<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
MARCH 31, 2000
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 MAY 10, 2000, THE COMPANY HAD 67,053,353 SHARES OF COMMON
STOCK, PAR VALUE $1 PER SHARE, OUTSTANDING.
<PAGE> 2
CABOT CORPORATION
INDEX
Part I. Financial Information Page
----
Item 1. Financial Statements
Consolidated Statements of Income
Three Months Ended March 31, 2000 and 1999 3
Consolidated Statements of Income
Six Months Ended March 31, 2000 and 1999 4
Consolidated Balance Sheets
March 31, 2000 and September 30, 1999 5
Consolidated Statements of Cash Flows
Six Months Ended March 31, 2000 and 1999 7
Consolidated Statement of Changes in Stockholders'
Equity Six Months Ended March 31, 2000 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
Part II. Other Information
Item 4. Submission of Matters to a Vote of Stockholders 23
Item 6. Exhibits and Reports on Form 8-K 24
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31
(In millions, except per share amounts)
UNAUDITED
<TABLE>
<CAPTION>
2000 1999
----- -----
<S> <C> <C>
Revenues:
Net sales and other operating revenues $ 534 $ 435
Interest and dividend income 2 1
----- -----
Total revenues 536 436
----- -----
Costs and expenses:
Cost of sales 393 308
Selling and administrative expenses 53 52
Research and technical service 15 19
Interest expense 12 12
Gain on sale of equity securities (Note E) -- (5)
Other charges, net -- 3
----- -----
Total costs and expenses 473 389
----- -----
Income before income taxes 63 47
Provision for income taxes (23) (17)
Equity in net income of affiliated companies 2 4
Minority interest in net income (1) (1)
----- -----
Net income 41 33
Dividends on preferred stock, net of tax benefit (1) (1)
----- -----
Net income available to common shares $ 40 $ 32
===== =====
Weighted-average common shares outstanding (Note J):
Basic 64 64
===== =====
Diluted 73 73
===== =====
Income per common share (Note J):
Basic $0.63 $0.51
===== =====
Diluted $0.57 $0.45
===== =====
Dividends per common share $0.11 $0.11
===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended March 31
(In millions, except per share amounts)
UNAUDITED
<TABLE>
<CAPTION>
2000 1999
------ -----
<S> <C> <C>
Revenues:
Net sales and other operating revenues $1,026 $ 843
Interest and dividend income 4 2
------ -----
Total revenues 1,030 845
------ -----
Costs and expenses:
Cost of sales 750 585
Selling and administrative expenses 103 105
Research and technical service 30 39
Interest expense 23 23
Gain on sale of equity securities (Note E) -- (5)
Other charges, net 1 3
------ -----
Total costs and expenses 907 750
------ -----
Income before income taxes 123 95
Provision for income taxes (44) (34)
Equity in net income of affiliated companies 3 6
Minority interest in net income (3) (2)
------ -----
Net income 79 65
Dividends on preferred stock, net of tax benefit (2) (2)
------ -----
Net income available to common shares $ 77 $ 63
====== =====
Weighted-average common shares outstanding (Note J):
Basic 64 64
====== =====
Diluted 73 73
====== =====
Income per common share (Note J):
Basic $ 1.20 $0.99
====== =====
Diluted $ 1.07 $0.88
====== =====
Dividends per common share $ 0.22 $0.22
====== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 2000 and September 30, 1999
(In millions)
ASSETS
<TABLE>
<CAPTION>
March 31 September 30
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 53 $ 35
Accounts and notes receivable (net of reserve
for doubtful accounts of $4 and $5) 377 321
Inventories:
Raw materials 76 72
Work in process 45 55
Finished goods 92 91
Other 34 41
------- -------
Total inventories 247 259
Prepaid expenses 41 27
Deferred income taxes 13 17
------- -------
Total current assets 731 659
------- -------
Investments:
Equity 78 72
Other 48 47
------- -------
Total investments 126 119
------- -------
Property, plant and equipment 2,020 2,039
Accumulated depreciation and amortization (1,027) (1,015)
------- -------
Net property, plant and equipment 993 1,024
------- -------
Other assets:
Intangible assets, net of amortization 18 20
Deferred income taxes 5 6
Other assets 22 14
------- -------
Total other assets 45 40
------- -------
Total assets $ 1,895 $ 1,842
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 2000 and September 30, 1999
(In millions, except for share amounts)
LIABILITIES & STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31 September 30
2000 1999
---------- ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Notes payable to banks $ 198 $ 186
Current portion of long-term debt 47 11
Accounts payable and accrued liabilities 254 252
Deferred income taxes 1 1
------ ------
Total current liabilities 500 450
------ ------
Long-term debt 391 419
Deferred income taxes 70 68
Other liabilities 157 167
Commitments and contingencies (Note D)
Minority interest 31 32
Stockholders' Equity (Note H):
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 75 75
redemption value of $64 and $65)
Less cost of shares of preferred treasury stock (19) (17)
Common stock:
Authorized: 200,000,000 shares of $1 par value
Issued: 66,977,766 and 67,123,892 shares 67 67
Additional paid-in capital -- 5
Retained earnings 793 734
Unearned compensation (20) (30)
Deferred employee benefits (57) (59)
Notes receivable for restricted stock (24) (25)
Accumulated other comprehensive loss (Note I) (69) (44)
------ ------
Total stockholders' equity 746 706
------ ------
Total liabilities and stockholders' equity $1,895 $1,842
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended March 31, 2000 and 1999
(In millions)
UNAUDITED
<TABLE>
<CAPTION>
2000 1999
----- -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 79 $ 65
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 64 62
Deferred tax benefit 7 (3)
Equity in income of affiliated companies,
net of dividends received (2) (4)
Gain on sale of equity securities -- (5)
Other, net 10 6
Changes in assets and liabilities, net of the effect of
the consolidation of equity affiliates:
Increase in accounts receivable (66) (39)
(Increase) decrease in inventory 7 (33)
Decrease in accounts payable and accruals (13) (48)
Increase in prepayments and intangible assets (16) (1)
Increase in income taxes payable 12 8
Increase (decrease) in other liabilities (12) 10
Other, net 2 (1)
----- -----
Cash provided by operating activities 72 17
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (53) (80)
Investments -- (5)
