of 1999. Cabot LNG Corporation, the Company's
wholly-owned subsidiary, owns 10% of Atlantic LNG and holds purchase contracts
for 60 percent of the Atlantic LNG plant's design capacity output.
The Company's effective tax rate was 36% compared to 37% for the same period a
year ago.
II. CASH FLOWS AND LIQUIDITY
During the first nine months of the year the Company's operations provided $94.0
million of cash compared to $81.8 million last year. The increase year-to-year
is due primarily to reduced tax payments and a smaller increase in inventory
compared to last year, which were partially offset by lower net income and
increased accounts receivable.
Capital spending and investments for the first nine months of the year totaled
$164.5 million. The Company plans to spend approximately $210 million for the
fiscal year. The major components of the 1997 capital program include
expenditures on new carbon black capacity to support the contracts with U.S.
tire manufacturers, Clean Air Act compliance, differentiated product
manufacturing capabilities, new business expansion and normal plant maintenance.
In light of softened demand in certain markets, the Company has deferred several
capital projects during the year. During the third fiscal quarter, the Company
exercised its rights to purchase 642,232 shares of common stock of K N Energy,
Inc. ("KN Energy") for $11.3 million. At June 30, 1997, the Company owned
approximately 3 million shares of KN Energy representing 9.5% of KN Energy's
outstanding common shares.
Effective September 30, 1996, the Company sold its TUCO subsidiary for $77
million. Accordingly, during the first quarter of fiscal year 1997, the Company
received $35 million in cash, which included $8 million of working capital
adjustments, and $50 million in the form of a debt repayment on the Company's
behalf from the buyer.
On February 6, 1997, the Company issued $90 million of medium-term notes
maturing from 2004 to 2011 with a weighted average interest rate of
approximately 7%. The proceeds from the issuance were used to repay short-term
debt.
During the first nine months of the year, the Company repurchased approximately
2.6 million shares of its common stock. These purchases were funded with the
proceeds from the sale of its TUCO subsidiary and short-term borrowings. On
May 9, 1997, the Company's Board of Directors authorized the repurchase of
4 million shares of its common stock and revoked the May 1996 repurchase
authorization with respect to shares not already purchased pursuant to such
authorization. At June 30, 1997 approximately 3.8 million shares remained under
the May 1997 repurchase authorization.
The Company's ratio of total debt (including short-term debt net of cash) to
capital increased to 44% at June 30, 1997 from 40% at September 30, 1996.
In January, 1997 the Company renegotiated its line of credit agreement. The
facility was increased to $300 million from $250 million and was extended to
January 3, 2002. Management expects cash from operations and present financing
arrangements, including the Company's unused line of credit of $300 million, to
be sufficient to meet the Company's cash requirements for the foreseeable
future.
-12-
<PAGE> 13
<TABLE>
CABOT CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations (Continued)
(Dollars in millions, except per share amounts)
UNAUDITED
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
6/30/97 6/30/96 6/30/97 6/30/96
------- ------- ------- -------
<S> <C> <C> <C> <C>
Industry Segment Data
- ---------------------
Sales:
Specialty Chemicals and Materials $372.4 $359.7 $1,071.8 $1,074.0
Energy 26.2 97.6 157.6 317.6
------ ------ -------- --------
Net sales $398.6 $457.3 $1,229.4 $1,391.6
====== ====== ======== ========
Operating profit:
Specialty Chemicals and Materials $ 58.7 $ 68.6 $ 153.5 $ 212.8
Energy (2.8) 2.7 10.4 20.0
------ ------ -------- --------
Total operating profit 55.9 71.3 163.9 232.8
Interest expense (11.4) (10.6) (31.6) (31.2)
General corporate/other expenses (6.8) (7.6) (19.9) (21.2)
------ ------ -------- --------
Income before income taxes 37.7 53.1 112.4 180.4
Provision for income taxes (13.6) (19.7) (40.5) (66.7)
Equity in net income of affiliated companies 5.2 4.1 13.1 12.7
Minority interest (0.6) (1.8) (1.8) (4.4)
------ ------ -------- --------
Net income 28.7 35.7 83.2 122.0
Dividends on preferred stock (0.8) (0.7) (2.4) (2.5)
------ ------ -------- --------
Income applicable to primary common shares $ 27.9 $ 35.0 $ 80.8 $ 119.5
====== ====== ======== ========
Income per common share:
Primary $ 0.40 $ 0.48 $ 1.14 $ 1.63
====== ====== ======== ========
Fully diluted $ 0.37 $ 0.45 $ 1.06 $ 1.52
====== ====== ======== ========
</TABLE>
-13-
<PAGE> 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
The exhibit numbers in the following list correspond to the number
assigned to such exhibits in the Exhibit Table of Item 601 of
Regulation S-K.
Exhibit
Number Description
11 Statement Regarding Computation of Per Share Earnings,
filed herewith.
