Cabot Corp Reports Second Quarter Adjusted EPS Of $0.83 And Diluted EPS Of $0.54

Cabot Corporation (NYSE: CBT) today announced results for its second quarter of fiscal year 2014.

Key Highlights
  • Strong volumes in Reinforcement Materials and Performance Materials
  • Purification Solutions delivered sequential improvement in EBIT
  • Announced the divestiture of the Security Materials business for approximately $20 million
  • New PROPELTM carbon black products launched for tire applications
(In millions, except per share amounts)   Fiscal 2014   Fiscal 2013
Second   First Second   First

Quarter
 

6 Months
 

Quarter
 

6 Months
 
Net sales $ 898 $ 1,796 $ 840 $ 1,659
Net income attributable to Cabot Corporation $ 36 $ 116 $ 27 $ 47
 
Net earnings per share attributable to Cabot Corporation $ 0.54 $ 1.77 $ 0.42 $ 0.73
Less Adjustments:
Net loss per share from discontinued operations $ (0.01 ) $ (0.02 ) $ (0.01 ) $ (0.05 )
Certain items per share $ (0.28 ) $ 0.09 $ (0.21 ) $ (0.53 )
Adjusted EPS   $ 0.83     $ 1.70     $ 0.64     $ 1.31  

Commenting on the results, Cabot President and CEO Patrick Prevost, said, “We achieved another strong quarter of business performance in fiscal 2014. The Performance Materials segment delivered a record EBIT and volumes increased as compared to the prior year in both the Performance Materials and Reinforcement Materials segments. Demand in our key end markets improved and we commercialized new capacity. Purification Solutions EBIT improved sequentially as a result of revenue growth and lower fixed costs. At the corporate level, we saw slightly higher unallocated costs associated with increased project activity and a higher tax rate due to the expiration of the R&D tax credit in the U.S. and the geographic mix of earnings. On the strategic front,” Prevost continued, “we announced our plans to divest our Security Materials business at an attractive value for our shareholders. In addition, our new product introductions continue to accelerate and during the quarter we launched a new PROPEL TM line of carbon black products for tire applications that offer lower rolling resistance and improved durability for our tire customers.”

Financial Detail

For the second quarter of fiscal 2014, net income attributable to Cabot Corporation was $36 million ($0.54 per diluted common share). Due to the agreement to divest the Security Materials business, financial results of this business are included as discontinued operations for all periods presented. Net income includes a per share charge of $0.01 for discontinued operations. Net income also includes a per share charge of $0.28 from certain items, principally reflecting charges associated with restructuring actions and an increase in the environmental reserve. Adjusted EPS for the second quarter of fiscal 2014 was $0.83 per share.

Segment Results

Reinforcement Materials -- Second quarter fiscal 2014 EBIT in Reinforcement Materials increased by $19 million compared to the second quarter of fiscal 2013 principally due to 15% higher volumes from improved demand and the addition of new capacity in China and Mexico. Raw material purchasing savings and benefits from energy efficiency investments also contributed to the improvement in earnings. Sequentially, EBIT decreased by $3 million due to 2% lower volumes reflecting the impact of the Chinese new year holiday during the quarter and a challenging South American economic and political environment.

Global and regional volume changes for Reinforcement Materials for the second quarter of fiscal 2014 as compared to the same quarter of the prior year and the first quarter of fiscal 2014 are included in the table below:
   

Second Quarter

Year over Year Change
 

Second Quarter

Sequential Change
Global, including NHUMO 15%   (2%)
Global, excluding NHUMO     6%   (5%)
Japan 14% (5%)
Southeast Asia 12% 5%
China 5% (14%)
Europe, Middle East, Africa 9% 8%
North America 7% -
South America     (7%)   (13%)

*Regional volumes exclude NHUMO sales.

Performance Materials -- Second quarter fiscal 2014 EBIT in Performance Materials increased by $10 million compared to the second quarter of fiscal 2013 due to an improved product mix and higher volumes. Volumes in Specialty Carbons and Compounds increased 3% and volumes in Fumed Metal Oxides increased 4% as demand improved in our key end markets. Sequentially, Performance Materials EBIT increased by $13 million primarily due to higher volumes. Volumes increased 15% sequentially in Specialty Carbons and Compounds and increased 5% sequentially in Fumed Metal Oxides due to seasonal improvements in demand.

