UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2017June 30, 2023

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

(Exact name of registrant as specified in its charter)

Delaware

04-2271897

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

Two Seaport Lane

Boston, Massachusetts

02210-2019

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (617) (617) 345-0100

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $1 par value per share

CBT

The New York Stock Exchange

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

  (Do not check if smaller reporting company)

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

The Company had 61,807,14755,936,984 shares of common stock, $1.00 par value per share, outstanding as of February 6, 2018.August 3, 2023.


INDEX

Part I.

Financial Information

Item 1.

Financial Statements (unaudited)

Consolidated Statements of Operations

3

Consolidated Statements of Comprehensive Income (Loss)

4

Consolidated Balance Sheets

5

Consolidated Statements of Cash Flows

7

Consolidated Statements of Changes in Stockholders’ Equity

8

Notes to the Consolidated Financial Statements

810

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

2722

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

3731

Item 4.

Controls and Procedures

3731

Part II.

Other Information

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

3832

Item 6.5.

ExhibitsOther Information

3832

Item 6.

Exhibits

33


2


Part I. FinancialFinancial Information

Item 1.

Financial Statements

Item 1. Financial Statements

CABOT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED

 

Three Months Ended December 31

 

 

Three Months Ended June 30

 

 

Nine Months Ended June 30

 

 

2017

 

 

2016

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

(In millions, except per share amounts)

 

 

(In millions, except per share amounts)

 

Net sales and other operating revenues

 

$

720

 

 

$

611

 

 

$

968

 

 

$

1,149

 

 

$

2,966

 

 

$

3,209

 

Cost of sales

 

 

542

 

 

 

452

 

 

 

745

 

 

 

914

 

 

 

2,352

 

 

 

2,544

 

Gross profit

 

 

178

 

 

 

159

 

 

 

223

 

 

 

235

 

 

 

614

 

 

 

665

 

Selling and administrative expenses

 

 

69

 

 

 

63

 

 

 

58

 

 

 

51

 

 

 

184

 

 

 

196

 

Research and technical expenses

 

 

15

 

 

 

12

 

 

 

15

 

 

 

14

 

 

 

43

 

 

 

41

 

Loss on sale of business and asset impairment charge (Note D)

 

 

 

 

 

2

 

 

 

3

 

 

 

206

 

Gain on bargain purchase of a business (Note C)

 

 

 

 

 

 

 

 

 

 

 

(24

)

Income (loss) from operations

 

 

94

 

 

 

84

 

 

 

150

 

 

 

168

 

 

 

384

 

 

 

246

 

Interest and dividend income

 

 

3

 

 

 

2

 

 

 

7

 

 

 

 

 

 

22

 

 

 

7

 

Interest expense

 

 

(13

)

 

 

(13

)

 

 

(24

)

 

 

(15

)

 

 

(69

)

 

 

(38

)

Other income (expense)

 

 

8

 

 

 

2

 

 

 

(3

)

 

 

(1

)

 

 

(13

)

 

 

(9

)

Income (loss) from continuing operations before income taxes

and equity in earnings of affiliated companies

 

 

92

 

 

 

75

 

Income (loss) before income taxes
and equity in earnings of affiliated companies

 

 

130

 

 

 

152

 

 

 

324

 

 

 

206

 

(Provision) benefit for income taxes

 

 

(205

)

 

 

(18

)

 

 

(41

)

 

 

(49

)

 

 

(90

)

 

 

(73

)

Equity in earnings of affiliated companies, net of tax

 

 

1

 

 

 

2

 

 

 

1

 

 

 

3

 

 

 

4

 

 

 

7

 

Net income (loss)

 

 

(112

)

 

 

59

 

 

 

90

 

 

 

106

 

 

 

238

 

 

 

140

 

Net income (loss) attributable to noncontrolling interests, net

of tax

 

 

10

 

 

 

4

 

 

 

8

 

 

 

9

 

 

 

27

 

 

 

25

 

Net income (loss) attributable to Cabot Corporation

 

$

(122

)

 

$

55

 

 

$

82

 

 

$

97

 

 

$

211

 

 

$

115

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

61.9

 

 

 

62.2

 

 

 

56.1

 

 

 

56.3

 

 

 

56.2

 

 

 

56.5

 

Diluted

 

 

61.9

 

 

 

62.8

 

 

 

56.5

 

 

 

56.8

 

 

 

56.7

 

 

 

56.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

Earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.98

)

 

$

0.87

 

 

$

1.44

 

 

$

1.70

 

 

$

3.68

 

 

$

2.00

 

Diluted

 

$

(1.98

)

 

$

0.86

 

 

$

1.43

 

 

$

1.69

 

 

$

3.65

 

 

$

1.99

 

 

 

 

 

 

 

 

 

Dividends per common share

 

$

0.315

 

 

$

0.30

 

The accompanying notes are an integral part of these consolidated financial statements.