Cash from consolidation of equity affiliates -- 8
Proceeds from sale of equity securities -- 9
Proceeds from sale of property, plant and equipment 1 --
----- -----
Cash used in investing activities (52) (68)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 17 102
Repayments of long-term debt (7) (8)
Increase (decrease) in short-term debt 14 (26)
Purchases of preferred and common stock (12) (30)
Sales and issuances of preferred and common stock 3 4
Cash dividends paid to stockholders (16) (16)
Repayments of notes receivable for restricted stock 2 --
----- -----
Cash provided by financing activities 1 26
----- -----
Effect of exchange rate changes on cash (3) (2)
----- -----
Increase (decrease) in cash and cash equivalents 18 (27)
Cash and cash equivalents at beginning of period 35 40
----- -----
Cash and cash equivalents at end of period $ 53 $ 13
===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Six Months Ended March 31, 2000
(In millions)
UNAUDITED
<TABLE>
<CAPTION>
Accumulated
Preferred Additional Other
Preferred Treasur Common Paid-in Retained Comprehensive Unearned
Stock Stock Stock Capital Earnings Loss Compensation
--------- --------- ------ ---------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1999 $ 75 $(17) $ 67 $ 5 $734 $(44) $(30)
---- ---- ---- ---- ---- ---- ----
Net income 79
Foreign currency translation adjustments (26)
Change in unrealized gain on available-for-
sale securities 1
---- ---- ---- ---- ---- ---- ----
Total comprehensive income
---- ---- ---- ---- ---- ---- ----
Common dividends paid (15)
Issuance of stock under employee
compensation plans, net of tax benefit 1 1 2
Issuance of common stock to CRISP
Purchase and retirement of common stock (1) (6) (4)
Purchase of treasury stock - preferred (2)
Preferred dividends paid to Employee
Stock Ownership Plan, net of tax (1)
Principal payment by Employee Stock
Ownership Plan under guaranteed loan
Amortization of unearned compensation 8
Note Receivable - Forfeitures
---- ---- ---- ---- ---- ---- ----
Balance at March 31, 2000 $ 75 $(19) $ 67 $ -- $793 $(69) $(20)
==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
Notes
Deferred Receivable Total Total
Employee for Restricted Stockholder' Comprehensive
Benefits Stock Equity Income
-------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Balance at September 30, 1999 $(59) $(25) $706
---- ---- ---- ----
Net income $ 79
Foreign currency translation adjustments (26)
Change in unrealized gain on available-for-
sale securities 1
---- ---- ---- ----
Total comprehensive income $ 54
---- ---- ---- ====
Common dividends paid
Issuance of stock under employee
compensation plans, net of tax benefit
Issuance of common stock to CRISP
Purchase and retirement of common stock
Purchase of treasury stock - preferred
Preferred dividends paid to Employee
Stock Ownership Plan, net of tax
Principal payment by Employee Stock
Ownership Plan under guaranteed loan 2
Amortization of unearned compensation
Note Receivable - Forfeitures 1
---- ---- ----
Balance at March 31, 2000 $(57) $(24) $746
==== ==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 9
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
UNAUDITED
A. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Cabot
Corporation and majority-owned and controlled U.S. and non-U.S.
subsidiaries (Cabot). Investments in 20 to 50 percent owned affiliates
are accounted for on the equity method. Intercompany transactions have
been eliminated.
The unaudited consolidated financial statements have been prepared in
accordance with the requirements of Form 10-Q and consequently do not
include all disclosures required by Form 10-K. Additional information
may be obtained by referring to Cabot's Form 10-K for the year ended
September 30, 1999.
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
March 31, 2000 and 1999. 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.
B. SPECIAL ITEMS AND BUSINESS DEVELOPMENTS
During fiscal 1999, Cabot began implementation of initiatives to reduce
costs and improve operating efficiencies. In connection with these
efforts, in fiscal 1999 Cabot recorded a $26 million charge for
capacity utilization and cost reduction initiatives. These Chemical
Businesses charges included $16 million for severance and termination
benefits for approximately 265 employees, of which $7 million was paid
out in 1999, and a charge of $10 million for the retirement of certain
long-lived plant assets, primarily at the Australian carbon black
facility and European plastics masterbatch operations. An additional $8
million for severance and termination benefits was paid out in the
first half of fiscal 2000. Cabot expects these initiatives to be
substantially completed by the end of fiscal 2000.
During 1996, Cabot acquired an 80% ownership interest in P.T.
Continental Carbon Indonesia (PTCCI), an Indonesian carbon black plant
located in Merak, Indonesia. During 1998, the financial and economic
circumstances in Indonesia and the region resulted in a significant
decline in demand for carbon black. As a result, management halted
production at this plant. Cabot maintained the idled facility and in
February 2000, the facility began to operate on a limited basis and is
expected to commence normal operations in the third quarter of fiscal
2000.
On March 17, 2000, Cabot signed a preliminary agreement to acquire the
remaining 50% interest in a carbon black joint venture for
approximately $14 million. The acquisition, expected to close in the
third quarter of fiscal 2000, will be accounted for using the purchase
method of accounting. Accordingly, the purchase price will be allocated
to the net assets acquired based on their estimated fair values. The
excess of purchase price over fair value of net assets acquired will be
recorded as goodwill and amortized.
On April 4, 2000, Cabot Microelectronics Corporation (Nasdaq: CCMP), a
subsidiary of Cabot Corporation, successfully completed the sale of 4.6
million shares of its common stock in an Initial Public Offering (IPO).
The 4.6 million shares represented approximately 19.5% of CCMP, with
the remaining 80.5% expected to be distributed within the next six to
twelve months to Cabot Corporation stockholders in the form of a tax
free transaction. The net proceeds from the IPO were approximately $83
million. Cabot Corporation received an aggregate of approximately $81
million in dividends from CCMP.
