Cabot Corporation Reports Third Quarter Fiscal 2016 Results
Key Highlights
- Stronger volumes drove significant improvement in operating results both year-over-year and sequentially
- Fifth consecutive quarter of record EBIT for the Performance Chemicals segment
-
Specialty Fluids segment delivered a higher level of profitability
from projects in the
North Sea andAsia -
Strong cash flow generation with cash flows from operating
activities in excess of
\\$100 million for the quarter
(In millions, except per share amounts) | Fiscal 2016 | Fiscal 2015 | ||||||||||||||||
Third | First | Third | First | |||||||||||||||
Quarter |
9 Months |
Quarter |
9 Months |
|||||||||||||||
Net sales | \\$ | 621 | \\$ | 1,792 | \\$ | 694 | \\$ | 2,200 | ||||||||||
Net income attributable to Cabot Corporation | \\$ | 56 | \\$ | 97 | \\$ | (445 | ) | \\$ | (374 | ) | ||||||||
Net earnings per share attributable to Cabot Corporation | \\$ | 0.88 | \\$ | 1.53 | \\$ | (7.04 | ) | \\$ | (5.88 | ) | ||||||||
Less: Discontinued operations |
\\$ |
- |
\\$ |
- |
\\$ |
0.01 |
\\$ |
0.01 |
||||||||||
Less: Certain items per share |
\\$ |
(0.05 |
) |
\\$ |
(0.61 |
) |
\\$ |
(7.69 |
) |
\\$ |
(7.86 |
) |
||||||
Adjusted EPS | \\$ | 0.93 | \\$ | 2.14 | \\$ | 0.64 | \\$ | 1.97 | ||||||||||
Commenting on the results, Cabot President and CEO
Sean Keohane, said,
“I am pleased to see the substantial improvement in operating results
both on a year-over-year and sequential basis. As we expected, volumes
improved sequentially across our segments and we continued to realize
the benefit from our cost savings initiatives. Our Performance Chemicals
segment continued to deliver exceptional results from strong volumes and
margins. The improvement in our Specialty Fluids segment was in part a
result of our sustained efforts to expand our business outside the
Financial Detail
For the third
quarter of fiscal 2016, net income attributable to
Segment Results
Reinforcement Materials -- Third
quarter fiscal 2016 EBIT in Reinforcement Materials increased by
Global and regional volume changes for the rubber blacks product line for the third quarter of fiscal 2016 as compared to the same quarter of the prior year and the second quarter of fiscal 2016 are included in the table below:
Third Quarter |
Third Quarter |
||||
Global | (2%) | 6% | |||
Asia | (8%) | 7% | |||
Europe, Middle East, Africa | 2% | (2%) | |||
Americas | 6% | 9% | |||
Performance Chemicals -- Third quarter fiscal 2016 EBIT in
Performance Chemicals increased by
Purification Solutions -- Third quarter fiscal 2016 EBIT in
Purification Solutions decreased by
Specialty Fluids – Third quarter fiscal 2016 EBIT in Specialty
Fluids increased by
Cash Performance -- The Company ended the third quarter of
fiscal 2016 with a cash balance of
Taxes -- During the third quarter of fiscal 2016, the Company
recorded a tax provision of
Outlook
Commenting on the
outlook for the Company, Keohane said, “With the third quarter operating
results in line with our expectations, we are on track to deliver
results in the low to mid-point of the range we communicated last
quarter. Looking sequentially, while the Performance Chemicals and
Specialty Fluids segments are expected to moderate, we anticipate a
strengthening of results from our Reinforcement Materials and
Purification Solutions segments.” Keohane continued, “We are driving our
Advancing the Core strategy focused on profit growth and cash
generation. In addition, we are maintaining discipline around our
capital allocation framework, which includes returning cash to
shareholders as demonstrated this quarter with the increase in our
dividend and ongoing share repurchases.”
Earnings Call
The Company will
host a conference call with industry analysts at
About
Forward-Looking Statements -- This earnings release contains
forward-looking statements based on management’s current expectations,
estimates and projections. All statements that address expectations or
projections about the future, including our expectations for adjusted
earnings per share for fiscal 2016, actions that will drive earnings
growth, demand for our products, and expectations for cost reductions
and cash generation 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 in the forward-looking statement. Important
factors that could cause our results to differ materially from those
expressed in the forward-looking statements include, but are not limited
to economic, competitive, legal, governmental, and technological
factors. These factors are discussed more fully in the reports we file
with the
Use of Non-GAAP Financial Measures
To supplement Cabot’s
consolidated financial statements presented on a generally accepted
accounting principles (“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, generally accepted accounting principles in
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 on-going 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, and not indicative of ongoing operations. 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 calculations of Adjusted EPS for the periods presented in this release exclude the impact of the following items that are included in our GAAP diluted net income (loss) per share:
- Global restructuring activities include costs or benefits associated with cost reduction initiatives or plant closures and are 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.