3


CABOT CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

UNAUDITED

 

Three Months Ended December 31

 

 

Three Months Ended June 30

 

 

Nine Months Ended June 30

 

 

2017

 

 

2016

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

(In millions)

 

 

(In millions)

 

Net income (loss)

 

$

(112

)

 

$

59

 

 

$

90

 

 

$

106

 

 

$

238

 

 

$

140

 

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment, net of tax provision (benefit)

of $(2) and $2

 

 

 

 

 

(125

)

Foreign currency translation adjustment, net of tax

 

 

(20

)

 

 

(102

)

 

 

117

 

 

 

(84

)

Derivatives: net investment hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Gains) losses reclassified to interest expense, net of tax provision

of $— and $—

 

 

(1

)

 

 

 

Pension and other postretirement benefit liability adjustments

 

 

 

 

 

 

 

 

Amortization of net loss and prior service credit included in

net periodic benefit cost, net of tax

 

 

 

 

 

1

 

Other comprehensive income (loss)

 

 

(1

)

 

 

(124

)

(Gains) losses reclassified to interest expense, net of tax

 

 

(1

)

 

 

(1

)

 

 

(4

)

 

 

(4

)

(Gains) losses excluded from effectiveness testing and amortized
to interest expense, net of tax

 

 

 

 

 

 

 

 

1

 

 

 

1

 

Pension and other postretirement benefit liability adjustments, net of tax

 

 

 

 

 

 

 

 

(1

)

 

 

2

 

Other comprehensive income (loss), net of tax of $—, $ —, $— and ($1)

 

 

(21

)

 

 

(103

)

 

 

113

 

 

 

(85

)

Comprehensive income (loss)

 

 

(113

)

 

 

(65

)

 

 

69

 

 

 

3

 

 

 

351

 

 

 

55

 

Net income (loss) attributable to noncontrolling interests, net

of tax

 

 

10

 

 

 

4

 

 

 

8

 

 

 

9

 

 

 

27

 

 

 

25

 

Foreign currency translation adjustment attributable to

noncontrolling interests, net of tax

 

 

3

 

 

 

(4

)

 

 

(6

)

 

 

(9

)

 

 

3

 

 

 

(6

)

Comprehensive income (loss) attributable to noncontrolling

interests, net of tax

 

 

13

 

 

 

 

Comprehensive income (loss) attributable to noncontrolling interests

 

 

2

 

 

 

 

 

 

30

 

 

 

19

 

Comprehensive income (loss) attributable to Cabot Corporation

 

$

(126

)

 

$

(65

)

 

$

67

 

 

$

3

 

 

$

321

 

 

$

36

 

The accompanying notes are an integral part of these consolidated financial statements.


4


CABOT CORPORATION

CONSOLIDATED BALANCE SHEETS

ASSETS

UNAUDITED

 

December 31, 2017

 

 

September 30, 2017

 

 

June 30, 2023

 

 

September 30, 2022

 

 

(In millions)

 

 

(In millions)

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

189

 

 

$

280

 

 

$

220

 

 

$

206

 

Accounts and notes receivable, net of reserve for doubtful

accounts of $10 and $9

 

 

551

 

 

 

527

 

Accounts and notes receivable, net of reserve for doubtful
accounts of $
2 and $3

 

 

688

 

 

 

836

 

Inventories:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Raw materials

 

 

112

 

 

 

93

 

 

 

152

 

 

 

182

 

Work in process

 

 

2

 

 

 

2

 

 

 

1

 

 

 

 

Finished goods

 

 

318

 

 

 

293

 

 

 

370

 

 

 

427

 

Other

 

 

46

 

 

 

45

 

 

 

69

 

 

 

55

 

Total inventories

 

 

478

 

 

 

433

 

 

 

592

 

 

 

664

 

Prepaid expenses and other current assets

 

 

63

 

 

 

59

 

 

 

102

 

 

 

114

 

Total current assets

 

 

1,281

 

 

 

1,299

 

 

 

1,602

 

 

 

1,820

 

Property, plant and equipment, net

 

 

1,329

 

 

 

1,305

 

 

 

1,364

 

 

 

1,270

 

Goodwill

 

 

184

 

 

 

154

 

 

 

136

 

 

 

129

 

Equity affiliates

 

 

54

 

 

 

56

 

 

 

19

 

 

 

20

 

Intangible assets, net

 

 

164

 

 

 

137

 

 

 

63

 

 

 

63

 

Assets held for rent

 

 

104

 

 

 

104

 

Deferred income taxes

 

 

27

 

 

 

237

 

 

 

36

 

 

 

45

 

Other assets

 

 

46

 

 

 

46

 

 

 

167

 

 

 

178

 

Total assets

 

$

3,189

 

 

$

3,338

 

 

$

3,387

 

 

$

3,525

 

The accompanying notes are an integral part of these consolidated financial statements.