9
<PAGE> 10
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
March 31, 2000
UNAUDITED
C. RECLASSIFICATION
Certain amounts were reclassified in fiscal 1999 to reflect changes in
Cabot's organization during the year and to conform to the fiscal 2000
presentation.
D. COMMITMENTS AND CONTINGENCIES
During January 2000, Cabot entered into a sales agreement to provide
natural gas to a customer in North America. The contract is designed to
provide the customer with 70 billion cubic feet of vaporized natural
gas per year at prevailing market prices expiring in 2020.
On March 20, 2000, Cabot entered into a forward agreement with an
investment bank to repurchase Cabot Corporation common stock on the
open market. As of March 31, 2000, Cabot had a forward contract
outstanding to purchase 1,010,100 shares of Cabot common stock at an
average repurchase price of $23.42 per share. Cabot anticipates
settlement of the contract prior to the end of fiscal 2000.
E. INVESTMENTS
During the second quarter of fiscal 1999, the Company sold .5 million
shares of its investment in K N Energy, Inc. The Company received cash
proceeds of $9 million and recorded a gain of $5 million related to the
sale.
F. LNG COMMODITIES
Cabot is exposed to natural gas price fluctuations that can affect its
sales revenues and supply costs. Cabot, from time to time, enters into
commodity futures contracts, commodity price swaps, and/or option
contracts to hedge a portion of firmly committed and anticipated
transactions against such natural gas price fluctuations. Cabot
monitors its exposure to ensure overall effectiveness of its hedge
positions.
As of March 31, 2000, the notional principal amount for the commodity
futures contracts, commodity price swaps, and option contracts was $59
million, maturing through August 2000. For the first half of fiscal
2000, Cabot realized losses associated with the hedging activity of $1
million.
G. INTEREST RATE SWAPS
Cabot maintains a percentage of fixed and variable rate debt within
defined parameters. Cabot used interest rate swaps to hedge its
exposure on fixed and variable rate debt positions through January
2000.
During the first quarter of fiscal 2000, Cabot settled one of its
remaining two interest rate swap agreements with a $50 million notional
principal amount. The cost associated with this settlement was
approximately $1 million and will be amortized over the remaining eight
year life of the hedged debt positions. As of December 31, 1999, the
notional principal amount of the remaining interest rate swap agreement
was $50 million, expiring in 2007. In January 2000, Cabot settled the
remaining interest rate swap agreement. The cost associated with this
settlement was immaterial. For the first half of fiscal 2000, the gains
or losses in interest income or expense associated with these
agreements was immaterial.
10
<PAGE> 11
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
March 31, 2000
(Preferred shares in thousands and common shares in millions)
UNAUDITED
H. STOCKHOLDERS' EQUITY
The following table summarizes the changes in shares of stock for the
three months ended March 31:
<TABLE>
<CAPTION>
2000
----
<S> <C>
PREFERRED STOCK
Balance at December 31, 1999 75
===
Balance at March 31, 2000 75
===
PREFERRED TREASURY STOCK
Balance at December 31, 1999 11
===
Balance at March 31, 2000 11
===
COMMON STOCK
Balance at December 31, 1999 67
Issued common stock 1
Purchased and retired common stock (1)
---
Balance at March 31, 2000 67
===
</TABLE>
11
<PAGE> 12
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
March 31, 2000
(Preferred shares in thousands and common shares in millions)
UNAUDITED
H. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes the changes in shares of stock for the six
months ended March 31:
<TABLE>
<CAPTION>
2000
----
<S> <C>
PREFERRED STOCK
Balance at September 30, 1999 75
===
Balance at March 31, 2000 75
===
PREFERRED TREASURY STOCK
Balance at September 30, 1999 10
Purchased preferred treasury stock 1
---
Balance at March 31, 2000 11
===
COMMON STOCK
Balance at September 30, 1999 67
Issued common stock 1
Purchased and retired common stock (1)
---
Balance at March 31, 2000 67
===
</TABLE>
12
<PAGE> 13
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
March 31, 2000
(In millions)
UNAUDITED
I. COMPREHENSIVE INCOME
The pre-tax, tax, and after-tax effects of the components of other
comprehensive loss for the three months ended March 31 are shown below:
<TABLE>
<CAPTION>
Pre-tax Tax After-tax
------- --- ---------
<S> <C> <C> <C>
2000
Foreign currency translation adjustments $(13) $ - $(13)
Unrealized holding gain arising during period on
marketable equity securities - - -
---- --- ----
Other comprehensive loss $(13) $ - $(13)
==== === ====
</TABLE>
<TABLE>
<CAPTION>
Pre-tax Tax After-tax
------- --- ---------
<S> <C> <C> <C>
1999
Foreign currency translation adjustments $(29) $ - $(29)
Unrealized holding gain arising during period on
marketable equity securities (7) 2 (5)
---- --- ----
Other comprehensive loss $(36) $ 2 $(34)
==== === ====
</TABLE>
The balance of related after-tax components comprising accumulated other
comprehensive loss as of March 31 is summarized below:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Foreign currency translation adjustment $(73) $(59)
Unrealized gain on marketable equity securities 4 6
---- ----
Accumulated other comprehensive loss $(69) $(53)
==== ====
</TABLE>
13
<PAGE> 14
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
March 31, 2000
(In millions)
UNAUDITED
I. COMPREHENSIVE INCOME (CONTINUED)
The pre-tax, tax, and after-tax effects of the components of other
comprehensive loss for the six months ended March 31 are shown below:
<TABLE>
<CAPTION>
Pre-tax Tax After-tax
------- ---- ---------
<S> <C> <C> <C>
2000
Foreign currency translation adjustments $(26) $ - $(26)
Unrealized holding gain arising during period on
marketable equity securities 2 (1) 1
---- ---- ----
Other comprehensive loss $(24) $ (1) $(25)
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
Pre-tax Tax After-tax
------- --- ---------
<S> <C> <C> <C>
1999
Foreign currency translation adjustments $(29) $ - $(29)