-
Foreign currency loss on devaluation represents the impact of
controlled currency devaluations on the Company’s net monetary assets
denominated in that currency. Most recently this has applied to
currency exchange rate changes in
Argentina andVenezuela . - Legal and environmental reserves and matters consist of costs or benefits for matters typically related to former businesses or that are otherwise incurred outside of the ordinary course of business.
- Executive transition costs include incremental charges, including stock compensation charges, associated with the retirement or termination of employment of senior executives of the Company.
- Asset impairment charges primarily include charges associated with an impairment of goodwill or other long-lived assets.
- Acquisition and integration-related charges include transaction costs, redundant costs incurred during the period of integration, and costs associated with transitioning certain management and business processes to Cabot’s processes.
- Employee benefit plan settlement charges consist of the costs associated with transferring the obligations and assets held by one of the Company’s defined benefit plans to a multi-employer plan.
In the third quarter of fiscal 2016, the Company indicated that it
expects to achieve Adjusted EPS for fiscal 2016 in the range of
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.
CABOT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||||
Periods ended June 30 | Three Months | Nine Months | |||||||||||||||||
Dollars in millions, except per share amounts (unaudited) | 2016 | 2015 | 2016 | 2015 | |||||||||||||||
Net sales and other operating revenues | \\$ | 621 | \\$ | 694 | \\$ | 1,792 | \\$ | 2,200 | |||||||||||
Cost of sales | 461 | 544 | 1,383 | 1,754 | |||||||||||||||
Gross profit | 160 | 150 | 409 | 446 | |||||||||||||||
Selling and administrative expenses | 64 | 67 | 197 | 216 | |||||||||||||||
Research and technical expenses | 13 | 15 | 40 | 44 | |||||||||||||||
Purification Solutions long-lived assets impairment charge | - | 209 | - | 209 | |||||||||||||||
Purification Solutions goodwill impairment charge | - | 353 | - | 353 | |||||||||||||||
Income (loss) from operations | 83 | (494 | ) | 172 | (376 | ) | |||||||||||||
Other (expense) income | |||||||||||||||||||
Interest and dividend income | 1 | 1 | 4 | 3 | |||||||||||||||
Interest expense | (13 | ) | (13 | ) | (40 | ) | (40 | ) | |||||||||||
Other income (expense) | 3 | (3 | ) | (8 | ) | (6 | ) | ||||||||||||
Total other expense | (9 | ) | (15 | ) | (44 | ) | (43 | ) | |||||||||||
Income (loss) from continuing operations before income taxes and equity in | |||||||||||||||||||
earnings of affiliated companies | 74 | (509 | ) | 128 | (419 | ) | |||||||||||||
(Provision) benefit for income taxes (A) | (15 | ) | 64 | (21 | ) | 47 | |||||||||||||
Equity in earnings of affiliated companies, net of tax | 1 | 1 | 2 | 4 | |||||||||||||||
Income (loss) from continuing operations | 60 | (444 | ) | 109 | (368 | ) | |||||||||||||
Income from discontinued operations, net of tax (B) | - | 1 | - | 1 | |||||||||||||||
Net income (loss) | 60 | (443 | ) | 109 | (367 | ) | |||||||||||||
Net income attributable to noncontrolling interests | 4 | 2 | 12 | 7 | |||||||||||||||
Net income (loss) attributable to Cabot Corporation | \\$ | 56 | \\$ | (445 | ) | \\$ | 97 | \\$ | (374 | ) | |||||||||
Diluted earnings per share of common stock | |||||||||||||||||||
attributable to Cabot Corporation | |||||||||||||||||||
Continuing operations | \\$ | 0.88 | \\$ | (7.05 | ) | \\$ | 1.53 | \\$ | (5.89 | ) | |||||||||
Discontinued operations (B) | - | 0.01 | - | 0.01 | |||||||||||||||
Net income (loss) attributable to Cabot Corporation | \\$ | 0.88 | \\$ | (7.04 | ) | \\$ | 1.53 | \\$ | (5.88 | ) | |||||||||
Weighted average common shares outstanding | |||||||||||||||||||
Diluted (C) | 62.9 | 63.3 | 62.9 | 63.7 | |||||||||||||||
(A) Included within the provision for income taxes is a tax
benefit for the three and nine months ended
(B) Amounts relate primarily to the divestiture of the Security Materials business.