5


CABOT CORPORATION

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS’ EQUITY

UNAUDITED

 

December 31, 2017

 

 

September 30, 2017

 

 

June 30, 2023

 

 

September 30, 2022

 

 

(In millions, except share

 

 

(In millions, except share

 

 

and per share amounts)

 

 

and per share amounts)

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes payable

 

$

7

 

 

$

7

 

Short-term borrowings

 

$

136

 

 

$

347

 

Accounts payable and accrued liabilities

 

 

475

 

 

 

457

 

 

 

568

 

 

 

707

 

Income taxes payable

 

 

20

 

 

 

22

 

 

 

27

 

 

 

44

 

Current portion of long-term debt

 

 

286

 

 

 

256

 

 

 

7

 

 

 

7

 

Total current liabilities

 

 

788

 

 

 

742

 

 

 

738

 

 

 

1,105

 

Long-term debt

 

 

631

 

 

 

661

 

 

 

1,093

 

 

 

1,089

 

Deferred income taxes

 

 

20

 

 

 

38

 

 

 

60

 

 

 

65

 

Other liabilities

 

 

252

 

 

 

245

 

 

 

230

 

 

 

234

 

Redeemable preferred stock

 

 

26

 

 

 

27

 

Commitments and contingencies (Note H)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Contingencies (Note G)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Preferred stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Authorized: 2,000,000 shares of $1 par value

 

 

 

 

 

 

Issued and Outstanding: None and none

 

 

 

 

 

 

 

 

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: 61,999,921 and 62,087,627 shares

 

 

 

 

 

 

 

 

Outstanding: 61,796,641 and 61,884,347 shares

 

 

62

 

 

 

62

 

Less cost of 203,280 and 203,280 shares of common treasury stock

 

 

(6

)

 

 

(6

)

Authorized: 200,000,000 shares of $1 par value, Issued: 56,072,816 and 56,385,963 shares, Outstanding: 55,936,984 and 56,248,559 shares

 

 

56

 

 

 

56

 

Less cost of 135,832 and 137,404 shares of common treasury stock

 

 

(3

)

 

 

(4

)

Additional paid-in capital

 

 

 

 

 

 

 

 

 

 

 

1

 

Retained earnings

 

 

1,555

 

 

 

1,707

 

 

 

1,407

 

 

 

1,284

 

Accumulated other comprehensive income (loss)

 

 

(263

)

 

 

(259

)

 

 

(329

)

 

 

(439

)

Total Cabot Corporation stockholders' equity

 

 

1,348

 

 

 

1,504

 

 

 

1,131

 

 

 

898

 

Noncontrolling interests

 

 

124

 

 

 

121

 

 

 

135

 

 

 

134

 

Total stockholders' equity

 

 

1,472

 

 

 

1,625

 

 

 

1,266

 

 

 

1,032

 

Total liabilities and stockholders’ equity

 

$

3,189

 

 

$

3,338

 

Total liabilities and stockholders' equity

 

$

3,387

 

 

$

3,525

 

The accompanying notes are an integral part of these consolidated financial statements.


6


CABOT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

 

Three Months Ended December 31

 

 

Nine Months Ended June 30

 

 

2017

 

 

2016

 

 

2023

 

 

2022

 

 

(In millions)

 

 

(In millions)

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(112

)

 

$

59

 

 

$

238

 

 

$

140

 

Adjustments to reconcile net income (loss) to cash provided by operating activities:

 

 

 

 

 

 

 

 

Adjustments to reconcile net income (loss) to cash provided (used) by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

39

 

 

 

38

 

 

 

107

 

 

 

111

 

Loss on sale of business and asset impairment charge

 

 

3

 

 

 

206

 

Gain on sale of land

 

 

(1

)

 

 

(17

)

Gain on bargain purchase of a business

 

 

 

 

 

(24

)

Deferred tax provision (benefit)

 

 

186

 

 

 

(1

)

 

 

(1

)

 

 

(39

)

Gain on sale of investments

 

 

(10

)

 

 

 

