TMCnet News

Cabot Corp Reports Fourth Quarter Diluted EPS of $0.83 and Adjusted EPS of $1.00
[October 31, 2016]

Cabot Corp Reports Fourth Quarter Diluted EPS of $0.83 and Adjusted EPS of $1.00


Cabot Corporation (NYSE: CBT) today announced results for its fourth quarter and full fiscal year 2016.

Key Highlights

  • Delivered strong fourth quarter results driven by higher margins and lower fixed costs
  • Achieved third consecutive year of record EBIT for the Performance Chemicals segment
  • Generated strong cash flows from operations of $386 million for fiscal 2016
  • Returned $104 million of cash to shareholders in fiscal year 2016


             
(In millions, except per share amounts)     Fiscal 2016     Fiscal 2015
Fourth     Full     Fourth     Full

Quarter

Year

Quarter

Year

 
Net sales $ 619 $ 2,411 $ 671 $ 2,871
Net income (loss) attributable to Cabot Corporation $ 52 $ 149 $ 40 $ (334)
 
Net earnings (loss) per share attributable to Cabot Corporation $ 0.83 $ 2.36 $ 0.63 $ (5.27)
Less: Discontinued operations

Less: Certain items per share

$
$

0.02
(0.19)

$
$

0.02
(0.80)

$
$

0.01
0.12

$
$

0.02
(8.00)

Adjusted EPS     $ 1.00     $ 3.14     $ 0.74     $ 2.71
 

Commenting on the results, Cabot President and CEO Sean Keohane, said, "I am pleased to report another strong quarter which was driven primarily by strong margins and cost management. The Performance Chemicals and Reinforcement Materials segments each delivered positive results compared to the same quarter in the prior year. In addition, we experienced significant volume growth in Purification Solutions attributable to the full implementation of the MATS regulations. Our strong finish to fiscal year 2016 resulted in 16% adjusted EPS growth year over year including the Performance Chemicals segment delivering a third consecutive year of record EBIT. In addition, we maintained strong discipline around our capital allocation framework, returning over $100 million to shareholders in the form of dividends and share repurchases during the fiscal year."

Financial Detail
For the fourth quarter of fiscal 2016, net income attributable to Cabot Corporation was $52 million ($0.83 per diluted common share). Net income includes a per share charge of $0.19 from certain items, principally reflecting charges associated with legal and environmental matters and reserves. Adjusted EPS for the fourth quarter of fiscal 2016 was $1.00 per share.

Segment Results
Reinforcement Materials -- Fourth quarter fiscal 2016 EBIT in Reinforcement Materials increased by $11 million compared to the fourth quarter of fiscal 2015 principally driven by favorable pricing and product mix. Volumes declined by 3% during the fourth quarter of fiscal 2016 as compared to the fourth quarter of fiscal 2015 as a result of lower volumes in EMEA and Asia, primarily due to the closure of the Merak site. Sequentially, Reinforcement Materials EBIT increased by $7 million compared to the third quarter of fiscal 2016 driven by improved pricing and a favorable inventory impact, partially offset by a decline in volumes. Sequentially, volumes decreased by 5% due to weaker demand in the Americas and seasonally lower volumes in EMEA.

Global and regional volume changes for the rubber blacks product line for the fourth quarter of fiscal 2016 as compared to the same quarter of the prior year and the third quarter of fiscal 2016 are included in the table below:

             
   

Fourth Quarter
Year over Year Change

   

Fourth Quarter
Sequential Change

 
Global     (3%)     (5%)
Asia (4%) (2%)
Europe, Middle East, Africa (6%) (13%)
Americas     1%     (6%)
 

Performance Chemicals -- Fourth quarter fiscal 2016 EBIT in Performance Chemicals increased by $9 million compared to the fourth quarter of fiscal 2015 due to improved margins from a stronger product mix and lower raw material costs. Volumes increased by 3% in the specialty carbons and formulations business and 6% in the metal oxides business. Sequentially, Performance Chemicals EBIT decreased by $1 million compared to the third quarter of fiscal 2016, primarily due to seasonally lower volumes, with a 7% decrease in specialty carbons and formulations and a 3% decrease in metal oxides. The lower volumes were partially offset by lower fixed costs.