Advanced Technologies -- Second quarter fiscal 2014 EBIT in Advanced Technologies increased by $4 million compared to the second quarter of fiscal 2013. The EBIT increase was driven by higher royalties in the Elastomer Composites business. Sequentially, Advanced Technologies EBIT decreased $13 million as compared to the first quarter of fiscal 2014 due to lower volumes across the segment and a technology milestone payment received in the first quarter in Elastomer Composites that did not reoccur in the second quarter.

Purification Solutions -- Second quarter fiscal 2014 EBIT in Purification Solutions decreased by $4 million compared to the second quarter of fiscal 2013. The EBIT decrease was driven by lower volumes and $2 million of higher costs associated with a higher allocation of functional and indirect costs. Sequentially, Purification Solutions EBIT increased by $5 million driven by higher prices and lower fixed costs. Overall volumes remained relatively flat sequentially as higher air and gas volumes were offset by seasonally lower volumes in other end markets.

Cash Performance -- The Company ended the second quarter of fiscal 2014 with a cash balance of $89 million, a decrease of $16 million from the first quarter of fiscal 2014. During the second quarter of fiscal 2014, the Company generated adjusted EBITDA of $150 million. Uses of cash during the second quarter included $47 million to reduce debt, $28 million for capital expenditures and an increase in net working capital of $22 million. In the first week in April, the Company received cash proceeds of $215 million from the final payment of notes receivable related to the sale of the Supermetals business, which will be reflected on the balance sheet in our third quarter of fiscal 2014.

Taxes -- During the second quarter of fiscal 2014, the Company recorded a net tax provision of $7 million for an effective tax rate of 14%. This includes a tax benefit on certain items of $17 million. Excluding the impact of certain items, the operating tax rate on continuing operations for the second quarter of fiscal 2014 was 28%.

Outlook

“We were pleased to see positive demand trends in our Reinforcement Materials and Performance Materials segments,” Prevost said, commenting on the outlook for the Company. “We expect demand in the tire and automotive industries to continue to improve in 2014 as compared to 2013, albeit at a modest pace. The recent U.S. court ruling that upheld the Mercury and Air Toxics Standards (MATS) regulation, which is scheduled to take effect in April 2015, supports our expectation for growth in the North American activated carbon market. Overall, most geographies are showing signs of modest economic improvement, with the exception of South America. We remain focused on executing our strategy and we are confident in our ability to deliver earnings growth to our shareholders.”

Earnings Call

The Company will host a conference call with industry analysts at 2:00 p.m. Eastern time on Thursday, May 1, 2014. 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, aerogel, and elastomer composites. For more information on Cabot, please visit the company’s website at: http://www.cabotcorp.com.

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 actions that will drive earnings growth, demand for our products, and expectations for growth 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 Securities and Exchange Commission, particularly our latest annual report on Form 10-K. 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.

Explanation of Terms Used and Use of Non-GAAP Financial Measures -- The preceding discussion of our results and the accompanying financial tables report adjusted EPS, total segment earnings before interest and taxes, “Total Segment EBIT”, operating tax rate and adjusted EBITDA, which are non-GAAP financial measures. Our chief operating decision-maker uses these non-GAAP financial measures to evaluate the performance of the Company in terms of profitability. We believe that these measures also assist our investors in evaluating the changes in our results and the Company's performance.

In calculating adjusted EPS, we exclude from our net income per share from continuing operations certain items of expense and income that management does not consider representative of the Company's ongoing operations. Adjusted EPS should be considered as supplemental to, and not as a replacement for, EPS determined in accordance with GAAP. A reconciliation of adjusted EPS to EPS from continuing operations, the most directly comparable GAAP financial measure, and the certain items that are excluded from our calculation of adjusted EPS, are provided in the table titled "Certain Items and Reconciliation of Adjusted EPS and Operating Tax Rate.”