Equity in net income of affiliated companies

 

 

(1

)

 

 

(2

)

Non-cash compensation

 

 

6

 

 

 

5

 

Equity in earnings of affiliated companies

 

 

(4

)

 

 

(7

)

Share-based compensation

 

 

15

 

 

 

17

 

Other non-cash (income) expense

 

 

2

 

 

 

15

 

Cash dividends received from equity affiliates

 

 

2

 

 

 

1

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts and notes receivable

 

 

(19

)

 

 

28

 

 

 

173

 

 

 

(286

)

Inventories

 

 

(41

)

 

 

(36

)

 

 

100

 

 

 

(231

)

Prepaid expenses and other current assets

 

 

(4

)

 

 

2

 

Prepaid expenses and other assets

 

 

17

 

 

 

(35

)

Accounts payable and accrued liabilities

 

 

10

 

 

 

22

 

 

 

(177

)

 

 

127

 

Income taxes payable

 

 

(3

)

 

 

(4

)

 

 

(18

)

 

 

18

 

Other liabilities

 

 

(10

)

 

 

(7

)

 

 

1

 

 

 

(1

)

Cash dividends received from equity affiliates

 

 

4

 

 

 

3

 

Cash provided by operating activities

 

 

45

 

 

 

107

 

 

 

 

 

 

 

 

 

Cash provided (used) by operating activities

 

 

457

 

 

 

(5

)

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions to property, plant and equipment

 

 

(52

)

 

 

(22

)

 

 

(166

)

 

 

(121

)

Cash paid for acquisition of business, net of cash acquired of $1

 

 

(64

)

 

 

 

Proceeds from sale of investments

 

 

10

 

 

 

 

Change in assets held for rent

 

 

 

 

 

(1

)

Proceeds from sale of land

 

 

7

 

 

 

18

 

Proceeds from sale of business

 

 

6

 

 

 

79

 

Cash paid for acquisition of business, net of cash acquired of $— and $5

 

 

 

 

 

(9

)

Proceeds from insurance settlements

 

 

12

 

 

 

1

 

Other

 

 

5

 

 

 

 

 

 

2

 

 

 

1

 

Cash used in investing activities

 

 

(101

)

 

 

(23

)

 

 

 

 

 

 

 

 

Cash provided (used) by investing activities

 

 

(139

)

 

 

(31

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repayments under financing arrangements

 

 

 

 

 

(4

)

Increase in notes payable, net

 

 

 

 

 

4

 

Proceeds from short-term borrowings

 

 

24

 

 

 

26

 

Repayments of short-term borrowings

 

 

(48

)

 

 

 

Proceeds from issuance (repayments) of commercial paper, net

 

 

(188

)

 

 

193

 

Proceeds from long-term debt, net of issuance costs

 

 

79

 

 

 

394

 

Repayments of long-term debt

 

 

(88

)

 

 

(357

)

Purchases of common stock

 

 

(16

)

 

 

(16

)

 

 

(48

)

 

 

(48

)

Proceeds from sales of common stock

 

 

 

 

 

3

 

 

 

4

 

 

 

6

 

Cash dividends paid to noncontrolling interests

 

 

(41

)

 

 

(22

)

Cash dividends paid to common stockholders

 

 

(20

)

 

 

(19

)

 

 

(65

)

 

 

(63

)

Cash used in financing activities

 

 

(36

)

 

 

(32

)

Cash provided (used) by financing activities

 

 

(371

)

 

 

129

 

Effects of exchange rate changes on cash

 

 

1

 

 

 

(63

)

 

 

67

 

 

 

(49

)

Increase (decrease) in cash and cash equivalents

 

 

(91

)

 

 

(11

)

 

 

14

 

 

 

44

 

Cash and cash equivalents at beginning of period

 

 

280

 

 

 

200

 

 

 

206

 

 

 

170

 

Cash and cash equivalents at end of period

 

$

189

 

 

$

189

 

 

$

220

 

 

$

214

 

 

 

June 30, 2023

 

 

June 30, 2022

 

 

 

(In millions)

 

Cash and cash equivalents

 

$

220

 

 

$

208

 

Restricted cash classified within Prepaid expenses and other current assets

 

 

 

 

 

6

 

Cash, cash equivalents and restricted cash

 

$

220

 

 

$

214

 

The accompanying notes are an integral part of these consolidated financial statements.