Unrealized holding gain arising during period on
marketable equity securities (16) 5 (11)
---- --- ----
Other comprehensive loss $(45) $ 5 $(40)
==== === ====
</TABLE>
The balance of related after-tax components comprising accumulated other
comprehensive loss as of March 31 is summarized below:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Foreign currency translation adjustment $(73) $(59)
Unrealized gain on marketable equity securities 4 6
---- ----
Accumulated other comprehensive loss $(69) $(53)
==== ====
</TABLE>
14
<PAGE> 15
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
March 31, 2000
(In millions, except per share amounts)
UNAUDITED
J. EARNINGS PER SHARE
Basic and diluted earnings per share ("EPS") were calculated for the
three months ended March 31 as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
BASIC EPS
Income available to common shares (numerator) $ 40 $ 32
==== ====
Weighted-average common shares outstanding 67 67
Less: Contingently issuable shares (3) (3)
---- ----
Adjusted weighted-average shares (denominator) 64 64
==== ====
Basic EPS $0.63 $0.51
==== ====
DILUTED EPS
Income available to common shares $ 40 $ 32
Dividends on preferred stock 1 1
Less: Income effect of assumed conversion of preferred stock - -
---- ----
Income available to common shares plus assumed conversions (numerator) $ 41 $ 33
==== ====
Weighted-average common shares outstanding 67 67
Effect of dilutive securities: Stock-based compensation(1) 6 6
---- ----
Adjusted weighted-average shares (denominator) 73 73
==== ====
Diluted EPS $0.57 $0.45
==== ====
</TABLE>
(1) Of the options to purchase shares of common stock outstanding at March
31, 1 million and 0.3 million shares were not included in the
computation of diluted EPS because those options' exercise price was
greater than the average market price of the common shares for 2000
and 1999, respectively.
15
<PAGE> 16
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
March 31, 2000
(In millions, except per share amounts)
UNAUDITED
J. EARNINGS PER SHARE (CONTINUED)
Basic and diluted earnings per share ("EPS") were calculated for the
six months ended March 31 as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
BASIC EPS
Income available to common shares (numerator) $ 77 $ 63
==== ====
Weighted-average common shares outstanding 67 67
Less: Contingently issuable shares (3) (3)
---- ----
Adjusted weighted-average shares (denominator) 64 64
==== ====
Basic EPS $1.20 $0.99
==== ====
DILUTED EPS
Income available to common shares $ 77 $ 63
Dividends on preferred stock 2 2
Less: Income effect of assumed conversion of preferred stock (1) (1)
---- ----
Income available to common shares plus assumed conversions (numerator) $ 78 $ 64
==== ====
Weighted-average common shares outstanding 67 67
Effect of dilutive securities: Stock-based compensation(1) 6 6
---- ----
Adjusted weighted-average shares (denominator) 73 73
==== ====
Diluted EPS $1.07 $0.88
==== ====
</TABLE>
(1) Of the options to purchase shares of common stock outstanding at March
31, 1 million and 0.3 million shares were not included in the
computation of diluted EPS because those options' exercise price was
greater than the average market price of the common shares for 2000
and 1999, respectively.
16
<PAGE> 17
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
March 31, 2000
(In millions)
UNAUDITED
K. FINANCIAL INFORMATION BY SEGMENT
The framework for segment reporting is intended to give analysts and other
financial statement users a view of Cabot "through the eyes of
management". It designates Cabot's internal management reporting structure
as the basis for determining Cabot's reportable segments, as well as the
basis for determining the information to be disclosed for those segments.
The following table provides financial information by segment for the
three months ended March 31:
<TABLE>
<CAPTION>
CHEMICAL PERFORMANCE SPECIALTY MICRO- LIQUEFIED SEGMENT UNALLOCATED CONSOLIDATED
BUSINESSES MATERIALS FLUIDS ELECTRONICS NATURAL GAS TOTAL AND OTHER TOTAL
---------- ----------- --------- ----------- ----------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2000
Net sales and other operating
revenues(1) (2) $333 $ 54 $ 6 $ 38 $121 $552 $(18) $534
Profit (loss) before taxes(3) $ 49 $ 8 $ (1) $ 10 $ 12 $ 78 $(15) $ 63
1999
Net sales and other operating
revenues(1) (2) $304 $ 36 $ 3 $ 21 $ 88 $452 $(17) $435
Profit (loss) before taxes(3) $ 46 $ 4 $ (1) $ 4 $ 6 $ 59 $(12) $ 47
</TABLE>
Unallocated and other net sales and other operating revenues includes
the following:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Equity affiliate sales $(19) $(16)
Royalties paid by equity affiliates 3 1
Interoperating segment revenues (2) (2)
---- ----
Total $(18) $(17)
==== ====
</TABLE>
Unallocated and other profit (loss) before taxes includes the
following:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Interest expense $(12) $(12)
Gain on sale of equity securities $ - $ 5
General unallocated income (expense)(4) (1) (1)
Equity in net income of affiliated companies (2) (4)
---- ----
Total $(15) $(12)
==== ====
</TABLE>
(1) Net sales for certain operating segments within Chemical Businesses
include 100% of equity affiliate sales. Specialty Fluids sales include
transfers of ore to Performance Materials at market-based prices.
(2) Unallocated and other reflects an adjustment for equity affiliate
sales and interoperating segment revenues and includes royalties paid
by equity affiliates.
(3) Segment profit is a measure used by Cabot's chief operating
decision-makers to measure consolidated operating results and assess
segment performance. It includes equity in net income of affiliated
companies, royalties paid by equity affiliates, minority interest, and
corporate governance costs, and excludes foreign currency transaction
gains (losses), interest income (expense) and dividend income.
(4) General unallocated income (expense) includes foreign currency
transaction gains (losses), interest income (expense), dividend income,
and adjustments for minority interest, as well as timing adjustments
between Cabot and its segments.