Total Segment EBIT is a non-GAAP performance measure, and should not be considered an alternative for Income (loss) from continuing operations before taxes, the most directly comparable GAAP financial measure. In calculating Total Segment EBIT, we exclude “certain items”, meaning items that management does not consider representative of our fundamental segment results, as well as items that are not allocated to our business segments, such as interest expense and other corporate costs. Our Chief Operating Decision Maker uses segment EBIT to evaluate the operating results of each segment and to allocate resources to the segments. We believe that this non-GAAP measure provides useful supplemental information for our investors as it is an important indicator of the Company’s operational strength and performance. Investors should consider the limitations associated with this non-GAAP measure, including the potential lack of comparability of this measure from one company to another. A reconciliation of Total Segment EBIT to Income (loss) from continuing operations before income taxes and equity in net earnings of affiliate companies is provided in the table titled, “Summary Results by Segments.”

The term “operating tax rate” is a non-GAAP financial measure and 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 rate adjustment and the impact of certain items on both operating income and tax provision. A reconciliation of operating tax rate to effective tax rate, the most directly comparable GAAP financial measure is provided in the table titled "Certain Items and Reconciliation of Adjusted EPS and Operating Tax Rate.”

“Adjusted EBITDA” is a non-GAAP financial measure and refers to earnings before interest, taxes, depreciation and amortization, excluding items that management does not consider representative of the fundamental segment results. A reconciliation of Adjusted EBITDA from segment EBIT for the second quarter of 2014 is provided on the investor portion of our website at http://investor.cabot-corp.com, under the Non-GAAP Reconciliations section.
         
Second Quarter Earnings Announcement, Fiscal 2014
                       
 
CABOT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
                       
                       
Periods ended March 31 Three Months Six Months
Dollars in millions, except per share amounts (unaudited)    

2014
    2013     2014     2013  
 
Net sales and other operating revenues $ 898 $ 840 $ 1,796 $ 1,659
 
Cost of sales   722     697     1,441     1,369  
 
Gross profit 176 143 355 290
 
 
Selling and administrative expenses 92 77 169 150
 
Research and technical expenses   16     16     31     33  
Income from operations 68 50 155 107
 
 
Other income (expense)
 
Interest and dividend income 3 1 4 2
 
Interest expense (15 ) (16 ) (29 ) (32 )
 
Other (expense) income (A) (8 ) 2 27 3
       
Total other income (expense)   (20 )   (13 )   2     (27 )
 
Income from continuing operations before income taxes and equity in
earnings of affiliated companies 48 37 157 80
 
Provision for income taxes (7 ) (16 ) (31 ) (36 )
 
Equity in (loss) earnings of affiliated companies, net of tax (2 ) 3 - 6
 
       
Income from continuing operations 39 24 126 50
 
Loss from discontinued operations, net of tax (B) - (1 ) (1 ) (3 )
       
Net income 39 23 125 47

 
Net income (loss) attributable to noncontrolling interests 3 (4 ) 9 -
       
Net income attributable to Cabot Corporation $ 36   $ 27   $ 116   $ 47  
 
 
 
Diluted earnings per share of common stock
attributable to Cabot Corporation
 
Continuing operations $ 0.55 $ 0.43 $ 1.79 $ 0.78
 
Discontinued operations (B) (0.01 ) (0.01 ) (0.02 ) (0.05 )
       
Net income attributable to Cabot Corporation $ 0.54 $ 0.42 $ 1.77 $ 0.73
 
Weighted average common shares outstanding
Diluted 65.1 64.4 65.0 64.3
 
 
(A) Other (expense) income for the first three months of fiscal 2014 includes a $29.1 million non-cash gain on Cabot's existing investment in its Mexican joint venture (NHUMO) recognized upon acquiring our former joint venture partner's common stock in NHUMO, which represented approximately 60% of the common equity of the joint venture.
(B) Amounts relate primarily to the pending divesture of the Security Materials Business and the divesture of the Supermetals Business.
 