(C) The weighted average common shares outstanding for both
the three and nine months ended
CABOT CORPORATION SUMMARY RESULTS BY SEGMENTS | |||||||||||||||||||
Periods ended June 30 | Three Months | Nine Months | |||||||||||||||||
Dollars in millions, except per share amounts (unaudited) | 2016 | 2015 | 2016 | 2015 | |||||||||||||||
Sales | |||||||||||||||||||
Reinforcement Materials | \\$ | 270 | \\$ | 351 | \\$ | 819 | \\$ | 1,169 | |||||||||||
Performance Chemicals | 228 | 234 | 651 | 700 | |||||||||||||||
Specialty Carbons and Formulations | 152 | 159 | 437 | 478 | |||||||||||||||
Metal Oxides | 76 | 75 | 214 | 222 | |||||||||||||||
Purification Solutions | 77 | 72 | 210 | 219 | |||||||||||||||
Specialty Fluids | 19 | 12 | 32 | 36 | |||||||||||||||
Segment sales | 594 | 669 | 1,712 | 2,124 | |||||||||||||||
Unallocated and other (A) | 27 | 25 | 80 | 76 | |||||||||||||||
Net sales and other operating revenues | \\$ | 621 | \\$ | 694 | \\$ | 1,792 | \\$ | 2,200 | |||||||||||
Segment Earnings Before Interest and Taxes (B) | |||||||||||||||||||
Reinforcement Materials | \\$ | 35 | \\$ | 32 | \\$ | 95 | \\$ | 112 | |||||||||||
Performance Chemicals | 59 | 48 | 167 | 129 | |||||||||||||||
Purification Solutions | - | 3 | (7 | ) | 3 | ||||||||||||||
Specialty Fluids | 10 | 3 | 8 | 8 | |||||||||||||||
Total Segment Earnings Before Interest and Taxes | 104 | 86 | 263 | 252 | |||||||||||||||
Unallocated and Other | |||||||||||||||||||
Interest expense | (13 | ) | (13 | ) | (40 | ) | (40 | ) | |||||||||||
Certain items (C) | (6 | ) | (567 | ) | (63 | ) | (599 | ) | |||||||||||
Unallocated corporate costs | (11 | ) | (12 | ) | (36 | ) | (35 | ) | |||||||||||
General unallocated income (expense) (D) | 1 | (2 | ) | 6 | 7 | ||||||||||||||
Less: Equity in earnings of affiliated companies | (1 | ) | (1 | ) | (2 | ) | (4 | ) | |||||||||||
Income (loss) from continuing operations before income taxes and equity in | |||||||||||||||||||
earnings of affiliated companies | 74 | (509 | ) | 128 | (419 | ) | |||||||||||||
(Provision) benefit for income taxes (including tax certain items) | (15 | ) | 64 | (21 | ) | 47 | |||||||||||||
Equity in earnings of affiliated companies | 1 |
|
1 |
|
2 |
|
4 | ||||||||||||
Income (loss) from continuing operations | 60 | (444 | ) | 109 | (368 | ) | |||||||||||||
Income from discontinued operations, net of tax (E) | - |
|
1 | - | 1 | ||||||||||||||
Net income (loss) | 60 | (443 | ) | 109 | (367 | ) | |||||||||||||
Net income attributable to noncontrolling interests | 4 | 2 | 12 | 7 | |||||||||||||||
Net income (loss) attributable to Cabot Corporation | \\$ | 56 | \\$ | (445 | ) | \\$ | 97 | \\$ | (374 | ) | |||||||||
Diluted earnings per share of common stock | |||||||||||||||||||
attributable to Cabot Corporation | |||||||||||||||||||
Continuing operations | \\$ | 0.88 | \\$ | (7.05 | ) | \\$ | 1.53 | \\$ | (5.89 | ) | |||||||||
Discontinued operations (E) | - | 0.01 |
|
- | 0.01 | ||||||||||||||
Net income attributable to Cabot Corporation | \\$ | 0.88 | \\$ | (7.04 | ) | \\$ | 1.53 | \\$ | (5.88 | ) | |||||||||
Adjusted earnings per share | |||||||||||||||||||
Adjusted EPS (F) | \\$ | 0.93 | \\$ | 0.64 | \\$ | 2.14 | \\$ | 1.97 | |||||||||||
Weighted average common shares outstanding | |||||||||||||||||||
Diluted (G) | 62.9 | 63.3 | 62.9 | 63.7 | |||||||||||||||
(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) General unallocated income includes foreign currency transaction gains (losses), interest income, dividend income, the profit related to the corporate adjustment for unearned revenue, and the impact of LIFO accounting.