Purification Solutions -- Fourth quarter fiscal 2016 EBIT in Purification Solutions was $2 million, in line with results in the fourth quarter of fiscal 2015. The segment results benefitted from higher volumes associated with MATS related demand and lower fixed costs, which were offset by an unfavorable impact from reducing inventory levels as compared to the prior year. Sequentially, Purification Solutions EBIT increased by $2 million compared to the third quarter of fiscal 2016 due to higher volumes from MATS related demand and a lower inventory reduction, partially offset by a less favorable product mix.

Specialty Fluids - Fourth quarter fiscal 2016 EBIT in Specialty Fluids increased by $7 million compared to the fourth quarter of fiscal 2015 due to increased project activity in the North Sea and Asia. Sequentially, Specialty Fluids EBIT decreased by $5 million compared to the third quarter of fiscal 2016 primarily due to reduced rental activity in the North Sea.

Cash Performance -- The Company ended fiscal year 2016 with a cash balance of $200 million. During the fourth quarter of fiscal 2016, cash flows from operating activities were $91 million, including an increase in net working capital of $4 million. Capital expenditures for the fourth quarter of fiscal 2016 were $32 million, including $29 million for sustaining and compliance capital expenditures. Additional uses of cash during the fourth quarter included $18 million for dividends and $15 million for share repurchases.

Taxes -- During the fourth quarter of fiscal 2016, the Company recorded a tax provision of $13 million for an effective tax rate of 19%. This included a tax benefit from certain items of $7 million. The operating tax rate for the fiscal year ended September 30, 2016 was 24%.

Outlook
Commenting on the outlook for the Company, Keohane said, "Looking forward to 2017, we remain focused on our strategy of investing for growth in the core, driving application innovation with our customers, and generating strong cash flows through efficiency and optimization. Although the current business environment remains mixed, we expect to see moderate growth in 2017 across all segments. However, the first quarter is expected to be weaker sequentially due to typical seasonality and higher maintenance costs from anticipated plant turnarounds. Overall, we are focused on delivering shareholder value by growing annual adjusted EPS by 7-10% over time and returning approximately 50% of our discretionary free cash flow to shareholders."

Earnings Call
The Company will host a conference call with industry analysts at 2:00 p.m. Eastern time on Tuesday, November 1, 2016. The call can be accessed through Cabot's investor relations website at http://investor.cabot-corp.com

About Cabot Corporation
Cabot Corporation (NYSE: CBT) is a global specialty chemicals and performance materials company, headquartered in Boston, Massachusetts. The Company is a leading provider of rubber and specialty carbons, activated carbon, inkjet colorants, cesium formate drilling fluids, fumed silica, and aerogel. Cabot routinely posts information that may be important to investors in the "Investors" section of its website at www.cabotcorp.com. The Company encourages investors and potential investors to consult the Cabot website regularly.

Forward-Looking Statements -- This earnings release contains forward-looking statements. All statements that address expectations or projections about the future, including our expectations for adjusted earnings per share growth, growth across all segments during 2017, performance in the first quarter of fiscal 2017 including from expected seasonality in our business, actions that will drive earnings growth, demand for our products, and expectations for our use of discretionary free cash flow are forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, potentially inaccurate assumptions, and other factors, some of which are beyond our control and difficult to predict. If known or unknown risks materialize, or should underlying assumptions prove inaccurate, our actual results could differ materially from past results and from those expressed or implied by forward-looking statements. Important factors that could cause our results to differ materially from those expressed or implied in the forward-looking statements include, but are not limited to economic, competitive, legal, governmental, and technological factors. These factors are discussed more fully in the reports we file with the Securities and Exchange Commission, particularly under the heading "Risk Factors" in our annual report on Form 10-K for our fiscal year ended September 30, 2015, filed with the SEC at www.sec.gov. We assume no obligation to provide revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws.

Use of Non-GAAP Financial Measures
To supplement Cabot's consolidated financial statements presented on a generally accepted accounting 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 an alternative to, GAAP. A reconciliation of Adjusted EPS to diluted income (loss) per share (EPS) from continuing operations, the most directly comparable GAAP financial measure, and a reconciliation of operating tax rate to effective tax rate, the most directly comparable GAAP financial measure, are provided in the table titled "Certain Items and Reconciliation of Adjusted EPS and Operating Tax Rate."

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

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

The calculations of Adjusted EPS for the periods presented in this release exclude the impact of the following items, among others, 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 and Venezuela.
  • 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.