 
Second Quarter Earnings Announcement, Fiscal 2014
                       
             
CABOT CORPORATION SUMMARY RESULTS BY SEGMENTS
                       
                       
Periods ended March 31 Three Months Six Months
Dollars in millions, except per share amounts (unaudited)       2014   2013   2014   2013
 
Sales
 
Reinforcement Materials $ 504 $ 459 $ 1,021 $ 934
 
Performance Materials 249 243 466 439
Specialty Carbons and Compounds 172 173 320 305
Fumed Metal Oxides 77 70 146 134
 
Advanced Technologies 48 39 112 76
Inkjet Colorants 14 12 29 28
Aerogel 1 3 6 8
Elastomer Composites 8 4 24 12
Specialty Fluids 25 20 53 28
 
Purification Solutions (A)   80     75     152    

163
 
 
Segment sales 881 816 1,751

1,612
 
Unallocated and other (A) (B)   17     24     45    

47
 
 
Net sales and other operating revenues $ 898   $ 840   $ 1,796   $ 1,659  
 
Segment Earnings Before Interest and Taxes (C) (D)
 
Reinforcement Materials $ 61 $ 42 $ 125 $ 92
 
Performance Materials 47 37 81 64
 
Advanced Technologies 12 8 37 16
 
Purification Solutions   (4 )   -     (13 )   5  
 
Total Segment Earnings Before Interest and Taxes (D) 116 87 230 177
 
Unallocated and Other
 
Interest expense (15 ) (16 ) (29 ) (32 )
Certain items (E) (36 ) (20 ) (12 ) (39 )
Unallocated corporate costs (D) (16 ) (13 ) (29 ) (25 )
General unallocated income (F) (1 ) 2 (1 ) 5
Less: Equity in earnings of affiliated companies   -     (3 )   (2 )   (6 )
 
Income from continuing operations before income taxes and equity in earnings of affiliated companies
48 37 157 80
 
Provision for income taxes (including tax certain items) (7 ) (16 ) (31 ) (36 )
 
Equity in (loss) earnings of affiliated companies (2 ) 3 - 6
       
Income from continuing operations 39 24 126 50
 
Loss from discontinued operations, net of tax (G) - (1 ) (1 ) (3 )
       
Net income 39 23 125 47
 
Net income attributable to noncontrolling interests 3 (4 ) 9 -
       
Net income attributable to Cabot Corporation $ 36   $ 27   $ 116   $ 47  
 
Diluted earnings per share of common stock attributable to Cabot Corporation
 
 
Continuing operations $ 0.55 $ 0.43 $ 1.79 $ 0.78
 
Discontinued operations (G) (0.01 ) (0.01 ) (0.02 ) (0.05 )
       
Net income attributable to Cabot Corporation $ 0.54 $ 0.42 $ 1.77 $ 0.73
 
Adjusted earnings per share
 
Adjusted EPS (H) $ 0.83 $ 0.64 $ 1.70 $ 1.31
 
Weighted average common shares outstanding
 
Diluted 65.1 64.4 65.0 64.3
 
 
 

(A)Beginning in the second quarter of fiscal 2014, a reclassification between Purification Solutions and Unallocated and other sales has been made in the table above in order to align the presentation of shipping and handling fees on customer sales with the rest of Cabot’s businesses. Historical periods have been adjusted to reflect this reclassification.
 
(B)Unallocated and other reflects royalties paid by equity affiliates, other operating revenues, external shipping and handling fees, the impact of unearned revenue, the removal of 100% of the sales of an equity method affiliate and discounting charges for certain Notes receivable.
(C)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.
 
(D)Fiscal 2013 Segment EBIT and General unallocated income have been recast from the reporting of the first and second quarters of fiscal 2013 to reflect an allocation of costs to the Purification Solutions segment for corporate administrative and functional support. These allocations were previously reflected in Unallocated corporate costs and other segment results. The recast results for each quarter of fiscal 2013 are consistent with those that were presented in conjunction with Cabot's year end fiscal 2013 earnings release.
 
(E)Details of certain items are presented in the Certain Items and Reconciliation of Adjusted EPS and Operating Tax Rate table.
 