7


CABOT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

UNAUDITED

 

 

Common Stock, Net of Treasury Stock

 

 

Additional
Paid-in

 

 

Retained

 

 

Accumulated Other Comprehensive

 

 

Total Cabot Corporation Stockholders’

 

 

Noncontrolling

 

 

Total Stockholders’

 

 

 

Shares

 

 

Cost

 

 

Capital

 

 

Earnings

 

 

Income (Loss)

 

 

Equity

 

 

Interests

 

 

Equity

 

 

 

(In millions, except share amounts)

 

Balance at September 30, 2022

 

 

56,249

 

 

$

52

 

 

$

1

 

 

$

1,284

 

 

$

(439

)

 

$

898

 

 

$

134

 

 

$

1,032

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

54

 

 

 

 

 

 

54

 

 

 

12

 

 

 

66

 

Total other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

81

 

 

 

81

 

 

 

6

 

 

 

87

 

Cash dividends paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.37 per share

 

 

 

 

 

 

 

 

 

 

 

(21

)

 

 

 

 

 

(21

)

 

 

 

 

 

(21

)

Cash dividends declared to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

(2

)

Issuance of stock under equity compensation plans

 

 

309

 

 

 

1

 

 

 

2

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Share-based compensation

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

11

 

Purchase and retirement of common stock

 

 

(242

)

 

 

 

 

 

(14

)

 

 

(3

)

 

 

 

 

 

(17

)

 

 

 

 

 

(17

)

Balance at December 31, 2022

 

 

56,316

 

 

$

53

 

 

$

-

 

 

$

1,314

 

 

$

(358

)

 

$

1,009

 

 

$

150

 

 

$

1,159

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

75

 

 

 

 

 

 

75

 

 

 

7

 

 

 

82

 

Total other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44

 

 

 

44

 

 

 

3

 

 

 

47

 

Cash dividends paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.37 per share

 

 

 

 

 

 

 

 

 

 

 

(21

)

 

 

 

 

 

(21

)

 

 

 

 

 

(21

)

Cash dividends declared to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(27

)

 

 

(27

)

Issuance of stock under equity compensation plans

 

 

29

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Share-based compensation

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

7

 

Purchase and retirement of common stock

 

 

(199

)

 

 

 

 

 

(8

)

 

 

(8

)

 

 

 

 

 

(16

)

 

 

 

 

 

(16

)

Balance at March 31, 2023

 

 

56,146

 

 

$

53

 

 

$

-

 

 

$

1,360

 

 

$

(314

)

 

$

1,099

 

 

$

133

 

 

$

1,232

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

82

 

 

 

 

 

 

82

 

 

 

8

 

 

 

90

 

Total other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15

)

 

 

(15

)

 

 

(6

)

 

 

(21

)

Cash dividends paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.40 per share

 

 

 

 

 

 

 

 

 

 

 

(23

)

 

 

 

 

 

(23

)

 

 

 

 

 

(23

)

Cash dividends declared to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of stock under equity compensation plans

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Purchase and retirement of common stock

 

 

(213

)

 

 

 

 

 

(3

)

 

 

(12

)

 

 

 

 

 

(15

)

 

 

 

 

 

(15

)

Balance at June 30, 2023

 

 

55,937

 

 

$

53

 

 

$

 

 

$

1,407

 

 

$

(329

)

 

$

1,131

 

 

$

135

 

 

$

1,266

 

The accompanying notes are an integral part of these consolidated financial statements.

8


CABOT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

UNAUDITED

 

 

Common Stock, Net of Treasury Stock

 

 

Additional
Paid-in

 

 

Retained

 

 

Accumulated Other Comprehensive

 

 

Total Cabot Corporation Stockholders’

 

 

Noncontrolling

 

 

Total Stockholders’

 

 

 

Shares

 

 

Cost

 

 

Capital

 

 

Earnings

 

 

Income (Loss)

 

 

Equity

 

 

Interests

 

 

Equity

 

 

 

(In millions, except share amounts)

 

Balance at September 30, 2021

 

 

56,727

 

 

$

53

 

 

$

24

 

 

$

1,159

 

 

$

(289

)

 

$

947

 

 

$

143

 

 

$

1,090

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

(89

)

 

 

 

 

 

(89

)

 

 

9

 

 

 

(80

)

Total other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30

)

 

 

(30

)

 

 

2

 

 

 

(28

)

Cash dividends paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.37 per share

 

 

 

 

 

 

 

 

 

 

 

(21

)

 

 

 

 

 

(21

)

 

 

 

 

 

(21

)

Issuance of stock under equity compensation plans

 

 

202

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

6

 

Purchase and retirement of common stock

 

 

(349

)

 

 

 

 

 

(19

)

 

 

 

 

 

 

 

 

(19

)

 

 

 

 

 

(19

)