Cabot does not provide a target GAAP EPS growth rate range or reconciliation of the adjusted EPS growth rate range with a GAAP EPS growth rate range because, without unreasonable effort, we are unable to predict with reasonable certainty the matters we would allocate to "certain items," including unusual gains and losses, costs associated with future restructurings, acquisition-related expenses and litigation outcomes. These items are uncertain, depend on various factors, and could have a material impact on GAAP EPS in future periods.

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

Explanation of Terms Used

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

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

                             
                   
CABOT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
                             
                             
Periods ended September 30 Three Months

Twelve Months

Dollars in millions, except per share amounts (unaudited)     2016     2015     2016     2015
 
Net sales and other operating revenues $ 619 $ 671 $ 2,411 $ 2,871
 
Cost of sales   450     532     1,833     2,286  
 
Gross profit 169 139 578 585
 
 
Selling and administrative expenses 78 66 275 282
 
Research and technical expenses 13 14 53 58
 
Purification Solutions long-lived assets impairment charge - 1 - 210
 
Purification Solutions goodwill impairment charge - (1 ) - 352
       
Income (loss) from operations 78 59 250 (317 )
 
 
Other (expense) income
 
Interest and dividend income 1 1 5 4
 
Interest expense (14 ) (13 ) (54 ) (53 )
 
Other income (expense) 1 (5 ) (7 ) (11 )
 
       
Total other expense   (12 )   (17 )   (56 )   (60 )
 
Income (loss) from continuing operations before income taxes and equity in
earnings of affiliated companies 66 42 194 (377 )
 
(Provision) benefit for income taxes (A) (13 ) (2 ) (34 ) 45
 
Equity in earnings of affiliated companies, net of tax 1 - 3 4
 
       
Income (loss) from continuing operations 54 40 163 (328 )
 
Income from discontinued operations, net of tax (B) 1 1 1 2
       
Net income (loss) 55 41 164 (326 )
 
Net income attributable to noncontrolling interests 3 1 15 8
       
Net income (loss) attributable to Cabot Corporation $ 52   $ 40   $ 149   $ (334 )
 
 
 
Diluted earnings per share of common stock
attributable to Cabot Corporation
 
Continuing operations $ 0.81 $ 0.62 $ 2.34 $ (5.29 )
 
Discontinued operations (B) 0.02 0.01 0.02 0.02
       
Net income (loss) attributable to Cabot Corporation $ 0.83 $ 0.63 $ 2.36 $ (5.27 )
 
Weighted average common shares outstanding
Diluted (C) 62.9 63.1 62.9 63.4
 
(A)Included within the provision for income taxes is a tax benefit for the twelve months ended September 30, 2015 in the amount of $80 million associated with the long-lived asset impairment charge that was recorded in the third quarter of fiscal 2015.
 
(B)Amounts relate primarily to the previously divested Supermetals and Security Materials businesses.
 

(C)The weighted average common shares outstanding for the twelve months ended September 30, 2015 excludes approximately 1 million shares as those shares would be antidilutive due to the Company's net loss position in that period.

                           
                 
CABOT CORPORATION SUMMARY RESULTS BY SEGMENTS
                           
                           
Periods ended September 30 Three Months Twelve Months
Dollars in millions, except per share amounts (unaudited)     2016     2015     2016     2015
 
Sales
 
Reinforcement Materials $ 289 $ 338 $ 1,108 $ 1,507
 
Performance Chemicals 214 227 865 927
Specialty Carbons and Formulations 141 152 578 630
Metal Oxides 73 75 287 297
 
Purification Solutions 80 77 290 296
 
Specialty Fluids   15     6     47     42  
 
Segment sales 598 648 2,310 2,772
 
Unallocated and other (A)   21     23     101     99  
 
Net sales and other operating revenues $ 619   $ 671   $ 2,411   $ 2,871  
 
Segment Earnings Before Interest and Taxes (B)
 
Reinforcement Materials $ 42 $ 31 $ 137 $ 143
 
Performance Chemicals 58 49 225 178
 
Purification Solutions 2 2 (5 ) 5
 
Specialty Fluids   5     (2 )   13     6  
 
Total Segment Earnings Before Interest and Taxes 107 80 370 332
 
Unallocated and Other
 
Interest expense (14 ) (13 ) (54 ) (53 )
Certain items (C) (18 ) (18 ) (81 ) (617 )
Unallocated corporate costs (9 ) (11 ) (45 ) (46 )
General unallocated income (D) 1 4 7 11
Less: Equity in earnings of affiliated companies   (1 )   -     (3 )   (4 )
 
Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies
66 42 194 (377 )
 
(Provision) benefit for income taxes (including tax certain items) (13 ) (2 ) (34 ) 45
 
Equity in earnings of affiliated companies 1 - 3 4
       
Income (loss) from continuing operations 54 40 163 (328 )
 
Income from discontinued operations, net of tax (E) 1 1 1 2
       

Net income (loss)

55 41 164 (326 )
 
Net income attributable to noncontrolling interests 3 1 15 8
       
Net income (loss) attributable to Cabot Corporation $ 52   $ 40   $ 149   $ (334 )
 
Diluted earnings per share of common stock attributable to Cabot Corporation
 
 
Continuing operations $ 0.81 $ 0.63 $ 2.34 $ (5.29 )
 
Discontinued operations (E) 0.02 0.01 0.02 0.02
       
Net income (loss) attributable to Cabot Corporation $ 0.83 $ 0.64 $ 2.36 $ (5.27 )
 
Adjusted earnings per share
Adjusted EPS (F) $ 1.00 $ 0.74 $ 3.14 $ 2.71
 
Weighted average common shares outstanding
 
Diluted (G) 62.9 63.1 62.9 63.4
 
(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 Supermetals and 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 the twelve months ended September 30, 2015 excludes approximately 1 million shares as those shares would be antidilutive due to the Company's net loss position in that period.

               
         
CABOT CORPORATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION
               
               
September 30, September 30,
2016 2015
Dollars in millions     (unaudited)     (audited)
 
Current assets:
 
Cash and cash equivalents $ 200 $ 77
Accounts and notes receivable, net of reserve for doubtful accounts of $8 and $7 456 477
Inventories:
Raw materials 66 69
Work in process 7 1
Finished goods 237 287
Other   38   40
Total inventories 348 397
Prepaid expenses and other current assets 50 54
Deferred income taxes   62   43
Total current assets   1,116   1,048
 
Property, plant and equipment, net 1,290 1,383
 
Goodwill 152 154
Equity affiliates 53 57
Intangible assets, net 140 153
Assets held for rent 91 86
Deferred income taxes 273 152
Other assets 43 42
   
Total assets $ 3,158 $ 3,075

               
         
CABOT CORPORATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION
               
               
September 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 364 389
Income taxes payable 27 28
Deferred income taxes 22 1
Current portion of long-term debt   1     1  
Total current liabilities   421     441  
 
Long-term debt 918 970
Deferred income taxes 139 59
Other liabilities 282 240
Redeemable preferred stock 26 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: 62,449,425 and 62,704,966 shares

Outstanding: 62,210,711 and 62,458,396 shares

62 63

Less cost of 238,714 and 246,570 shares of common treasury stock

(7 ) (8 )
Additional paid-in capital - -
Retained earnings 1,544 1,478
Accumulated other comprehensive income   (325 )   (299 )
Total Cabot Corporation stockholders' equity 1,274 1,234
Noncontrolling interests   98     104  
Total stockholders' equity   1,372     1,338  
Total liabilities and stockholders' equity $ 3,158   $ 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 $ 289 $ 1,108
Performance Chemicals 229 237 234 227 927 207 216 228 214 865
Specialty Carbons and Formulations 157 162 159 152 630 140 145 152 141 578
Metal Oxides 72 75 75 75 297 67 71 76 73 287
Purification Solutions 76 71 72 77 296 66 67 77 80 290
Specialty Fluids       16         8         12         6         42     7         6         19         15         47  
Segment Sales 781 674 669 648 2,772 568 550 594 598 2,310
Unallocated and other (A)       31         20         25         23         99     35         18         27         21         101  
 
Net sales and other operating revenues     $ 812       $ 694       $ 694       $ 671       $ 2,871   $ 603       $ 568       $ 621       $ 619       $ 2,411  
 
Segment Earnings Before Interest and Taxes (B)
Reinforcement Materials $ 53 $ 27 $ 32 $ 31 $ 143 $ 26 $ 34 $ 35 42 $ 137
Performance Chemicals 39 42 48 49 178 50 58 59 58 225
Purification Solutions (1 ) 1 3 2 5 (5 ) (2 ) - 2 (5 )
Specialty Fluids       6         (1 )       3         (2 )       6     -         (2 )       10         5         13  
Total Segment Earnings Before Interest and Taxes 97 69 86 80 332 71 88 104 107 370
 