(F)General unallocated income includes foreign currency transaction gains (losses), interest income, dividend income, the profit related to unearned revenue, and the impact of LIFO accounting.
 
(G)Amounts relate primarily to the pending divesture of the Security Materials Business and the divesture of the Supermetals Business.
 
(H)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.
 
Second Quarter Earnings Announcement, Fiscal 2014
               
       
CABOT CORPORATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION
               
               

March 31,

September 30,

2014
2013
Dollars in millions       (unaudited)   (audited)
 
Current assets:
 
Cash and cash equivalents $ 89 $ 95
Accounts and notes receivable, net of reserve for doubtful accounts of $11 and $8 726 634
Inventories:
Raw materials 129 100
Work in process 3 2
Finished goods 364 309
Other   45   44
Total inventories 541 455
Prepaid expenses and other current assets 79 58
Notes receivable from sale of business 215 214
Deferred income taxes 23 36
Current assets held for sale (A)   3   3
Total current assets   1,676   1,495
 
Property, plant and equipment, net 1,617 1,600
 
Goodwill 555 502
Equity affiliates 73 119
Intangible assets, net of accumulated amortization of $25 and $16 358 308
Assets held for rent 55 49
Deferred income taxes 69 68
Other assets 58 83
Non-current assets held for sale (A) 8 9
   
Total assets $ 4,469 $ 4,233
 
(A) Includes amounts related to the pending sale of the Security Materials Business.
     
Second Quarter Earnings Announcement, Fiscal 2014
             
 
CABOT CORPORATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION
             
             
March 31, September 30,
2014 2013
Dollars in millions, except share and per share amounts     (unaudited)   (audited)
 
Current liabilities:
 
Notes payable $ 377 $ 264
Accounts payable and accrued liabilities 523 534
Income taxes payable 35 30
Deferred income taxes 4 2
Current portion of long-term debt   19     14  
Total current liabilities   958     844  
 
Long-term debt 1,023 1,020
Deferred income taxes 32 21
Other liabilities 274 265
Redeemable preferred stock 29 -
 
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: 64,723,232 and 64,223,985 shares
Outstanding: 64,470,691 and 63,970,502 shares 65 64
Less cost of 252,541 and 253,483 shares of common treasury stock (8 ) (8 )
Additional paid-in capital 51 39
Retained Earnings 1,845 1,755
Deferred employee benefits - (2 )
Accumulated other comprehensive income   77     103  
Total Cabot Corporation stockholders' equity 2,030 1,951
Noncontrolling interests   123     132  
Total stockholders' equity   2,153     2,083  
Total liabilities and stockholders' equity $ 4,469   $ 4,233  
 
       
CABOT CORPORATION
                   
  Fiscal 2013   Fiscal 2014
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 475 459 486 482 1,902 517 504 - - 1,021
Performance Materials 196 243 233 232 904 217 249 - - 466
Specialty Carbons and Compounds 132 173 159 158 622 148 172 - - 320
Fumed Metal Oxides 64 70 74 74 282 69 77 - - 146
Advanced Technologies 37 39 67 72 215 64 48 - - 112
Inkjet Colorants 16 12 18 18 64 15 14 - - 29
Aerogel 5 3 9 4 21 5 1 - - 6
Elastomer Composites 8 4 5 12 29 16 8 - - 24
Specialty Fluids 8 20 35 38 101 28 25 - - 53
Purification Solutions (A)          

88
      75       81       84      

328
      72       80       -     -     152  
Segment Sales

796
816 867 870

3,349
870 881 - - 1,751
Unallocated and other (A) (B)          

23
      24       34       26      

107
      28       17       -     -     45  
 
Net sales and other operating revenues         $ 819     $ 840     $ 901     $ 896     $ 3,456     $ 898     $ 898     $ -   $ -   $ 1,796  
 
Segment Earnings Before Interest and Taxes (C) (D)
Reinforcement Materials 50 42 49 47 188 64 61 - - 125
Performance Materials 27 37 35 33 132 34 47 - - 81
Advanced Technologies 8 8 28 26 70 25 12 - - 37
Purification Solutions           5       -       (1 )     (8 )     (4 )   (9 )     (4 )     -     -     (13 )
Total Segment Earnings Before Interest and Taxes (D) 90 87 111 98 386 114 116 - - 230
 