(E) Amounts relate primarily to the previously divested Security Materials business.
(F) 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.
(G) The weighted average common shares outstanding for both
the three and nine months ended
CABOT CORPORATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION | ||||||||
June 30, | September 30, | |||||||
2016 | 2015 | |||||||
Dollars in millions | (unaudited) | (audited) | ||||||
Current assets: | ||||||||
Cash and cash equivalents | \\$ | 222 | \\$ | 77 | ||||
Accounts and notes receivable, net of reserve for doubtful accounts of \\$8 and \\$7 | 434 | 477 | ||||||
Inventories: | ||||||||
Raw materials | 67 | 69 | ||||||
Work in process | 3 | 1 | ||||||
Finished goods | 223 | 287 | ||||||
Other | 37 | 40 | ||||||
Total inventories | 330 | 397 | ||||||
Prepaid expenses and other current assets | 44 | 54 | ||||||
Deferred income taxes | 49 | 43 | ||||||
Total current assets | 1,079 | 1,048 | ||||||
Property, plant and equipment, net | 1,297 | 1,383 | ||||||
Goodwill | 152 | 154 | ||||||
Equity affiliates | 55 | 57 | ||||||
Intangible assets, net | 142 | 153 | ||||||
Assets held for rent | 95 | 86 | ||||||
Deferred income taxes | 172 | 152 | ||||||
Other assets | 41 | 42 | ||||||
Total assets | \\$ | 3,033 | \\$ | 3,075 | ||||
CABOT CORPORATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION | ||||||||||
June 30, | September 30, | |||||||||
2016 | 2015 | |||||||||
Dollars in millions, except share and per share amounts | (unaudited) | (audited) | ||||||||
Current liabilities: | ||||||||||
Notes payable | \\$ | 7 | \\$ | 22 | ||||||
Accounts payable and accrued liabilities | 332 | 389 | ||||||||
Income taxes payable | 20 | 28 | ||||||||
Deferred income taxes | 1 | 1 | ||||||||
Current portion of long-term debt | 301 | 1 | ||||||||
Total current liabilities | 661 | 441 | ||||||||
Long-term debt | 669 | 970 | ||||||||
Deferred income taxes | 67 | 59 | ||||||||
Other liabilities | 226 | 240 | ||||||||
Redeemable preferred stock | 27 | 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: 62,530,702 and 62,704,966 shares | ||||||||||
Outstanding: 62,288,963 and 62,458,396 shares | 63 | 63 | ||||||||
Less cost of 241,739 and 246,570 shares of common treasury stock | (8 | ) | (8 | ) | ||||||
Additional paid-in capital | - | - | ||||||||
Retained earnings | 1,523 | 1,478 | ||||||||
Accumulated other comprehensive income | (290 | ) | (299 | ) | ||||||
Total Cabot Corporation stockholders' equity | 1,288 | 1,234 | ||||||||
Noncontrolling interests | 95 | 104 | ||||||||
Total stockholders' equity | 1,383 | 1,338 | ||||||||
Total liabilities and stockholders' equity | \\$ | 3,033 | \\$ | 3,075 | ||||||
CABOT CORPORATION | |||||||||||||||||||||||||||||||||||||||||
Fiscal 2015 | Fiscal 2016 | ||||||||||||||||||||||||||||||||||||||||
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 | \\$ | 460 | \\$ | 358 | \\$ | 351 | \\$ | 338 | \\$ | 1,507 | \\$ | 288 | \\$ | 261 | \\$ | 270 | - | \\$ | 819 | ||||||||||||||||||||||
Performance Chemicals | 229 | 237 | 234 | 227 | 927 | 207 | 216 | 228 | - | 651 | |||||||||||||||||||||||||||||||
Specialty Carbons and Formulations | 157 | 162 | 159 | 152 | 630 | 140 | 145 | 152 | - | 437 | |||||||||||||||||||||||||||||||
Metal Oxides | 72 | 75 | 75 | 75 | 297 | 67 | 71 | 76 | - | 214 | |||||||||||||||||||||||||||||||
Purification Solutions | 76 | 71 | 72 | 77 | 296 | 66 | 67 | 77 | - | 210 | |||||||||||||||||||||||||||||||