 
Unallocated and Other
Interest expense (13 ) (14 ) (13 ) (13 ) (53 ) (13 ) (14 ) (13 ) (14 ) (54 )
Certain items (C) (26 ) (6 ) (567 ) (18 ) (617 ) (58 ) 1 (6 ) (18 ) (81 )
Unallocated corporate costs (12 ) (11 ) (12 ) (11 ) (46 ) (13 ) (12 ) (11 ) (9 ) (45 )
General unallocated income (expense) (D) 6 3 (2 ) 4 11 5 - 1 1 7
Less: Equity in earnings of affiliated companies       (1 )       (2 )       (1 )       -         (4 )   -         (1 )       (1 )       (1 )       (3 )
 
Income (loss) from continuing operations before income taxes and
equity in earnings (loss) of affiliated companies 51 39 (509 ) 42 (377 ) (8 ) 62 74 66 194
 
(Provision) benefit for income taxes (including tax certain items) (3 ) (14 ) 64 (2 ) 45 5 (11 ) (15 ) (13 ) (34 )
Equity in earnings of affiliated companies       1         2         1         -         4     -         1         1         1         3  
 
Income (loss) from continuing operations 49 27 (444 ) 40 (328 ) (3 ) 52 60 54 163
Income from discontinued operations, net of tax (E)       -         -         1         1         2     -         -         -         1         1  
 
Net income (loss) 49 27 (443 ) 41 (326 ) (3 ) 52 60 55 164
 
Net income attributable to noncontrolling interests       4         1         2         1         8     4         4         4         3         15  
 
Net income (loss) attributable to Cabot Corporation $ 45 $ 26 $ (445 ) $ 40 $ (334 ) $ (7 ) $ 48 $ 56 $ 52 $ 149
 
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 $ 0.81 $ 2.34
Discontinued operations (E)       -         -         0.01         0.01         0.02     -         -         -         0.02         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 $ 0.83 $ 2.36
 
Adjusted earnings per share
Adjusted EPS (G)     $ 0.80       $ 0.53       $ 0.64       $ 0.74       $ 2.71   $ 0.51       $ 0.70       $ 0.93       $ 1.00       $ 3.14  
 
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         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 June 30, 2015, the twelve months ended September 30, 2015, and the three months ended December 31, 2015 exclude approximately 0.5 million, 1 million, and 1 million shares, respectively, as those shares would be antidilutive due to the Company's net loss position in those periods.

 
(G)Adjusted EPS is a non-GAAP measure, and a reconciliation of Adjusted EPS to GAAP EPS is presented in the Certain Items and Reconciliation of Adjusted EPS and Operating Tax Rate table.

                             
                   
CABOT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             
                             
Periods ended September 30 Three Months Twelve Months
Dollars in millions     2016     2015     2016     2015
 
Cash Flows from Operating Activities:
Net income (loss) $ 55 $ 41 $ 164 $ (326 )
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 39 43 161 183
Other non-cash charges, net (17 ) 1 7 508
Changes in assets and liabilities:
Changes in certain working capital items (A) (4 ) 108 43 137
Changes in other assets and liabilities, net 17 24 2 (17 )
Cash dividends received from equity affiliates   1     4     9     14  
Cash provided by operating activities   91     221     386     499  
 
Cash Flows from Investing Activities:
Additions to property, plant and equipment (32 ) (38 ) (112 ) (141 )
Other investing activities, net   4     (13 )   14     (21 )
Cash used in investing activities   (28 )   (51 )   (98 )   (162 )
 
Cash Flows from Financing Activities:
Change in debt, net (53 ) (129 ) (68 ) (78 )
Cash dividends paid to common stockholders (18 ) (14 ) (65 ) (56 )
Other financing activities, net   (16 )   (27 )   (51 )   (122 )
Cash used in financing activities   (87 )   (170 )   (184 )   (256 )
Effect of exchange rates on cash   2     (7 )   19     (71 )
Increase (decrease) in cash and cash equivalents (22 ) (7 ) 123 10
Cash and cash equivalents at beginning of period   222     84     77     67  
Cash and cash equivalents at end of period $ 200   $ 77   $ 200   $ 77  
 
(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 September 30 Three Months     Twelve 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

$

?

