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
December 31, 2002
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
| Delaware (State of Incorporation) |
04-2271897 (I.R.S. Employer Identification No.) |
| Two Seaport Lane Boston, Massachusetts (Address of principal executive offices) |
02210-2019 (Zip Code) |
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 by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). 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 January 31, 2003, the Company had 61,621,000 shares of Common
Stock, par value $1 per share, outstanding.
CABOT CORPORATION
INDEX
| Page | ||||||
| Part I Financial Information | ||||||
| Item 1. | Financial Statements | |||||
| Consolidated Statements of Income Three Months Ended December 31, 2002 and 2001 | 3 | |||||
Consolidated
Balance Sheets
December 31, 2002 and September 30, 2002
|
4 | |||||
| Consolidated Statements of Cash Flows Three Months Ended December 31, 2002 and 2001 | 6 | |||||
| Consolidated Statement of Changes in Stockholders’ Equity Three Months Ended December 31, 2002 | 7 | |||||
| Notes to Consolidated Financial Statements | 8 | |||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 | ||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 24 | ||||
| Item 4. | Controls and Procedures | 24 | ||||
| Part II Other Information | ||||||
| Item 1. | Legal Proceedings | 25 | ||||
| Item 6. | Exhibits and Reports on Form 8-K | 27 | ||||
- 2 -
Part I. Financial Information
Item 1. Financial Statements
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended December 31, 2002 and 2001
(In millions, except per share amounts)
UNAUDITED
| 2002 | 2001 | |||||||||
Net sales and other operating revenues |
$ | 408 | $ | 377 | ||||||
Cost of sales |
291 | 260 | ||||||||
Gross profit |
117 | 117 | ||||||||
Selling and administrative expenses |
52 | 48 | ||||||||
Research and technical service |
11 | 11 | ||||||||
Income from operations |
54 | 58 | ||||||||
Other income and expense |
||||||||||
Interest and dividend income |
1 | 3 | ||||||||
Interest expense |
(7 | ) | (8 | ) | ||||||
Other (charges) income |
(3 | ) | (1 | ) | ||||||
Income from continuing operations before income taxes |
45 | 52 | ||||||||
Provision for income taxes |
(11 | ) | (15 | ) | ||||||
Equity in net income of affiliated companies, net of tax zero and $1 |
1 | 2 | ||||||||
Minority interest in net income, net of tax |
(2 | ) | (1 | ) | ||||||
Net income |
33 | 38 | ||||||||
Dividends on preferred stock, net of tax benefit |
(1 | ) | (1 | ) | ||||||
Income available to common shares |
$ | 32 | $ | 37 | ||||||
Weighted-average common shares outstanding: |
||||||||||
Basic |
59 | 59 | ||||||||
Diluted |
70 | 72 | ||||||||
Income per common share: |
||||||||||
Basic |
$ | 0.56 | $ | 0.63 | ||||||
Diluted |
$ | 0.48 | $ | 0.53 | ||||||
Dividends per common share |
$ | 0.13 | $ | 0.13 | ||||||
The accompanying notes are an integral part of these financial statements.
- 3 -
CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2002 and September 30, 2002
(In millions)
ASSETS
| December 31, | September 30, | ||||||||||
| 2002 | 2002 | ||||||||||
| (Unaudited) | |||||||||||
Current assets: |
|||||||||||
Cash and cash equivalents |
$ | 125 | $ | 159 | |||||||
Accounts and notes receivable, net of reserve for doubtful
accounts of $4 and $4 |
344 | 304 | |||||||||
Inventories: |
|||||||||||
Raw materials |
136 | 120 | |||||||||
Work in process |
150 | 156 | |||||||||
Finished goods |
154 | 124 | |||||||||
Other |
38 | 35 | |||||||||
Total inventories |
478 | 435 | |||||||||
Prepaid expenses |
52 | 41 | |||||||||
Deferred income taxes |
22 | 20 | |||||||||
Total current assets |
1,021 | 959 | |||||||||
Investments: |
|||||||||||
Equity |
47 | 48 | |||||||||
Other |
19 | 32 | |||||||||
Total investments |
66 | 80 | |||||||||
Property, plant and equipment |
2,079 | 2,019 | |||||||||
Accumulated depreciation and amortization |
(1,187 | ) | (1,134 | ) | |||||||
Net property, plant and equipment |
892 | 885 | |||||||||
Other assets: |
|||||||||||
Goodwill |
102 | 105 | |||||||||
Other intangible assets, net of accumulated amortization of $5 and $5 |
8 | 8 | |||||||||
Deferred income taxes |
4 | 4 | |||||||||
Other assets |
19 | 26 | |||||||||
Total other assets |
133 | 143 | |||||||||
Total assets |
$ | 2,112 | $ | 2,067 | |||||||
The accompanying notes are an integral part of these financial statements.