Specialty Fluids | 16 | 8 | 12 | 6 | 42 | 7 | 6 | 19 | - | 32 | |||||||||||||||||||||||||||||||
Segment Sales | 781 | 674 | 669 | 648 | 2,772 | 568 | 550 | 594 | - | 1,712 | |||||||||||||||||||||||||||||||
Unallocated and other (A) | 31 | 20 | 25 | 23 | 99 | 35 | 18 | 27 | - | 80 | |||||||||||||||||||||||||||||||
Net sales and other operating revenues | \\$ | 812 | \\$ | 694 | \\$ | 694 | \\$ | 671 | \\$ | 2,871 | \\$ | 603 | \\$ | 568 | \\$ | 621 | \\$ | - | \\$ | 1,792 | |||||||||||||||||||||
Segment Earnings Before Interest and Taxes (B) | |||||||||||||||||||||||||||||||||||||||||
Reinforcement Materials | \\$ | 53 | \\$ | 27 | \\$ | 32 | \\$ | 31 | \\$ | 143 | \\$ | 26 | \\$ | 34 | \\$ | 35 | - | \\$ | 95 | ||||||||||||||||||||||
Performance Chemicals | 39 | 42 | 48 | 49 | 178 | 50 | 58 | 59 | - | 167 | |||||||||||||||||||||||||||||||
Purification Solutions | (1 | ) | 1 | 3 | 2 | 5 | (5 | ) | (2 | ) | - | - | (7 | ) | |||||||||||||||||||||||||||
Specialty Fluids | 6 | (1 | ) | 3 | (2 | ) | 6 | - | (2 | ) | 10 | - | 8 | ||||||||||||||||||||||||||||
Total Segment Earnings Before Interest and Taxes | 97 | 69 | 86 | 80 | 332 | 71 | 88 | 104 | - | 263 | |||||||||||||||||||||||||||||||
Unallocated and Other | |||||||||||||||||||||||||||||||||||||||||
Interest expense | (13 | ) | (14 | ) | (13 | ) | (13 | ) | (53 | ) | (13 | ) | (14 | ) | (13 | ) | - | (40 | ) | ||||||||||||||||||||||
Certain items (C) | (26 | ) | (6 | ) | (567 | ) | (18 | ) | (617 | ) | (58 | ) | 1 | (6 | ) | - | (63 | ) | |||||||||||||||||||||||
Unallocated corporate costs | (12 | ) | (11 | ) | (12 | ) | (11 | ) | (46 | ) | (13 | ) | (12 | ) | (11 | ) | - | (36 | ) | ||||||||||||||||||||||
General unallocated income (expense) (D) | 6 | 3 | (2 | ) | 4 | 11 | 5 | - | 1 | - | 6 | ||||||||||||||||||||||||||||||
Less: Equity in earnings of affiliated companies | (1 | ) | (2 | ) | (1 | ) | - | (4 | ) | - | (1 | ) | (1 | ) | - | (2 | ) | ||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes and | |||||||||||||||||||||||||||||||||||||||||
equity in earnings (loss) of affiliated companies | 51 | 39 | (509 | ) | 42 | (377 | ) | (8 | ) | 62 | 74 | - | 128 | ||||||||||||||||||||||||||||
(Provision) benefit for income taxes (including tax certain items) | (3 | ) | (14 | ) | 64 | (2 | ) | 45 | 5 | (11 | ) | (15 | ) | - | (21 | ) | |||||||||||||||||||||||||
Equity in earnings of affiliated companies | 1 | 2 | 1 | - | 4 | - | 1 | 1 | - | 2 | |||||||||||||||||||||||||||||||
Income (loss) from continuing operations | 49 | 27 | (444 | ) | 40 | (328 | ) | (3 | ) | 52 | 60 | - | 109 | ||||||||||||||||||||||||||||
Income from discontinued operations, net of tax (E) | - | - | 1 | 1 | 2 | - | - | - | - | - | |||||||||||||||||||||||||||||||
Net income (loss) | 49 | 27 | (443 | ) | 41 | (326 | ) | (3 | ) | 52 | 60 | - | 109 | ||||||||||||||||||||||||||||
Net income attributable to noncontrolling interests | 4 | 1 | 2 | 1 | 8 | 4 | 4 | 4 | - | 12 | |||||||||||||||||||||||||||||||
Net income (loss) attributable to Cabot Corporation | \\$ | 45 | \\$ | 26 | \\$ | (445 | ) | \\$ | 40 | \\$ | (334 | ) | \\$ | (7 | ) | \\$ | 48 | \\$ | 56 | \\$ | - | \\$ | 97 | ||||||||||||||||||
Diluted earnings per share of common stock | |||||||||||||||||||||||||||||||||||||||||
attributable to Cabot Corporation | |||||||||||||||||||||||||||||||||||||||||
Continuing operations | \\$ | 0.69 | \\$ | 0.41 | \\$ | (7.05 | ) | \\$ | 0.62 | \\$ | (5.29 | ) | \\$ | (0.11 | ) | \\$ | 0.76 | \\$ | 0.88 | \\$ | - | \\$ | 1.53 | ||||||||||||||||||