$ 1

$

?

$ (562 )
Global restructuring activities (2 ) (7 ) (47 ) (21 )
Acquisition and integration-related charges - (3 ) - (5 )
Employee benefit plan settlement - (3 ) - (21 )
Foreign currency loss on devaluation - - (11 ) (2 )
Legal and environmental matters and reserves (13 ) - (17 ) -
Inventory Adjustment - (6 ) - (6 )
Executive transition costs   (3 )       -         (6 )       -  
Total certain items, pre-tax   (18 )       (18 )       (81 )       (617 )
 
Tax impact of certain items (A)   9         4         31         94  
Certain items after tax (excluding discrete tax items)   (9 )       (14 )       (50 )       (523 )
 
Certain items after tax per share impact (excluding discrete tax items) $ (0.15 ) $ (0.21 ) $ (0.79 ) $ (8.19 )
 
Tax-related certain items
 
Discrete tax items   (2 )       7         -         13  
 
 
Total tax-related certain items (2 ) 7 - 13
Total tax-related certain items per share impact $ (0.04 ) $

0.09

$ (0.01 ) $ 0.21
                           
 
Total certain items after tax $ (11 )     $ (7 )     $ (50 )     $ (510 )
Total certain items after tax per share impact $ (0.19 ) $

(0.12

) $ (0.80 ) $ (7.98 )
                           
 
Discontinued operations after income taxes (B) $ 1 $ 1 $ 1 $ 2
Total discontinued operations after tax $ 1 $ 1 $ 1 $ 2
Discontinued operations after tax per share impact $ 0.02 $ 0.01 $ 0.02 $ 0.02
                                           
                                           
TABLE 2: CERTAIN ITEMS STATEMENT OF OPERATIONS LINE ITEM                            
Periods ended September 30 Three Months     Twelve Months
Dollars in millions, Pre-Tax (unaudited) 2016     2015     2016     2015
 

Statement of Operations Line Item (C)

 
Cost of sales $ (1 ) $ (14 ) $ (37 ) $ (35 )
 
Selling and administrative expenses (17 ) (4 ) (28 ) (17 )
 
Research and technical expenses - - (5 ) -
Other expense - - (11 ) (356 )
Long-lived assets impairment charge - - - (209 )
                           
Total certain items, pre-tax $ (18 )     $ (18 )     $ (81 )     $ (617 )
 
 
                                           
TABLE 3: RECONCILIATION OF TAX CERTAIN ITEMS                                      
Periods ended September 30 Three Months     Twelve 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 $ (13 ) $ (2 ) $ (34 ) $ 45
 
Less: Tax impact of certain items 9 4 31 94
 
Less: Tax-related certain items (2 ) 6 - 13
                           
(Provision) benefit for income taxes, excluding certain items $ (20 )     $ (12 )     $ (65 )     $ (62 )
                                           
TABLE 4: RECONCILIATION OF OPERATING TAX RATE                                  
Periods ended September 30 Three Months     Twelve Months Forecast
Dollars in millions (unaudited) 2016     2015     2016     2015 2017
 
Reconciliation of the effective tax rate to the operating tax rate
 
 
(Provision) benefit for income taxes $ (13 ) $ (2 ) $ (34 ) $ 45 N/A
 
Effective tax rate 19 % 7 % 18 % 12 % 24 %
 
Impact of discrete tax items: (D)
Unusual or infrequent items (3 %) 10 % 2 % (2 %) - %
Items related to uncertain tax positions - % - % 1 % (2 %) - %
Other discrete tax items 7 % 3 % (2 %) 1 % - %
Impact of certain items   1 %       6 %       5 %       17 %   - %
Operating tax rate   24 %       26 %       24 %       26 %   24 %
                                           
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 income per share attributable to Cabot Corporation

$ (0.11 ) $ 0.76 $ 0.88 $ 0.83 $ 2.36
Less: Net income per share from discontinued operations   -         -         -         0.02         0.02  

Net income per share from continuing operations

$ (0.11 ) $ 0.76 $ 0.88 $ 0.81 $ 2.34
Less: Certain items after tax per share   (0.62 )       0.06         (0.05 )       (0.19 )       (0.80 )
Adjusted earnings per share $ 0.51 $ 0.70 $ 0.93 $ 1.00 $ 3.14
 