17
<PAGE> 18
CABOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
March 31, 2000
(In millions)
UNAUDITED
K. FINANCIAL INFORMATION BY SEGMENT (CONTINUED)
The framework for segment reporting is intended to give analysts and other
financial statement users a view of Cabot "through the eyes of
management". It designates Cabot's internal management reporting structure
as the basis for determining Cabot's reportable segments, as well as the
basis for determining the information to be disclosed for those segments.
The following table provides financial information by segment for the six
months ended March 31:
<TABLE>
<CAPTION>
CHEMICAL PERFORMANCE SPECIALTY MICRO- LIQUEFIED SEGMENT UNALLOCATED CONSOLIDATED
BUSINESSES MATERIALS FLUIDS ELECTRONICS NATURAL GAS TOTAL AND OTHER TOTAL
---------- ----------- --------- ----------- ----------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2000
Net sales and other operating
revenues(1) (2) $655 $105 $10 $73 $223 $1,066 $(40) $1,026
Profit (loss) before taxes(3) $102 $ 16 $(3) $19 $ 16 $ 150 $(27) $ 123
1999
Net sales and other operating
revenues(1) (2) $602 $ 83 $ 6 $42 $142 $ 875 $(32) $ 843
Profit (loss) before taxes(3) $ 95 $ 9 $(1) $ 8 $ 8 $ 119 $(24) $ 95
</TABLE>
Unallocated and other net sales and other operating revenues includes
the following:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Equity affiliate sales $(39) $(32)
Royalties paid by equity affiliates 4 3
Interoperating segment revenues (5) (3)
---- ----
Total $(40) $(32)
==== ====
</TABLE>
Unallocated and other profit (loss) before taxes includes the
following:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Interest expense $(23) $(23)
Gain on sale of equity securities $ - $ 5
General unallocated income (expense)(4) (1) -
Equity in net income of affiliated companies (3) (6)
---- ----
Total $(27) $(24)
==== ====
</TABLE>
(1) Net sales for certain operating segments within Chemical Businesses
include 100% of equity affiliate sales. Specialty Fluids sales include
transfers of ore to Performance Materials at market-based prices.
(2) Unallocated and other reflects an adjustment for equity affiliate
sales and interoperating segment revenues and includes royalties paid
by equity affiliates.
(3) Segment profit is a measure used by Cabot's chief operating
decision-makers to measure consolidated operating results and assess
segment performance. It includes equity in net income of affiliated
companies, royalties paid by equity affiliates, minority interest, and
corporate governance costs, and excludes foreign currency transaction
gains (losses), interest income (expense) and dividend income.
(4) General unallocated income (expense) includes foreign currency
transaction gains (losses), interest income (expense), dividend income,
and adjustments for minority interest, as well as timing adjustments
between Cabot and its segments.
18
<PAGE> 19
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 segment are shown in Footnote K to the
Consolidated Financial Statements.
THREE MONTHS ENDED MARCH 31, 2000 VERSUS
THREE MONTHS ENDED MARCH 31, 1999
Net income for the second quarter of fiscal 2000 was $41 million ($0.57 per
diluted common share), compared to $33 million ($0.45 per diluted common share)
in the same quarter a year ago. Included in last year's results was a $0.04 per
diluted share gain from the sale of investments in equity securities. Strong
volumes and an economic recovery in some overseas markets increased sales 23% to
$534 million from $435 million last year. Operating profit increased $19 million
to $78 million from $59 million for the second quarter. Increased volumes in all
businesses, improved prices in the Company's Liquified Natural Gas (LNG)
business, and significant cost reductions more than offset the effects of higher
carbon black feedstock costs and a stronger U.S. dollar.
Sales for the Chemical Businesses increased 10% to $333 million from $304
million last year. Higher volumes and selling prices increased sales 8% and 6%,
respectively. Negative effects of a stronger U.S. dollar, primarily due to a
weakening Euro, reduced sales by 4%. Operating profit increased 7% to $49
million.
The Chemical Businesses consist of the carbon black, fumed silica and inkjet
colorants businesses. In the past, the plastics business was organized as a
separate business unit and its results were separately reported within the
Chemical Businesses. The plastics business primarily sells carbon black to the
plastics industry, either in the form of dry carbon black or pre-dispersed
masterbatch, therefore the Company has elected to integrate plastics results
within carbon black.
For the second quarter of fiscal 2000, carbon black sales increased 13%. Higher
volumes and modest price increases were partially offset by negative effects of
a stronger U.S. dollar. Volumes in the Company's carbon black business were very
strong. Record sales volumes were achieved in North and South America with a
marked improvement in Asia Pacific. Volumes improved 18% this quarter versus the
second quarter of last year. Carbon black also benefited from cost reductions in
selling and administrative, conversion and research and development costs, which
caused an $18 million improvement in operating profit. Significant increases in
oil prices, however, caused average feedstock costs to increase approximately
45%, or $32 million in the second quarter of fiscal 2000 versus the second
quarter last year. Carbon black has not been able to fully recover the lost
margin resulting from increases in its feedstock costs. Overall, operating
profit improved 41%.
Fumed silica sales increased 11% on 13% greater volumes. Volume improvements,
driven mainly by increased sales to Dow Corning, were offset by increased
operating costs related to the Company's new fumed silica plant in Midland,
Michigan, resulting in $2 million of lower operating profit compared with last
year's second quarter.
The Company's inkjet colorants business reported slightly improved operating
profit in the form of reduced losses.
Performance Materials sales were $54 million in the second quarter of fiscal
2000 compared with $36 million in 1999. Operating profit improved dramatically
from an unusually low base largely due to a surge in demand for tantalum
capacitors from the wireless telecommunications and electronics industries.
Specialty Fluids sales in the second quarter were $6 million versus $3 million
last year. This business focuses on commercializing cesium formate drilling and
completion fluids for oil and gas wells; however, sales to date have been
generated primarily from the production and sale of spodumene and tantalum.