Discontinued operations (E) | - | - | 0.01 | 0.01 | 0.02 | - | - | - | - | - | |||||||||||||||||||||||||||||||
Net income (loss) attributable to Cabot Corporation (F) | \\$ | 0.69 | \\$ | 0.41 | \\$ | (7.04 | ) | \\$ | 0.63 | \\$ | (5.27 | ) | \\$ | (0.11 | ) | \\$ | 0.76 | \\$ | 0.88 | \\$ | - | \\$ | 1.53 | ||||||||||||||||||
Adjusted earnings per share | |||||||||||||||||||||||||||||||||||||||||
Adjusted EPS (G) | \\$ | 0.80 | \\$ | 0.53 | \\$ | 0.64 | \\$ | 0.74 | \\$ | 2.71 | \\$ | 0.51 | \\$ | 0.70 | \\$ | 0.93 | \\$ | - | \\$ | 2.14 | |||||||||||||||||||||
Weighted average common shares outstanding | |||||||||||||||||||||||||||||||||||||||||
Diluted (F) | 64.6 | 64.1 | 63.3 | 63.1 | 63.4 | 62.5 | 62.8 | 62.9 | - | 62.9 | |||||||||||||||||||||||||||||||
(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) General unallocated income (expense) includes foreign currency transaction gains (losses), interest income, dividend income, the profit related to the corporate adjustment for unearned revenue, and the impact of LIFO accounting.
(E) Amounts relate primarily to the previously divested Supermetals and Security Materials businesses.
(F) The weighted average common shares outstanding used to
calculate earnings per share for the three months ended
(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 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||||||||||
Periods ended June 30 | Three Months | Nine Months | |||||||||||||||||
Dollars in millions | 2016 | 2015 | 2016 | 2015 | |||||||||||||||
Cash Flows from Operating Activities: | |||||||||||||||||||
Net income (loss) | \\$ | 60 | \\$ | (443 | ) | \\$ | 109 | \\$ | (367 | ) | |||||||||
Adjustments to reconcile net income to cash provided by operating activities: | |||||||||||||||||||
Depreciation and amortization | 40 | 48 | 122 | 140 | |||||||||||||||
Other non-cash charges, net | (4 | ) | 492 | 24 | 507 | ||||||||||||||
Changes in assets and liabilities: | |||||||||||||||||||
Changes in certain working capital items (A) | (21 | ) | (12 | ) | 47 | 29 | |||||||||||||
Changes in other assets and liabilities, net | 29 | (15 | ) | (15 | ) | (41 | ) | ||||||||||||
Cash dividends received from equity affiliates | 3 | 3 | 8 | 10 | |||||||||||||||
Cash provided by operating activities | 107 | 73 | 295 | 278 | |||||||||||||||
Cash Flows from Investing Activities: | |||||||||||||||||||
Additions to property, plant and equipment | (28 | ) | (33 | ) | (80 | ) | (103 | ) | |||||||||||
Other investing activities, net | (1 | ) | (1 | ) | 10 | (8 | ) | ||||||||||||
Cash used in investing activities | (29 | ) | (34 | ) | (70 | ) | (111 | ) | |||||||||||
Cash Flows from Financing Activities: | |||||||||||||||||||
Change in debt, net | - | (7 | ) | (15 | ) | 51 | |||||||||||||
Cash dividends paid to common stockholders | (19 | ) | (14 | ) | (47 | ) | (42 | ) | |||||||||||
Other financing activities, net | (17 | ) | (28 | ) | (35 | ) | (95 | ) | |||||||||||
Cash used in financing activities | (36 | ) | (49 | ) | (97 | ) | (86 | ) | |||||||||||
Effect of exchange rates on cash | 2 | - | 17 | (64 | ) | ||||||||||||||
Increase (decrease) in cash and cash equivalents | 44 | (10 | ) | 145 | 17 | ||||||||||||||
Cash and cash equivalents at beginning of period | 178 | 94 | 77 | 67 | |||||||||||||||
Cash and cash equivalents at end of period | \\$ | 222 | \\$ | 84 | \\$ | 222 | \\$ | 84 | |||||||||||