 
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 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(E)   -         -         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 Cabot Corporation, and (2) subtracting the tax expense or benefit on "adjusted earnings". Adjusted earnings is defined as the pre-tax income attributable to Cabot Corporation excluding certain items. The tax expense or benefit on adjusted earnings is calculated by applying the operating tax rate, which includes both current and deferred taxes, as defined under the section Use of Non-GAAP Financial Measures of the earnings release.
(B)Amounts relate primarily to the previously divested Supermetals and Security Materials businesses.
(C)This table indicates the line items where certain items are recorded in the table titled Cabot Corporation Consolidated Statements of Operations.

(D) The nature of the discrete tax items for the periods ended September 30, 2016 and 2015 were as follows: Three months ended September 30, 2016: (i) Unusual or infrequent items included the tax impact of a claim for U.S. tax benefit less excludible foreign exchange gains/(losses) in certain jurisdictions, (ii) Items related to uncertain tax positions included tax benefits from items such as uncertain tax positions accrual reversals due to the expiration of statutes of limitations offset by a charge for the accrual of interest on uncertain tax positions. (iii) Other discrete tax items included tax charges for items such as charges for changes in valuation allowances on beginning of the year tax positions, various return to provision true ups related to tax return filings and changes in tax laws. Twelve months ended September 30, 2016: (i) Unusual or infrequent items included tax benefits from items such as extraordinary dividends from subsidiaries, the renewal of U.S. Research and Experimental credit, a claim for U.S. tax benefit and other non-routine items,  (ii) Items related to uncertain tax positions included tax benefits from items such as uncertain tax positions accrual reversals due to the expiration of statutes of limitations and settlement of tax audits, partially offset by a charge for the accrual of interest on uncertain tax positions, (iii) Other discrete tax items included tax charges for items such as charges for change in a valuation allowance on beginning of the year tax position, various return to provisions true ups related to tax return filings and changes in tax laws. Three months ended September 30, 2015: (i) Unusual or infrequent items included tax certain dividends from high tax jurisdictions, (ii) Items related to uncertain tax positions included tax benefits from items such as uncertain tax positions accrual reversals due to the expiration of statutes of limitations offset by a charge for the accrual of interest on uncertain tax positions, (iii) Other discrete tax items included tax charges for items such as charges for various return to provision true ups related to tax return filings and changes in tax laws. Twelve months ended September 30, 2015: (i) Unusual or infrequent items included tax benefit from items such as tax certain dividends from high tax jurisdictions , the renewal of U.S. Research and Experimental credit and net tax benefit from other non-routine items (ii) Items related to uncertain tax positions included tax benefits from items such as uncertain tax positions accrual reversals due to the expiration of statutes of limitations and settlement of tax audits, partially offset by a charge for the accrual of interest on uncertain tax positions, (iii) Other discrete tax items included tax benefits for items such as charges for various return to provision true ups related to tax return filings and changes in tax laws.

(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 for the three months ended June 30, 2015 and the twelve months ended September 30, 2015, 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.

                                 
CABOT CORPORATION RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
                                 
                     
All dollar amounts shown below are in millions, except per share information
                                 
Fiscal 2016 (A)
 
Dec. Q     Mar. Q     Jun. Q     Sept. Q     FY 2016

Reconciliation of Adjusted EPS to GAAP EPS

Net (loss) income per share attributable to Cabot Corporation $ (0.11 ) $ 0.76 $ 0.88 $ 0.83 $ 2.36
Less: Net loss per share from discontinued operations   -         -         -         0.02         0.02  
Net (loss) income per share from continuing operations $ (0.11 ) $ 0.76 $ 0.88 $ 0.81 $ 2.34
Less: Certain items after tax   (0.62 )       0.06         (0.05 )       (0.19 )       (0.80 )
Adjusted earnings per share $ 0.51       $ 0.70       $ 0.93       $ 1.00       $ 3.14  
                                 
(A) Per share amounts are calculated after tax and, where applicable, noncontrolling interest, net of tax.      
                                 