During the current quarter, cesium formate was used successfully in an
additional four North Sea completion operations.
19
<PAGE> 20
CABOT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, CONTINUED
Inventory levels have dropped to a point which has facilitated restarting the
plant in Manitoba, Canada in April, 2000. Production was suspended in the fourth
quarter of fiscal 1999 because of the large inventory build up for initial
testing. Cesium formate reported an operating loss of $1 million in the second
quarter of fiscal 2000.
Cabot Microelectronics Corporation (CCMP) sales increased 81% to $38 million
from $21 million last year due to greater volume and improved mix. Sales from
new products introduced in the last three years grew to over 50% of total sales
for the quarter. Operating profit increased to $10 million. On April 4, 2000, an
initial public offering of CCMP shares was made for approximately 19.5% of
CCMP's outstanding shares. CCMP raised approximately $83 million (net of
estimated expenses) in proceeds from the IPO. Cabot Corporation (Cabot) received
an aggregate of $81 million in dividends from CCMP. Cabot used the dividends to
repay short-term debt. Cabot received a private letter ruling from the IRS
indicating that a spin-off of Cabot's remaining stake in CCMP (80.5%) to Cabot
shareholders would be tax-free.
Sales for Liquefied Natural Gas (LNG) were $121 million in the second quarter
compared with $88 million last year. Operating profit increased to $12 million
from $6 million last year. Improved pricing was the key driver of improved
profitability as slightly higher volumes contributed incrementally to improved
earnings. In addition, the LNG business benefited from a dividend paid by its
Trinidad joint venture.
Research and technical service spending was $15 million for the second quarter,
down 21% from $19 million in the second quarter of last year. The decrease
reflected reduced spending in Performance Materials and the Chemical Businesses.
At $53 million, selling and administrative expenses were 10% of sales for the
second quarter of fiscal 2000 compared with 12% for the same period last year.
The Company's effective tax rate was 36% for the quarters ended March 31, 2000
and 1999.
SIX MONTHS ENDED MARCH 31, 2000 VERSUS
SIX MONTHS ENDED MARCH 31, 1999
Net income for the first six months of fiscal 2000 was $79 million compared with
$65 million for the first half of fiscal 1999. Operating profit increased 26% to
$150 million from $119 million.
In the Chemical Businesses, sales increased 9% to $655 million from $602 million
last year. Operating profit increased 7% to $102 million from $95 million.
Mainly increased volumes, prices and significant cost reductions that offset
higher carbon black feedstock costs and negative foreign currency effects, drove
the improvement.
Performance Materials sales were $105 million, up 27% from the first six months
of fiscal 1999. Operating profit increased to $16 million from $9 million driven
by increased demand for tantalum capacitors from the wireless telecommunications
and electronics industries.
Specialty Fluids reported a loss for the six-month period ended March 31, 2000
of $3 million versus a $1 million loss last year. The cost incurred for
completion trials during the first six months of the year caused the increased
loss in the current year. As of March 31, 2000, cesium formate was used
successfully in seven North Sea completion operations.
CCMP sales and operating profit increased 74% and 138%, respectively. Increased
adoption of chemical mechanical planarization by the semiconductor industry and
new product generation has driven the growth of this business. CCMP continues to
invest in its infrastructure commensurate with its growth.
LNG revenues increased 57% to $223 million from $142 million and operating
profit increased 100% to $16 million from $8 million in the same period a year
ago. LNG's new Trinidad supply and higher year-to-year selling prices
drove improved results.
20
<PAGE> 21
CABOT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, CONTINUED
II. CASH FLOWS AND LIQUIDITY
During the first six months of the year Cabot's operations provided $72 million
of cash compared to $17 million of cash last year.
Capital spending for the first six months of the year was $53 million. The major
components of the fiscal 2000 capital program include maintenance and
replacement projects, CCMP plant expansion, and expansion of vaporization
capacity at the LNG terminal in Everett, Massachusetts. Cabot plans to make
approximately $180 million of capital expenditures during the fiscal year.
On January 14, 2000, Cabot's Board of Directors authorized the repurchase of 4
million shares of Cabot common stock, superceding prior authorizations. During
the first six months of fiscal 2000, Cabot purchased approximately 0.4 million
shares of common stock. At March 31, 2000, approximately 3.6 million shares
remained under the January 2000 authorization.
Cabot's ratio of total debt (including short-term debt net of cash) to capital
decreased to 43% from 48% at the end of the second quarter of fiscal 2000.
Cabot maintains a credit agreement under which it may, under certain conditions,
borrow up to $300 million at floating rates. The facility is available through
January 3, 2002. As of March 31, 2000, Cabot had no borrowing outstanding under
this arrangement. Management expects cash from operations and present financing
arrangements, including Cabot's unused line of credit and shelf registration for
debt securities, to be sufficient to meet Cabot's cash requirements for the
foreseeable future.
Currently Cabot is in discussions with a major Pacific Asia customer regarding
its delinquent outstanding trade receivables. Extended terms have been granted
to the customer and management believes that the probability of collection is
high.
III. RISK MANAGEMENT
Cabot's principal objectives in managing its exposure to interest rate changes,
foreign currency rate changes, share price changes and commodity price changes
is to reduce volatility and limit the impact of the changes on earnings. To
achieve its objectives, Cabot identifies these risks and manages them through
its regular operating and financing activities and, when deemed appropriate,
through the use of derivative financial instruments. The Chemical Businesses
enter into contracts with customers and suppliers that are designed to limit the
risk of certain foreign currency rate and commodity price changes. Cabot enters
into certain contracts in the carbon black business in which the price of the
product is adjusted to a certain extent based on price movements in feedstock.
LNG enters into certain supply contracts where the purchase price of LNG is
adjusted based on the final selling price. Certain contracts in Cabot's foreign
subsidiaries are denominated in U.S. dollars or a currency other than the
functional currency of the subsidiary. Cabot enters into certain contracts for
share repurchases to limit the risk associated with stock price fluctuations.