12 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges, filed herewith.
27 Financial Data Schedule, filed herewith. (Not included
with printed copy of the Form 10-Q.)
(b) Reports on Form 8-K
-------------------
No report on Form 8-K was filed by the Company during the three
months ended June 30, 1997.
-14-
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CABOT CORPORATION
Date: August 14, 1997 /s/ Robert L. Culver
---------------------------------------
Robert L. Culver
Executive Vice President and
Chief Financial Officer
Date: August 14, 1997 /s/ William T. Anderson
---------------------------------------
William T. Anderson
Assistant Controller/Acting Controller
(Chief Accounting Officer)
-15-
<PAGE> 1
EXHIBIT 11
CABOT CORPORATION AND CONSOLIDATED SUBSIDIARIES
<TABLE>
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
For the three month period ended June 30, 1997
(In thousands, except per share amounts)
<CAPTION>
Primary Fully Diluted
------- -------------
<S> <C> <C>
Shares of common stock outstanding at April 1, 1997,
less treasury stock 69,847 69,847
Plus net weighted shares of treasury stock purchased (624) (624)
Plus common stock equivalents:
Effect of convertible preferred stock conversion 6,018
Effect of equity incentive awards 888 965
------- -------
Weighted average shares outstanding 70,111 76,206
======= =======
Income applicable to common shares $27,937 $27,937
Dividends on preferred stock 813
Preferred stock conversion compensation shortfall (446)
Earnings applicable to common shares $27,937 $28,304
======= =======
Earnings per common share $ 0.40 $ 0.37
======= =======
</TABLE>
<PAGE> 2
EXHIBIT 11
CABOT CORPORATION AND CONSOLIDATED SUBSIDIARIES
<TABLE>
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
For the nine month period ended June 30, 1997
(In thousands, except per share amounts)
<CAPTION>
Primary Fully Diluted
------- -------------
<S> <C> <C>
Shares of common stock outstanding at October 1, 1996
less treasury stock 71,589 71,589
Plus net weighted shares of treasury stock purchased (1,570) (1,570)
Plus common stock equivalents:
Effect of convertible preferred stock conversion 6,018
Effect of equity incentive awards 894 965
------- -------
Weighted average shares outstanding 70,913 77,002
======= =======
Income applicable to common shares $80,793 $80,793
Dividends on preferred stock 2,450
Preferred stock conversion compensation shortfall (1,349)
Earnings applicable to common shares $80,793 $81,894
======= =======
Earnings per common share $ 1.14 $ 1.06
======= =======
</TABLE>
<PAGE> 1
EXHIBIT 12
CABOT CORPORATION AND CONSOLIDATED SUBSIDIARIES
<TABLE>
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
<CAPTION>
Nine Months Years ended September 30
ended -----------------------------------------------------------------
June 30, 1997 1996 1995 1994 1993 1992
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Pre-tax income from continuing operations $112,431 $279,834 $256,029 $118,325 $ 67,900 $116,599
Distributed income of affiliated companies 8,640 11,173 11,699 5,638 5,988 5,766
Add fixed charges:
Interest on indebtedness 31,607 41,718 35,639 41,668 44,043 41,714
Portion of rents representative of
the interest factor 3,628 4,837 5,515 5,879 4,838 4,933
-------- -------- -------- -------- -------- --------
Income as adjusted $156,306 $337,562 $308,882 $171,510 $122,769 $169,012
Fixed charges:
Interest on indebtedness $ 31,607 $ 41,718 $ 35,639 $ 41,668 $ 44,043 $ 41,714
Capitalized interest 3,963
Portion of rents representative of
the interest factor 3,628 4,837 5,515 5,879 4,838 4,933
-------- -------- -------- -------- -------- --------
Total fixed charges $ 35,235 $ 46,555 $ 41,154 $ 47,547 $ 48,881 $ 50,610
Ratio of earnings to fixed charges 4.44 7.25 7.51 3.61 2.51 3.34
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 51,449
<SECURITIES> 0
<RECEIVABLES> 309,730
<ALLOWANCES> 5,011
<INVENTORY> 256,056
<CURRENT-ASSETS> 645,004
<PP&E> 1,751,614
<DEPRECIATION> 825,151
<TOTAL-ASSETS> 1,862,733
<CURRENT-LIABILITIES> 574,187
<BONDS> 291,893
0
75,336
<COMMON> 135,550
<OTHER-SE> 1,261,326
<TOTAL-LIABILITY-AND-EQUITY> 1,862,733
<SALES> 398,580
<TOTAL-REVENUES> 400,477
<CGS> 274,205
<TOTAL-COSTS> 274,205
<OTHER-EXPENSES> 77,172
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,347
<INCOME-PRETAX> 37,753
<INCOME-TAX> 13,591
<INCOME-CONTINUING> 28,750
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,750
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.37
</TABLE>