 
Unallocated and Other
Interest expense (16 ) (16 ) (15 ) (15 ) (62 ) (14 ) (15 ) - - (29 )
Certain items (E) (19 ) (20 ) (4 ) (11 ) (54 ) 24 (36 ) - - (12 )
Unallocated corporate costs (D) (12 ) (13 ) (12 ) (11 ) (48 ) (13 ) (16 ) - - (29 )
General unallocated income (expense) (F) 3 2 (3 ) (3 ) (1 ) - (1 ) - - (1 )
Less: Equity in earnings of affiliated companies, net of Certain Items           (3 )     (3 )     (3 )     (2 )     (11 )     (2 )     -       -     -     (2 )
 
Income from continuing operations before income taxes and equity in earnings of affiliated companies
43 37 74 56 210 109 48 - - 157
 
Provision for income taxes (including tax certain items) (20 ) (16 ) (16 ) (8 ) (60 ) (24 ) (7 ) - - (31 )
Equity in earnings (loss) of affiliated companies           3       3       3       2       11       2       (2 )     -     -     -  
 
Income from continuing operations 26 24 61 50 161 87 39 - - 126
(Loss) income from discontinued operations, net of tax (G)           (2 )     (1 )     1       1       (1 )     (1 )     -       -     -     (1 )
 
Net income 24 23 62 51 160 86 39 - - 125
 
Net income (loss) attributable to noncontrolling interests           4       (4 )     3       4       7       6       3       -     -     9  
 
Net income attributable to Cabot Corporation $ 20 $ 27 $ 59 $ 47 $ 153 $ 80 $ 36 $ - $ - $ 116
 
Diluted earnings per share of common stock
attributable to Cabot Corporation
 
Continuing operations $ 0.35 $ 0.43 $ 0.87 $ 0.72 $ 2.37 $ 1.24 $ 0.55 $ - $ - $ 1.79

Discontinued operations (G)
          (0.04 )     (0.01 )     0.03       0.01       (0.01 )     (0.01 )     (0.01 )     -     -     (0.02 )
Net income attributable to Cabot Corporation $ 0.31 $ 0.42 $ 0.90 $ 0.73 $ 2.36 $ 1.23 $ 0.54 $ - $ - $ 1.77
 
Adjusted earnings per share
 
Adjusted EPS (H)         $ 0.67     $ 0.64     $ 0.84     $ 0.78     $ 2.93     $ 0.87     $ 0.83     $ -   $ -   $ 1.70  
 
Weighted average common shares outstanding
Diluted           64.1       64.4       64.5       64.7       64.5       64.8       65.1       -     -     65.0  
 
(A)Beginning in the second quarter of fiscal 2014, a reclassification between Purification Solutions and Unallocated and other sales has been made in the table above in order to align the presentation of shipping and handling fees on customer sales with the rest of Cabot’s businesses. Historical periods have been adjusted to reflect this reclassification.
 
(B)Unallocated and other reflects royalties, other operating revenues, external shipping and handling fees, the impact of unearned revenue, the removal of 100% of the sales of an equity method affiliate and discounting charges for certain Notes receivable.
 
(C)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.
(D)The first three quarters of fiscal 2013 Segment EBIT and General unallocated income (expense) have been recast to reflect an allocation of costs to the Purification Solutions segment for corporate administrative and functional support. These allocations were previously reflected in Unallocated corporate costs and other segment results. The recast results for each quarter of fiscal 2013 are consistent with those that were presented in conjunction with Cabot's year end fiscal 2013 earnings release.
 
(E)Details of certain items are presented in the Certain Items and Reconciliation of Adjusted EPS and Operating Tax Rate table.
 
(F)General unallocated income (expense) includes foreign currency transaction gains (losses), interest income, dividend income, the profit related to unearned revenue, and the impact of LIFO accounting.
 
(G)Amounts relate primarily to the pending divesture of the Security Materials Business and the divesture of the Supermetals Business.
 