Additionally, Cabot attempts to limit its net monetary exposure in currencies of
hyper-inflationary countries, primarily in South America.
Cabot determines its worldwide exposures to interest rate changes, foreign
currency rate changes, share price changes and commodity price changes and
reduce the impact of rate and price changes through the use of derivative
financial instruments. These financial instruments are designated as hedges of
underlying exposures associated with specific assets, liabilities, or firm
commitments or anticipated transactions and are monitored to determine if they
remain effective hedges. Since Cabot utilizes interest rate, foreign currency,
and commodity sensitive derivative instruments for hedging, a loss in fair value
for those instruments is generally offset by increases in the value of the
underlying transaction. Market risk exposure to other financial instruments is
not material to earnings, cash flow, or fair values.
Cabot manages market risks pursuant to policies aimed at protecting Cabot
against risks and prohibiting speculation on market movements. Actions taken by
Cabot's businesses to provide such protection are reviewed and approved by
Cabot's Risk Management Committee, which is charged with enforcing Cabot's risk
management policy.
21
<PAGE> 22
Interest Rates
Cabot's objective in managing its exposure to interest rate changes is to reduce
the impact of interest rate changes on earnings and cash flows and to lower its
overall borrowing costs. To achieve its objectives, Cabot used interest rate
swaps to hedge and/or lower financing costs and to adjust fixed and variable
rate debt position through January 2000. In January 2000, Cabot settled the
remaining outstanding interest rate swaps.
Foreign Currency
Cabot's international operations are subject to certain opportunities and risks,
including currency fluctuations and government actions. Operations in each
country are closely monitored so Cabot can respond to changing economic and
political environments and to fluctuations in foreign currencies. Accordingly,
Cabot utilizes foreign currency option contracts and forward contracts to hedge
its exposure of firm commitments or anticipated transactions, and receivables
and payables primarily denominated in currencies other than the functional
currencies. Cabot also monitors its foreign exchange exposures to ensure the
overall effectiveness of its foreign currency hedge positions. Cabot has foreign
currency instruments primarily denominated in the EURO, Japanese yen, British
pound sterling, Swedish krona, Canadian dollar, and Australian dollar.
Share Repurchases
Cabot takes advantage of opportunities to repurchase shares of its common stock
with excess cash at a price that Cabot believes is below the fair market value
of the stock. Cabot, from time to time, enters into forward agreements for its
own stock in order to fix the price of stock for delivery at a future date.
These agreements provide Cabot with the right to settle forward contracts in
cash or an equivalent value to Cabot Corporation common stock.
Commodities
Cabot is exposed to commodity price fluctuations that can affect its sales
revenues and supply costs. From time to time, Cabot enters into commodity
futures contracts, commodity price swaps, and/or option contracts to hedge a
portion of firmly committed and anticipated transactions against such natural
gas price fluctuations. Cabot monitors its exposure to ensure overall
effectiveness of its hedge positions.
Value-At-Risk
Cabot utilizes a Value-at-Risk ("VAR") model to determine the maximum potential
loss in the fair value of its foreign exchange, share repurchases and commodity
sensitive derivative financial instruments within a 95% confidence interval.
Cabot's computation was based on the interrelationships between movements in
foreign currencies, share repurchases and commodities. These interrelationships
were determined by observing historical foreign currency, share price and
commodity market changes over corresponding periods. The assets and liabilities,
firm commitments and anticipated transactions, which are hedged by derivative
financial instruments, were excluded from the model. The VAR model estimates
were made assuming normal market conditions and a 95% confidence level. There
are various modeling techniques that can be used in the VAR computation. Cabot's
computations are based on the Monte Carlo simulation. The VAR model is a risk
analysis tool and does not purport to represent actual gains or losses in fair
value that will be incurred by Cabot. The VAR model estimated a maximum loss in
market value of $9 million from March 31, 2000 through September 30, 2000, for
derivative instruments held as of March 31, 2000.
At no time during the year did actual changes in market value exceed the VAR
amounts during the reporting period.
FORWARD-LOOKING INFORMATION: Included herein are statements relating to
management's projections of future profits, the possible achievement of Cabot's
financial goals and objectives, and management's expectations for Cabot's
product development program. Actual results may differ materially from the
results anticipated in the statements included herein due to a variety of
factors, including market supply and demand conditions, fluctuations in currency
exchange rates, cost of raw materials, patent rights of others, demand for
Cabot's customers' products and competitors' reactions to market conditions.
Timely commercialization of products under development by Cabot may be disrupted
or delayed by technical difficulties, market acceptance or competitors' new
products, as well as difficulties in moving from the experimental stage to the
production stage.
22
<PAGE> 23
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS.
The Annual Meeting of Stockholders of Cabot Corporation (the "Annual Meeting")
was held on March 9, 2000. An election of Directors was held for which David V.
Ragone, Lydia W. Thomas and Mark S. Wrighton were nominated and elected to the
class of Directors whose terms expire in 2003. The following votes were cast for
or withheld with respect to each of the nominees.
Director In Favor Of Withheld
-------- ----------- --------
David V. Ragone 62,046,991 1,760,152
Lydia W. Thomas 62,152,235 1,654,909
Mark S. Wrighton 62,240,538 1,566,605
Other Directors whose terms of office as Directors continued after the meeting
are:
Director Term of Office Expires
-------- ----------------------
Samuel W. Bodman 2002
Kennett F. Burnes 2001
John G.L. Cabot 2001
John S. Clarkeson 2001
Arthur L. Goldstein 2002
Robert P. Henderson 2001
Gautam S. Kaji 2002
Roderick C.G. MacLeod 2001
John H. McArthur 2002
John F. O'Brien 2001
The second proposal before the Annual Meeting was a stockholder proposal to
limit the number of directorships for executive officers (the "Shareholder
Proposal"). This proposal was not approved by the stockholders. The following
votes were cast for or against, or abstained from voting on, the Shareholder
Proposal:
For Against Abstained
--- ------- ---------
9,757,284 44,278,764 620,653
There were 9,150,442 broker non-votes with respect to the second proposal.
