News from Notch Consulting, Inc.

January 24, 2008

Cabot Releases First Quarter Results

Filed under: Carbon Black — Notch @ 11:13 pm

On Wednesday, Cabot Corporation released its financial results for the first quarter of FY 2008. The company announced net income of $36 million for the quarter, including $7 million after-tax of income from certain items.

Cabot’s results during the quarter were unfavorably impacted by approximately $17 million arising from the time lag of the feedstock related pricing adjustments in the Company’s rubber blacks supply contracts and the immediate recognition of higher feedstock costs in North America, due to the use of LIFO accounting. The Company’s results during the quarter were positively impacted by approximately $14 million of tax benefits arising from favorable settlements of tax audits as well as various tax credits in China.

The results are here.

Cabot held a conference call on the results this afternoon. A webcast of the conference call is here. For the first time, Cabot has provided a deck of slides to accompany the presentation. See the above link under “Supporting Materials.”

This was the first earnings call for Cabot’s new President and CEO Patrick Prevost, and it was a relatively staid affair compared to some of the company’s recent quarters. There was no major news regarding the carbon black business. The slide detailing “Carbon Black Business PBT” provided some useful and illuminating information by breaking down the effect of Contract Lag and LIFO (last-in, first-out) inventories for feedstock purchasing on the Carbon Black Business PBT. The data is provided going back nine quarters, to Q1 2006. In Q1 2008, Contract Lag and LIFO together reduced Carbon Black PBT by $17 million, and over the last 3 quarters these factors have reduced PBT by $47 million as feedstock costs have continued to rise. (Contract lag refers to the time lag in the company’s ability to pass on feedstock cost increases to customers for carbon black sold under long term contract.)

Below is an rough guide to some of the topics discussed during the webcast specifically related to carbon black. Times refer to the Windows Media version of the webcast, which begins at 45:42.

52:20 to 56:50 — Overview of the carbon black business. Cabot started up the new Performance unit at Tianjin, and is on schedule for an expansion at Tianjin by year-end 2008. China carbon black volumes declined this quarter because Cabot stopped importing “seed volumes” from other plants in the region. On Inkjet Colorants, Cabot completed a debottleneck for its colorants production unit, but a planned expansion has been put on hold because volume sales into the High Speed market have been below expectations.

59:10 to 59:50 — Geographic breakdown of revenue by region. Cabot continues to shift its sales focus to Asia (particularly China) and South America, while reducing its presence in North America.

01:08:55 to 01:10:50 — More detail of China volumes. Why Cabot reduced import volumes.

01:23:10 to 01:26:50 — Discussion of Contract Lag and LIFO effects.

Wired Magazine includes Run-Flat Tires in List of “Things That Don’t Suck”

Filed under: General, Run-flats — Notch @ 5:49 pm

From Wired Magazine.

Things that don’t suck: TV screens in the back of airplane seats. Twice-baked potatoes. Dryer sheets. DVRs. The set design on Mad Men. Farmers’ markets. Tap water. Touchscreens. Scissors. Pocketknives. Thumb drives. Kites. Strike-anywhere matches. Doorstops. Run-flat tires. Netflix. Noise-canceling headphones. Casual carpool. Guitar Hero. Salt-and-vinegar potato chips. Bicycles. Kevlar. Velcro. Carbon composite. Dradis. Flip-flops. The first half hour of Indiana Jones and the Temple of Doom. Seat belts. Zippo lighters. Spartan Laser. Heated seats. Public libraries. Remote control. Ice cream.

Can’t believe they didn’t include carbon black.

Solutia delays emergence from Chapter 11

Filed under: Rubber Chemicals — Notch @ 4:38 pm

On Wednesday, January 23, Solutia Inc. announced that its emergence from Chapter 11 bankruptcy will be delayed from the previously announced effective date of January 28, 2008. The delay was caused by problems in obtaining the necessary exit financing, a result of current conditions in financial markets. Solutia’s exit financing consists of a $1.2 billion senior secured term loan facility, a $400 million senior secured asset-based revolving credit facility, and $400 million aggregate principal amount of senior unsecured notes.

The lead arrangers of Solutia’s exit financing — Citigroup Global Markets, Goldman Sachs Credit Partners, and Deutsche Bank — informed Solutia on January 22, 2008 that they have been unable to complete the exit financing to which they committed on October 25, 2007. The lead arrangers contend that the failure to provide these credit facilities was the result of an adverse change in the capital markets since the agreement in October. Solutia, however, said that it believes that the ongoing conditions in the credit markets began long before the October agreement and that the lead arrangers therefore are required to fund their commitments themselves on or before February 29, 2008.

Solutia’s press release is here.

Solutia’s most recent Plan of Reorganization is here.

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