Balance at December 31, 2021

 

 

56,580

 

 

$

53

 

 

$

11

 

 

$

1,049

 

 

$

(319

)

 

$

794

 

 

$

154

 

 

$

948

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

107

 

 

 

 

 

 

107

 

 

 

7

 

 

 

114

 

Total other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

45

 

 

 

45

 

 

 

1

 

 

 

46

 

Cash dividends paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.37 per share

 

 

 

 

 

 

 

 

 

 

 

(21

)

 

 

 

 

 

(21

)

 

 

 

 

 

(21

)

Cash dividends declared to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14

)

 

 

(14

)

Issuance of stock under equity compensation plans

 

 

72

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Share-based compensation

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

5

 

Purchase and retirement of common stock

 

 

(221

)

 

 

 

 

 

(15

)

 

 

 

 

 

 

 

 

(15

)

 

 

 

 

 

(15

)

Balance at March 31, 2022

 

 

56,431

 

 

$

53

 

 

$

4

 

 

$

1,135

 

 

$

(274

)

 

$

918

 

 

$

148

 

 

$

1,066

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

97

 

 

 

 

 

 

97

 

 

 

9

 

 

 

106

 

Total other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(94

)

 

 

(94

)

 

 

(9

)

 

 

(103

)

Cash dividends paid:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.37 per share

 

 

 

 

 

 

 

 

 

 

 

(21

)

 

 

 

 

 

(21

)

 

 

 

 

 

(21

)

Cash dividends declared to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of stock under equity compensation plans

 

 

66

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Share-based compensation

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

6

 

Purchase and retirement of common stock

 

 

(198

)

 

 

 

 

 

(13

)

 

 

(1

)

 

 

 

 

 

(14

)

 

 

 

 

 

(14

)

Balance at June 30, 2022

 

 

56,299

 

 

$

53

 

 

$

 

 

$

1,210

 

 

$

(368

)

 

$

895

 

 

$

148

 

 

$

1,043

 

The accompanying notes are an integral part of these consolidated financial statements.

9


CABOT CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017June 30, 2023

UNAUDITED

A. Basis of Presentation

The consolidated financial statements have been prepared in conformity with accounting policies generally accepted in the United States (“U.S.”) and include the accounts of Cabot Corporation (“Cabot” or the “Company”) and its wholly ownedwholly-owned subsidiaries and majority-owned and controlled U.S. and non-U.S. subsidiaries. Additionally, Cabot considers consolidation of entities over which control is achieved through means other than voting rights. Intercompany transactions have been eliminated in consolidation.

The unaudited consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and consequently do not include all disclosures required by Form 10-K. Additional information may be obtained by referring to Cabot’s Annual Report on Form 10-K for its fiscal year ended September 30, 20172022 (“20172022 10-K”).

The financial information submitted herewith is unaudited and reflects all adjustments which are, in the opinion of management, necessary to provide a fair statement of the results for the interim periods ended December 31, 2017June 30, 2023 and 2016.2022. All such adjustments are of a normal recurring nature. The results for interim periods are not necessarily indicative of the results to be expected for the fiscal year.

Effective October 1, 2017, the Company changed its method of accounting for its U.S. carbon black inventories from the last-in, first-out (“LIFO”) method to the first-in, first-out (“FIFO”) method. The Company applied this change retrospectively to all prior periods presented, which is discussed in further detail in Note B.

As discussed in Note C, in November 2017, the Company acquired all of the issued and outstanding shares of 8755329 Canada Inc. (“Tech Blend”), a North American producer of black masterbatches. The financial position, results of operations and cash flows of Tech Blend are included in the Company’s consolidated financial statements from the date of acquisition.

B. Significant Accounting Policies

Recent Accounting Pronouncements

Revenue Recognition and Accounts Receivable

Cabot recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered,In August 2022, the price is fixed or determinable and collectability is reasonably assured. Cabot generally is able to ensure that products meet customer specifications prior to shipment. IfU.S. government enacted the Company is unable to determine that the product has met the specified objective criteria prior to shipment or if title has not transferred because of sales terms, the revenue is considered “unearned” and is deferred until the revenue recognition criteria are met.

Shipping and handling charges related to sales transactions are recorded as sales revenue when billed to customers or included in the sales price. Taxes collectedInflation Reduction Act ("IRA") which, among other things, provides for a 1% excise tax on sales to customers are excluded from revenues.

stock repurchases. The following table shows the relative sizeIRA was effective January 1, 2023. The Company’s application of the revenue recognized in each of the Company’s reportable segments.