Effective March 9, 2000, Jane C. Bradley, Arnold S. Hiatt and Charles P. Siess,
Jr. retired as members of the Board of Directors, in accordance with the
Company's Director Retirement Policy.
23
<PAGE> 24
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
------- -----------
10* Amendment to Cabot Corporation 1996 and 1999 Equity
Incentive Plans, dated May 12, 2000, filed herewith.
27.1 Financial Data Schedule for the period ended March 31,
2000, filed herewith. (Not included with printed copy
of the Form 10-Q.)
27.2 Restated Financial Data Schedule for the period ended
March 31, 1999, filed herewith. (Not included with
printed copy of Form 10-Q.)
*Management contract or compensatory plan or arrangement.
(b) REPORTS ON FORM 8-K
No report on Form 8-K was filed by the Company during the
three months ended March 31, 2000.
24
<PAGE> 25
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: May 15, 2000 /s/ Robert L. Culver
------------------------------
Robert L. Culver
Executive Vice President and
Chief Financial Officer
Date: May 15, 2000 /s/ William T. Anderson
-------------------------------
William T. Anderson
Vice President and Controller
(Chief Accounting Officer)
25
<PAGE> 1
EXHIBIT 10
CABOT CORPORATION
AMENDMENT TO 1996 AND 1999 EQUITY INCENTIVE PLANS
MAY 12, 2000
Cabot Corporation hereby amends each of its 1996 Equity Incentive Plan
and its 1999 Equity Incentive Plan as follows:
1. By inserting, after Section 7.1, a new Section 7.1A:
7.1A. SALE OF INTEREST IN SUBSIDIARY OR BUSINESS.
(a) If before an Award of Restricted Stock to a Participant
has fully vested, the Participant ceases to be an Employee either (1)
as a result of the reduction in the Company's percentage ownership of
the entity employing such Participant, or (2) upon the transfer of the
Participant to the employment of a person or entity acquiring all or a
portion of the business of the Company or any of its subsidiaries, then
upon such event there shall automatically vest such portion of the
unvested Award of Restricted Stock as may be necessary so that,
including any portion of such Award already vested, the Participant
will be vested in a pro-rata portion of the entire Award (rounding any
fractional shares upward), based on the number of days from the date of
grant to the date of such event, and the number of days from the date
of grant to the date when the entire Award would otherwise have vested.
Any portion of the Award that remains unvested after such automatic
vesting shall be subject to Section 7.2 and Section 6.1(d).
(b) If before an award of Options granted to a Participant has
become fully exerciseable, the Participant ceases to be an Employee
either (1) as a result of the reduction in the Company's percentage
ownership of the entity employing such Participant, or (2) upon the
transfer of the Participant to the employment of a person or entity
acquiring all or a portion of the business of the Company or any of its
subsidiaries, then upon such event there shall automatically become
exerciseable such portion of the unexerciseable Options as may be
necessary so that, including any portion of such Award already
exercised or exerciseable, the Participant will have or have had the
right to exercise a pro-rata portion of the entire Award (rounding any
fractional shares upward), based on the number of days from the date of
grant to the date of such event, and the number of days from the date
of grant to the date when the entire Award would otherwise have been
exerciseable. After giving effect to such automatic acceleration of
exerciseability, if any, such Options shall be subject to and shall
terminate in accordance with Section 7.2.
2. By changing the introductory clause of Section 7.2 to read:
If a Participant ceases to be an Employee for any reason other
than those specified in Section 7.1 above, then subject to Section 7.1A
if applicable, and except as otherwise determined by the Committee in
any particular case, the following will apply:
<PAGE> 2
3. By changing the last paragraph of Section 7.2 to read:
For the purposes of this Section 7.2, and Employee's
employment will not be considered to have ended in the case of sick
leave or other bona fide leave of absence approved for purposes of the
Plan by the Committee, so long as his or her right to reemployment is
guaranteed either by statute or by contract.
4. By deleting paragraph (d) of Section 7.3.
* * * * *
The amendments set forth above shall not affect adversely (without his
or her consent) the rights of any Participant under any Award previously
granted, other than the Awards granted on May 11, 2000 that were expressly made
subject to the foregoing amendments.
Cabot Corporation
By:___________________
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 53
<SECURITIES> 0
<RECEIVABLES> 381
<ALLOWANCES> 4
<INVENTORY> 247
<CURRENT-ASSETS> 731
<PP&E> 2,020
<DEPRECIATION> 1,027
<TOTAL-ASSETS> 1,895
<CURRENT-LIABILITIES> 500
<BONDS> 391
0
56
<COMMON> 67
<OTHER-SE> 623
<TOTAL-LIABILITY-AND-EQUITY> 1,895
<SALES> 1,026
<TOTAL-REVENUES> 1,030
<CGS> 750
<TOTAL-COSTS> 750
<OTHER-EXPENSES> 31
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23
<INCOME-PRETAX> 123
<INCOME-TAX> 44
<INCOME-CONTINUING> 79
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79
<EPS-BASIC> 1.20
<EPS-DILUTED> 1.07
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 13
<SECURITIES> 0
<RECEIVABLES> 329
<ALLOWANCES> 5
<INVENTORY> 284
<CURRENT-ASSETS> 660
<PP&E> 1,970
<DEPRECIATION> 966
<TOTAL-ASSETS> 1,847
<CURRENT-LIABILITIES> 475
<BONDS> 424
0
60
<COMMON> 66
<OTHER-SE> 569
<TOTAL-LIABILITY-AND-EQUITY> 1,847
<SALES> 843
<TOTAL-REVENUES> 845
<CGS> 585
<TOTAL-COSTS> 585
<OTHER-EXPENSES> 37
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23
<INCOME-PRETAX> 95
<INCOME-TAX> 34
<INCOME-CONTINUING> 65
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65
<EPS-BASIC> 0.99
<EPS-DILUTED> 0.88
</TABLE>