- 4 -
CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2002 and September 30, 2002
(In millions, except for share amounts)
LIABILITIES & STOCKHOLDERS’ EQUITY
| December 31, | September 30, | ||||||||||||||
| 2002 | 2002 | ||||||||||||||
| (Unaudited) | |||||||||||||||
Current liabilities: |
|||||||||||||||
Notes payable to banks |
$ | 15 | $ | 40 | |||||||||||
Current portion of long-term debt |
3 | 5 | |||||||||||||
Accounts payable and accrued liabilities |
230 | 238 | |||||||||||||
Deferred income taxes |
3 | 3 | |||||||||||||
Total current liabilities |
251 | 286 | |||||||||||||
Long-term debt |
532 | 495 | |||||||||||||
Deferred income taxes |
106 | 104 | |||||||||||||
Other liabilities |
177 | 170 | |||||||||||||
Commitments
and contingencies (Note H) |
|||||||||||||||
Minority interest |
38 | 35 | |||||||||||||
Stockholders’ equity: |
|||||||||||||||
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: 72,982 shares, outstanding: 55,820 and 56,273 shares |
73 | 73 | |||||||||||||
(aggregate
redemption value of $56 and $56) Less cost of shares of preferred treasury stock |
(38 | ) | (38 | ) | |||||||||||
Common stock: |
|||||||||||||||
Authorized:
200,000,000 shares of $1 par value Issued and outstanding: 61,722,961 and 61,615,503 shares |
62 | 62 | |||||||||||||
Less cost of shares of common treasury stock |
(6 | ) | (6 | ) | |||||||||||
Additional paid-in capital |
5 | 5 | |||||||||||||
Retained earnings |
1,144 | 1,120 | |||||||||||||
Unearned compensation |
(32 | ) | (38 | ) | |||||||||||
Deferred employee benefits |
(50 | ) | (51 | ) | |||||||||||
Notes receivable for restricted stock |
(22 | ) | (23 | ) | |||||||||||
Accumulated other comprehensive loss (Note K) |
(128 | ) | (127 | ) | |||||||||||
Total stockholders’ equity |
1,008 | 977 | |||||||||||||
Total liabilities and stockholders’ equity |
$ | 2,112 | $ | 2,067 | |||||||||||
The accompanying notes are an integral part of these financial statements.
- 5 -
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended December 31,
(In millions)
UNAUDITED
| 2002 | 2001 | |||||||||||
Cash Flows from Operating Activities: |
||||||||||||
Net income |
$ | 33 | $ | 38 | ||||||||
Adjustments to reconcile net income to cash
used in operating activities: |
||||||||||||
Depreciation and amortization |
32 | 27 | ||||||||||
Deferred tax provision (benefit) |
(1 | ) | 1 | |||||||||
Equity in income of affiliated companies |
(1 | ) | (1 | ) | ||||||||
Non-cash compensation |
7 | 5 | ||||||||||
Other non-cash charges, net |
1 | 1 | ||||||||||
Changes in assets and liabilities, net of the effect of the consolidation of
equity affiliates
|
||||||||||||
Increase in accounts receivable |
(36 | ) | (25 | ) | ||||||||
Increase in inventory |
(38 | ) | (11 | ) | ||||||||
Decrease in accounts payable and accruals |
(14 | ) | (50 | ) | ||||||||
Increase in prepayments and other assets |
(2 | ) | (10 | ) | ||||||||
Increase in income taxes payable |
4 | 14 | ||||||||||
Increase in other liabilities |
10 | 6 | ||||||||||
Other, net |
4 | 1 | ||||||||||
Cash used in Operating Activities |
(1 | ) | (4 | ) | ||||||||
Cash Flows from Investing Activities: |
||||||||||||
Additions to property, plant and equipment |
(25 | ) | (36 | ) | ||||||||
Proceeds from sales of property, plant and equipment |
1 | 1 | ||||||||||
Purchase of investments |
— | (9 | ) | |||||||||
Cash used in Investing Activities |
(24 | ) | (44 | ) | ||||||||
Cash Flows from Financing Activities: |
||||||||||||
Proceeds from long-term debt |
75 | — | ||||||||||
Repayments of long-term debt |
(52 | ) | (5 | ) | ||||||||
Repayments of bank notes |
(35 | ) | — | |||||||||
Increase (decrease) in short-term debt |
11 | 11 | ||||||||||
Purchases of preferred and common stock |
— | (19 | ) | |||||||||
Sales and issuances of preferred and common stock |
1 | 1 | ||||||||||
Cash dividends paid to stockholders |
(9 | ) | (9 | ) | ||||||||
Cash dividends paid to minority interest stockholders |
(1 | ) | (2 | ) | ||||||||
Employee loan repayments |
— | 1 | ||||||||||
Cash used in Financing Activities |
(10 | ) | (22 | ) | ||||||||
Effect of exchange rate changes on cash |
1 | — | ||||||||||
Decrease in cash and cash equivalents |
(34 | ) | (70 | ) | ||||||||
Cash and cash equivalents at beginning of period |
159 | 364 | ||||||||||
Cash and cash equivalents at end of period |
$ | 125 | $ | 294 | ||||||||
The accompanying notes are an integral part of these financial statements.
- 6 -
CABOT CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Three Months Ended December 31, 2002
(In millions)
UNAUDITED
| Preferred | Common | Accumulated | |||||||||||||||||||
| Stock, Net | Stock, Net | Additional | Other | ||||||||||||||||||
| of Treasury | of Treasury | Paid-in | Retained | Comprehensive | |||||||||||||||||
| Stock | Stock | Capital | Earnings | Loss | |||||||||||||||||
Balance at September 30, 2002 |
$ | 35 | $ | 56 | $ | 5 | $ | 1,120 | $ | (127 | ) | ||||||||||
Net income |
33 | ||||||||||||||||||||
Foreign currency translation adjustments |
9 | ||||||||||||||||||||
Change in unrealized loss on available-for-
sale securities |
(9 | ) | |||||||||||||||||||
Change in unrealized loss on derivative instruments |
(1 | ) | |||||||||||||||||||
Total comprehensive income |
|||||||||||||||||||||
Common dividends paid |
(8 | ) | |||||||||||||||||||
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 |
|||||||||||||||||||||
Notes
receivable - forfeitures |
|||||||||||||||||||||