(A) Includes Accounts and notes receivable, Inventories, and Accounts payable and accrued liabilities
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) | Dollars in Millions | ||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||||||||
\\$ | \\$ | \\$ | \\$ | ||||||||||||||||||
Certain items before and after income taxes | |||||||||||||||||||||
Impairment of goodwill and long-lived assets |
\\$ |
? |
\\$ |
(563 |
) |
\\$ |
? |
|
\\$ | (563 | ) | ||||||||||
Global restructuring activities | \\$ | (2 | ) | \\$ | (2 | ) | \\$ | (45 | ) | \\$ | (14 | ) | |||||||||
Acquisition and integration-related charges | — | — | — | (2 | ) | ||||||||||||||||
Employee benefit plan settlement | — | — | — | (18 | ) | ||||||||||||||||
Foreign currency loss on devaluation | — | (2 | ) | (11 | ) | (2 | ) | ||||||||||||||
Legal and environmental matters and reserves | (1 | ) | — | (4 | ) |
— |
|
||||||||||||||
Executive transition costs | (3 | ) | — | (3 | ) |
— |
|||||||||||||||
Total certain items, pre-tax | (6 | ) | (567 | ) | (63 | ) | (599 | ) | |||||||||||||
Tax impact of certain items (A) | 3 | 81 | 22 | 90 | |||||||||||||||||
Certain items after tax | (3 | ) | (486 | ) | (41 | ) | (509 | ) | |||||||||||||
Certain items after tax per share impact | \\$ | (0.04 | ) | \\$ | (7.63 | ) | \\$ | (0.64 | ) | \\$ | (7.94 | ) | |||||||||
Tax-related certain items | |||||||||||||||||||||
Discrete tax items | (1 | ) | (1 | ) | 2 | 7 | |||||||||||||||
Total tax-related certain items | (1 | ) | (1 | ) | 2 | 7 | |||||||||||||||
Total tax-related certain items per share impact | \\$ | (0.01 | ) | \\$ | (0.02 | ) | \\$ | 0.03 | \\$ | 0.11 | |||||||||||
Total certain items after tax | \\$ | (4 | ) | \\$ | (487 | ) | \\$ | (39 | ) | \\$ | (502 | ) | |||||||||
Total certain items after tax per share impact | \\$ | (0.05 | ) | \\$ | (7.65 | ) | \\$ | (0.61 | ) | \\$ | (7.83 | ) | |||||||||
Discontinued operations after income taxes (C) | \\$ ? | \\$ | 1 | \\$ ? | \\$ | 1 | |||||||||||||||
Total discontinued operations after tax | \\$ ? | \\$ | 1 | \\$ ? | \\$ | 1 | |||||||||||||||
Discontinued operations after tax per share impact | \\$ ? | \\$ | 0.01 | \\$ ? | \\$ | 0.01 | |||||||||||||||
TABLE 2: CERTAIN ITEMS STATEMENT OF OPERATIONS LINE ITEM | |||||||||||||||||||||
Periods ended June 30 | Three Months | Nine Months | |||||||||||||||||||
Dollars in millions, Pre-Tax (unaudited) | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||
Statement of Operations Line Item (D) |
|||||||||||||||||||||
Cost of sales | \\$ | (2 | ) | \\$ | (1 | ) | \\$ | (36 | ) | \\$ | (21 | ) | |||||||||
Selling and administrative expenses | (4 | ) | (1 | ) | (11 | ) | (13 | ) | |||||||||||||
Research and technical expenses | — | — | (5 | ) | — | ||||||||||||||||
Other expense | — | (565 | ) | (11 | ) | (565 | ) | ||||||||||||||
Total certain items, pre-tax | \\$ | (6 | ) | \\$ | (567 | ) | \\$ | (63 | ) | \\$ | (599 | ) | |||||||||
TABLE 3: RECONCILIATION OF TAX CERTAIN ITEMS | |||||||||||||||||||||
Periods ended June 30 | Three Months | Nine Months | |||||||||||||||||||
Dollars in millions (unaudited) | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||
Reconciliation of Provision for income taxes, excluding certain items, to Provision for income taxes |
|||||||||||||||||||||
(Provision) benefit for income taxes | \\$ | (15 | ) | \\$ | 64 | \\$ | (21 | ) | \\$ | 47 | |||||||||||
Less: Tax impact of certain items | 3 | 81 | 22 | 90 | |||||||||||||||||