(H)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.
 
Second Quarter Earnings Announcement, Fiscal 2014    
                                                 
                 
CABOT CORPORATION CERTAIN ITEMS AND RECONCILIATION OF ADJUSTED EPS AND OPERATING TAX RATE
                                                 
                                                 
TABLE 1: DETAIL OF CERTAIN ITEMS        
Periods ended March 31 Three Months Six Months Three Months Six Months
Dollars in millions, except per share amounts (unaudited) Dollars in Millions Per Share After Tax
2014 2013 2014 2013 2014 2013 2014 2013

$
   

$
    $     $     per share(A)   per share(A)   per share(A)   per share(A)
 
Certain items before and after income taxes
 
Global restructuring activities $ (16 ) $ (19 ) $ (21 ) $ (24 ) $ (0.16 ) $ (0.20 ) $ (0.21 ) $ (0.25 )
Acquisition and integration-related charges (2 ) (5 ) (16 ) (0.02 ) (0.05 ) (0.17 )
Foreign currency (loss) gain on revaluations (6 ) 1 1 (0.05 ) 0.01 0.01 0.01
Gain on existing investment in NHUMO 29 0.45
Legal and environmental matters and reserves   (14 )       (15 )         (0.13 )       (0.15 )    
Total certain items, pre-tax   (36 )   (20 )   (12 )   (39 )     (0.34 )   (0.21 )   0.05     (0.41 )
 
Tax impact of certain items   13     (1 )   14     5            
Certain items after tax   (23 )   (21 )   2     (34 )     (0.34 )   (0.21 )   0.05     (0.41 )
 
Tax-related certain items
 
Tax impact of certain foreign exchange losses (5 ) (12 ) (0.08 ) (0.19 )
 
Discrete tax items   4     5     3     5       0.06     0.08     0.04     0.07  
 
 
 
Total tax-related certain items 4 3 (7 ) 0.06 0.04 (0.12 )
                 
 
Total certain items after tax   (19 )   (21 )   5     (41 )     (0.28 )   (0.21 )   0.09     (0.53 )
 
 
Discontinued operations after income taxes (B) (1 ) (1 ) (3 ) (0.01 ) (0.01 ) (0.02 ) (0.05 )
 
                 
 
Total discontinued operations after tax $ ― $ (1 ) $ (1 ) $ (3 )   $ (0.01 ) $ (0.01 ) $ (0.02 ) $ (0.05 )
 
                                               
                                                 
TABLE 2: CERTAIN ITEMS STATEMENT OF OPERATIONS LINE ITEM                                
Periods ended March 31 Three Months Six Months
Dollars in millions, Pre-Tax (unaudited) 2014 2013 2014 2013
 
Statement of Operations Line Item (C)
 
Cost of sales $ (18 ) $ (18 ) $ (26 ) $ (32 )
 
Selling and administrative expenses (12 ) (1 ) (15 ) (6 )
 
Other income   (6 )   (1 )   29     (1 )
Total certain items, pre-tax $ (36 ) $ (20 ) $ (12 ) $ (39 )
 
 
                                                 
TABLE 3: RECONCILIATION OF TAX CERTAIN ITEMS                                  
Periods ended March 31 Three Months Six Months
Dollars in millions (unaudited) 2014 2013 2014 2013
 
Reconciliation of Provision for income taxes, excluding certain items, to Provision for income taxes
 
 
Provision for income taxes $ (7 ) $ (16 ) $ (31 ) $ (35 )
 
Less: Tax impact of certain items 13 (1 ) 14 5
 
Less: Tax-related certain items 4 3 (7 )
       
Provision for income taxes, excluding certain items $ (24 ) $ (15 ) $ (48 ) $ (33 )
                                                 
TABLE 4: RECONCILIATION OF OPERATING TAX RATE                                  
Periods ended March 31 Three Months Six Months
Dollars in millions (unaudited) 2014 2013 2014 2013
 
Reconciliation of the effective tax rate to the operating tax rate
 
 
Provision for income taxes $ (7 ) $ (16 ) $ (31 ) $ (35 )
 