Fiscal 2016
 
Dec. Q     Mar. Q     Jun. Q     Sept. Q     FY 2016

Reconciliation of Segment EBIT to Net Income and Segment EBITDA Margin

Net (loss) income attributable to Cabot Corporation $ (7 ) $ 48 $ 56 $ 52 $ 149
Net income attributable to noncontrolling interests 4 4 4 3 15
Equity in earnings of affiliated companies, net of tax - (1 ) (1 ) (1 ) (3 )
Income from discontinued operations, net of tax - - - (1 ) (1 )
(Benefit) provision for income taxes   (5 )       11         15         13         34  
Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies $ (8 )     $ 62       $ 74       $ 66       $ 194  
Interest expense 13 14 13 14 54
Certain items 58 (1 ) 6 18 81
Unallocated corporate costs 13 12 11 9 45
General unallocated expense (5 ) - (1 ) (1 ) (7 )
Equity in earnings of affiliated companies   -         1         1         1         3  
Total Segment EBIT $ 71       $ 88       $ 104       $ 107       $ 370  
Plus: Total Depreciation & Amortization 41 41 40 39 161
Plus: Adjustments to Depreciation(B)   1         -         1         1         3  
Total Segment EBITDA $ 113 $ 129 $ 145 $ 147 $ 534
Less: Unallocated Corporate Costs   (13 )       (12 )       (11 )       (9 )       (45 )
Adjusted EBITDA     $ 100       $ 117       $ 134       $ 138       $ 489  
 
                                 
Dec. Q     Mar. Q     Jun. Q     Sept. Q     FY 2016
Reinforcement Materials EBIT $ 26 $ 34 $ 35 $ 42 $ 137
Plus: Depreciation & Amortization   20         18         18         18         74  
Reinforcement Materials EBITDA $ 46 $ 52 $ 53 $ 60 $ 211
Reinforcement Materials Sales $ 288       $ 261       $ 270       $ 289       $ 1,108  
Reinforcement Materials EBITDA Margin       16 %       20 %       20 %       21 %       19 %
                                 
Dec. Q     Mar. Q     Jun. Q     Sept. Q     FY 2016
Performance Chemicals EBIT $ 50 $ 58 $ 59 $ 58 $ 225
Plus: Depreciation & Amortization   12         13         12         11         48  
Performance Chemicals EBITDA $ 62 $ 71 $ 71 $ 69 $ 273
Performance Chemicals Sales $ 207       $ 216       $ 228       $ 214       $ 865  
Performance Chemicals EBITDA Margin       30 %       33 %       31 %       32 %       32 %
                                 
Dec. Q     Mar. Q     Jun. Q     Sept. Q     FY 2016
Purification Solutions EBIT $ (5 ) $ (2 ) $ - $ 2 $ (5 )
Plus: Depreciation & Amortization   9         10         10         10         39  
Purification Solutions EBITDA $ 4 $ 8 $ 10 $ 12 $ 34
Purification Solutions Sales $ 66       $ 67       $ 77       $ 80       $ 290  
Purification Solutions EBITDA Margin       6 %       12 %       13 %       15 %       12 %
                                 
Dec. Q     Mar. Q     Jun. Q     Sept. Q     FY 2016
Specialty Fluids EBIT $ - $ (2 ) $ 10 $ 5 $ 13
Plus: Depreciation & Amortization   1         -         1         1         3  
Specialty Fluids EBITDA $ 1 $ (2 ) $ 11 $ 6 $ 16
Specialty Fluids Sales $ 7       $ 6       $ 19       $ 15       $ 47  
Specialty Fluids EBITDA Margin       14 %       (34 %)       58 %       40 %       34 %
                                 
Fiscal 2016
 

Reconciliation of Discretionary Free Cash Flow

Dec. Q     Mar. Q     Jun. Q     Sept. Q     FY 2016
 
Cash flow from operating activities (C) 83 105 107 91 386
Less: Changes in net working capital (D) 40 28 (21 ) (4 ) 43
Less: Sustaining and compliance capital expenditures   21         20         21         29         91  
Discretionary Free Cash Flow     $ 22       $ 57       $ 107       $ 66       $ 252  
(B) Adjustments to depreciation includes the addition of the depreciation expense of a contractual joint venture in Purification Solutions less accelerated depreciation expense not allocated to a business.
(C) As provided in the Consolidated Statement of Cash Flows.
 
(D) Defined as changes in accounts receivable, inventory and accounts payable and accrued liabilities as presented on the Consolidated Statement of Cash Flows.


[ Back To TMCnet.com's Homepage ]