Less: Tax-related certain items | (1 | ) | (1 | ) | 2 | 7 | |||||||||||||||
(Provision) benefit for income taxes, excluding certain items | \\$ | (17 | ) | \\$ | (16 | ) | \\$ | (45 | ) | \\$ | (50 | ) | |||||||||
TABLE 4: RECONCILIATION OF OPERATING TAX RATE | |||||||||||||||||||||
Periods ended June 30 | Three Months | Nine Months | |||||||||||||||||||
Dollars in millions (unaudited) | 2016 | 2015 | 2016 | 2015 |
|
||||||||||||||||
Reconciliation of the effective tax rate to the operating tax rate |
|||||||||||||||||||||
(Provision) benefit for income taxes | \\$ | (15 | ) | \\$ | 64 | \\$ | (21 | ) | \\$ | 47 | |||||||||||
Effective tax rate | 21 | % | 13 | % | 17 | % | 11 | % | |||||||||||||
Impact of discrete tax items: (B) | |||||||||||||||||||||
Unusual or infrequent items | - | % | - | % | 1 | % | (1 | %) | |||||||||||||
Items related to uncertain tax positions | - | % | - | % | 1 | % | (2 | %) | |||||||||||||
Other discrete tax items | 1 | % | - | % | - | % | 1 | % | |||||||||||||
Impact of certain items | 2 | % | 14 | % | 5 | % | 18 | % | |||||||||||||
Operating tax rate | 24 | % | 27 | % | 24 | % | 27 | % | |||||||||||||
TABLE 5: RECONCILIATION OF ADJUSTED EPS BY QUARTER FISCAL 2016 and FISCAL 2015 | |||||||||||||||||||||
NON-GAAP MEASURE: | |||||||||||||||||||||
Periods ended (unaudited) | Fiscal 2016(E) | ||||||||||||||||||||
Dec. Q | Mar. Q | Jun. Q | Sept. Q | FY 2016 YTD | |||||||||||||||||
Reconciliation of Adjusted EPS to GAAP EPS |
|||||||||||||||||||||
Net loss per share attributable to Cabot Corporation | \\$ | (0.11 | ) | \\$ | 0.76 | \\$ | 0.88 | \\$ ? | \\$ | 1.53 | |||||||||||
Less: Certain items after tax per share | (0.62 | ) | 0.06 | (0.05 | ) | — | (0.61 | ) | |||||||||||||
Adjusted earnings per share | \\$ | 0.51 | \\$ | 0.70 | \\$ | 0.93 | \\$ ? | \\$ | 2.14 | ||||||||||||
Periods ended (unaudited) | Fiscal 2015(E) | ||||||||||||||||||||
Dec. Q | Mar. Q | Jun. Q | Sept. Q | FY 2015 YTD | |||||||||||||||||
Reconciliation of Adjusted EPS to GAAP EPS |
|||||||||||||||||||||
Net (loss) income per share attributable to Cabot Corporation | \\$ | 0.69 | \\$ | 0.41 | \\$ | (7.04 | ) | \\$ 0.63 | \\$ | (5.27 | ) | ||||||||||
Less: Net income per share from discontinued operations(C) | — | — | 0.01 | 0.01 | 0.02 | ||||||||||||||||
Net income per share from continuing operations | \\$ | 0.69 | \\$ | 0.41 | \\$ | (7.05 | ) | \\$ 0.62 | \\$ | (5.29 | ) | ||||||||||
Less: Certain items after tax per share | (0.11 | ) | (0.12 | ) | (7.65 | ) | (0.12 |
) |
|
(7.98 | ) | ||||||||||
Less: Dilutive impact of shares (F) | — | — | (0.04 | ) | — | (0.02 | ) | ||||||||||||||
Adjusted earnings per share | \\$ | 0.80 | \\$ | 0.53 | \\$ | 0.64 | \\$ 0.74 | \\$ | 2.71 | ||||||||||||
(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
(B) The nature of the discrete tax items for the periods
ended
(C) Amounts relate primarily to the previously divested Supermetals and Security Materials businesses.
(D) This table indicates the line items where certain items are recorded in the table titled Cabot Corporation Consolidated Statements of Operations.
(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 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. The net loss in Q3 2015 and FY15 year-to-date is driven by a Certain Item, so the Company believes this approach provides the most comparable presentation possible.
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