 

 

Three Months Ended December 31

 

 

 

2017

 

 

2016

 

Reinforcement Materials

 

 

56

%

 

 

51

%

Performance Chemicals

 

 

33

%

 

 

35

%

Purification Solutions

 

 

10

%

 

 

12

%

Specialty Fluids

 

 

1

%

 

 

2

%

Cabot derives the substantial majority of its revenues from the sale of products in its Reinforcement Materials, Performance Chemicals, and Purification Solutions segments. Revenue from these products is typically recognized when the product is shipped and title and risk of loss have passed to the customer. The Company offers certain of its customers cash discounts and volume rebates as sales incentives. The discounts and volume rebates are recorded as a reduction in sales at the time revenue is recognized and are estimated based on historical experience and contractual obligations. Cabot periodically reviews the assumptions underlying its estimates of discounts and volume rebates and adjusts its revenues accordingly.

For major activated carbon injection systems projects in Purification Solutions, revenue is recognized using the percentage-of-completion method.


Revenue in Specialty Fluids arises primarily from the rental of cesium formate. This revenue is recognized throughout the rental period based on the contracted rental terms. Customers are also billed and revenue is recognized, typically at the end of the job, for cesium formate product that is not returned. The Company also generates revenues from cesium formate sold outside of the rental process and from the sale of fine cesium chemicals. This revenue is recognized upon delivery of the product.

Cabot maintains allowances for doubtful accounts based on an assessment of the collectability of specific customer accounts, the aging of accounts receivable and other economic information on both a historical and prospective basis. Customer account balances are charged against the allowance when it is probable the receivable will not be recovered. There were no material changes in the allowance for any of the periods presented. There is no material off-balance sheet credit exposure related to customer receivable balances.

Intangible Assets and Goodwill Impairment

The Company records tangible and intangible assets acquired and liabilities assumed in business combinations under the acquisition method of accounting. Amounts paid for an acquisition are allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition. The Company uses assumptions and estimates in determining the fair value of assets acquired and liabilities assumed in a business combination. The determination of the fair value of intangible assets requires the use of significant judgment with regard to assumptions used in the valuation model. The Company estimates the fair value of identifiable acquisition-related intangible assets principally based on projections of cash flows that will arise from these assets. The projected cash flows are discounted to determine the fair value of the assets at the dates of acquisition. The Company acquired Tech Blend in November 2017, which included separately identifiable intangible assets of $31 million as part of the preliminary purchase price allocation as discussed in Note C.

Definite-lived intangible assets, which are comprised of trademarks, customer relationships and developed technologies, are amortized over their estimated useful lives and are reviewed for impairment when indication of potential impairment exists, such as a significant reduction in cash flows associated with the assets.

Goodwill is comprised of the purchase price of business acquisitions in excess of the fair value assigned to the net tangible and identifiable intangible assets acquired. Goodwill is not amortized, but is reviewed for impairment annually as of May 31, or when events or changes in the business environment indicate that the carrying value of the reporting unit may exceed its fair value. A reporting unit, for the purpose of the impairment test, is at or below the operating segment level, and constitutes a business for which discrete financial information is available and regularly reviewed by segment management. As part of the Tech Blend acquisition, goodwill of $31 million was generated and is reflected in the Specialty Compounds reporting unit. The other reporting units with goodwill balances are Reinforcement Materials, Purification Solutions and Fumed Metal Oxides. The separate businesses included within Performance Chemicals are considered separate reporting units. As such, the goodwill balances relative to Performance Chemicals are recorded in the Fumed Metal Oxides and Specialty Compounds reporting units.

For the purpose of the goodwill impairment test, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an initial qualitative assessment identifies that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, an additional quantitative evaluation is performed. Alternatively, the Company may elect to proceed directly to the quantitative goodwill impairment test. If based on the quantitative evaluation the fair value of the reporting unit is less than its carrying amount, a goodwill impairment loss would result. The goodwill impairment loss would be the amount by which the carrying value of the reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit. The fair value of a reporting unit is based on discounted estimated future cash flows. The fair value is also benchmarked against a market approach using the guideline public companies method. The assumptions used to estimate fair value include management’s best estimates of future growth rates, operating cash flows, capital expenditures and discount rates over an estimate of the remaining operating period at the reporting unit level.