Effective tax rate 14 % 43 % 20 % 45 %
 
Impact of discrete tax items:
Unusual or infrequent items 1 % (9 %) - % (13 %)
Items related to uncertain tax positions 11 % 7 % 4 % 3 %
Other discrete tax items (3 %) 4 % (1 %) - %
Impact of certain items   5 %   (18 %)   5 %   (8 %)
Operating tax rate   28 %   27 %   28 %   27 %
                                                 
TABLE 5: RECONCILIATION OF ADJUSTED EPS BY QUARTER FISCAL 2013 and FISCAL 2014                          
NON-GAAP MEASURE:
Periods ended (unaudited) Fiscal 2013(A)   Fiscal 2014(A)
 
Dec. Q Mar. Q Jun. Q   Sept. Q FY 2013 YTD   Dec. Q   Mar. Q   Jun. Q   Sept. Q FY 2014 YTD

Reconciliation of Adjusted EPS to GAAP EPS
Net income per share attributable to Cabot Corporation $ 0.31 $ 0.42 $ 0.90 $ 0.73 $ 2.36 $ 1.23 $ 0.54 $ ― $ ― $ 1.77
Less: Net (loss) income per share from discontinued operations(B)   (0.04 )   (0.01 )   0.03     0.01     (0.01 )       (0.01 )   (0.01 )   (0.02 )
Net income per share from continuing operations $ 0.35 $ 0.43 $ 0.87 $ 0.72 $ 2.37 $ 1.24 $ 0.55 $ ― $ ― $ 1.79
Less: Certain items after tax per share   (0.32 )   (0.21 )   0.03     (0.06 )   (0.56 )       0.37     (0.28 )   0.09  
Adjusted earnings per share $ 0.67 $ 0.64 $ 0.84 $ 0.78 $ 2.93 $ 0.87 $ 0.83 $ ― $ ― $ 1.70
 
                                                 
(A)Per share amounts are calculated after tax and, where applicable, noncontrolling interests, net of tax.
 
(B)Amounts relate primarily to the pending divesture of the Security Materials Business and the divesture of the Supermetals Business.
 
(C)This table indicates the line items where certain items are recorded in the table titled Cabot Corporation Consolidated Statements of Operations.
 
Second Quarter Earnings Announcement, Fiscal 2014
                           
               
CABOT CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                           
                           
Periods ended March 31 Three Months Six Months
Dollars in millions       2014   2013   2014   2013
 
Cash Flows from Operating Activities:
Net income $ 39 $ 23 $ 125 $ 47
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 49 50 100 99
Other non-cash charges (income), net (2 ) 26 (21 ) 31
Changes in assets and liabilities:
Changes in working capital, net (A) (23 ) (41 ) (158 ) (125 )
Changes in other assets and liabilities, net 20 - 2
Cash dividends received from equity affiliates   4     (3 )   21     (48 )
Cash provided by operating activities   87     55     69     4  
 
Cash Flows from Investing Activities:
Additions to property, plant and equipment (28 ) (65 ) (70 ) (127 )
Receipts from notes receivable from sale of business - 11 30
Cash paid for acquisition of business, net of cash acquired of $7 million - - (73 ) -
Other investing activities, net   (1 )   (2 )   (5 )   (4 )
Cash used in investing activities   (29 )   (56 )   (148 )   (101 )
 
Cash Flows from Financing Activities:
Change in debt, net (46 ) 11 121 93
Cash dividends paid to common stockholders (13 ) (13 ) (26 ) (26 )
Other financing activities, net   (7 )   4     (6 )   2  
Cash (used in) provided by investing activities   (66 )   2     89     69  
Effect of exchange rates on cash   (8 )   (7 )   (16 )   (7 )
Decrease in cash and cash equivalents (16 ) (6 ) (6 ) (35 )
Cash and cash equivalents at beginning of period   105     91     95     120  
Cash and cash equivalents at end of period $ 89   $ 85   $ 89   $ 85  
 
(A)Working capital includes Accounts and notes receivable, Inventories, and Accounts payable and accrued liabilities

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