Based on the Company’s most recent annual goodwill impairment test performed as of May 31, 2017, the fair values of the Reinforcement Materials and Fumed Metal Oxides reporting units were substantially in excess of their carrying values. The fair value of the Purification Solutions reporting unit exceeded its carrying amount by 13%. The fair value of the Purification Solutions reporting unit includes certain growth assumptions that are primarily dependent on: (1) growth in demand for Cabot’s existing portfolio of activated carbon products and new products developed for environmental and specialty applications; and (2) stable demand in the mercury removal related portion of the business, which is largely dependent on the amount of coal-based power generation used in the United States and the continued regulation of those utilities under the U.S. Mercury and Air Toxics Standards regulation (“MATS”). In April 2017, the U.S. Environmental Protection Agency (“EPA”) indicated that it intends to review the cost benefit analysis previously prepared by the EPA in support of MATS to determine if the EPA should reconsider MATS or some part of it. This analysis continues to be under review by the EPA.In addition, the Company continues to review its strategic options for this business and look for opportunities to better position the business for growth and long-term value enhancement.  Failure to achieve the Company’s projected growth in environmental or specialty applications, actions taken by the EPA related to MATS that decrease demand for the Company’s products, or the result of the strategic options or opportunities the Company may pursue could have a negative impact on the fair value of the Purification Solutions reporting unit, which may lead to impairment.

Long-lived Assets Impairment

The Company’s long-lived assets primarily include property, plant and equipment, intangible assets, long-term investments and assets held for rent. The carrying values of long-lived assets are reviewed for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be recoverable.

To test for impairment of assets, the Company generally uses a probability-weighted estimate of the future undiscounted net cash flows of the assets over their remaining lives to determine if the value of the asset is recoverable. Long-lived assets are grouped with other assets and liabilities at the lowest level for which independent identifiable cash flows are determinable.

An asset impairment is recognized when the carrying value of the asset is not recoverable based on the analysis described above, in which case the asset is written down to its fair value. If the asset doesstatute did not have a readily determinable market value, a discounted cash flow model may be used to determine the fair value of the asset. In circumstances when an asset does not have separately identifiable cash flows, an impairment charge is recorded when the Company no longer intends to use the asset.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation of property, plant and equipment is calculated using the straight-line method over the estimated useful lives. The depreciable lives for buildings, machinery and equipment, and other fixed assets are between twenty and twenty-five years, ten and twenty-five years, and three and twenty-five years, respectively. The cost and accumulated depreciation for property, plant and equipment sold, retired, or otherwise disposed of are removed from the Consolidated Balance Sheets and resulting gains or losses are included in earnings in the Consolidated Statements of Operations. Expenditures for repairs and maintenance are charged to expenses as incurred. Expenditures for major renewals and betterments, which significantly extend the useful lives of existing plant and equipment, are capitalized and depreciated.

Income Tax in Interim Periods

The Company records its tax provision or benefitmaterial effect on an interim basis using an estimated annual effective tax rate. This rate is applied to the current period ordinary income or loss to determine the income tax provision or benefit allocated to the interim period. Losses from jurisdictions for which no benefit can be recognized and the income tax effects of unusual or infrequent items are excluded from the estimated annual effective tax rate and are recognized in the impacted interim period.

Valuation allowances are provided against the future tax benefits that arise from the deferred tax assets in jurisdictions for which no benefit can be recognized. The estimated annual effective tax rate may be significantly impacted by nondeductible expenses and the Company’s projected earnings mix by tax jurisdiction. Adjustments to the estimated annual effective income tax rate are recognized in the period when such estimates are revised.


Inventory Valuation

Inventories are stated at the lower of cost or market. Effective October 1, 2017, the Company changed its method of accounting for its U.S. carbon black inventories from the LIFO method to the FIFO method. Total U.S. inventories accounted for utilizing the LIFO cost flow assumption represented 7% of the Company’s total worldwide inventories as of September 30, 2017 prior to this change in method. The Company believes the FIFO method is preferable because it: (i) conforms the accounting for U.S. carbon black inventories to the Company’s inventory valuation methodology for the majority of its other inventories; (ii) better represents how management assesses and reports on the performance of the Reinforcement Materials and Performance Chemicals operating segments that carry the Company’s U.S. carbon black inventories, as the impact of accounting for this inventory on a LIFO basis has historically been excluded from segment results; (iii) better aligns the accounting for U.S. carbon black inventories with the physical flow of that inventory; and (iv) improves comparability with many of the Company’s peers.

The Company applied this change retrospectively to all prior periods presented. This change resulted in a $17 million increase in retained earnings as of October 1, 2016, from $1,544 million to $1,561 million. In addition, the following financial statement line items in the Company’s Consolidated Balance Sheets as of September 30, 2017 and its Consolidated Financial Statements, of Operations and Consolidated Statements of Cash Flows for the three months ended December 31, 2016 were adjusted as follows:or its share repurchase program.

Consolidated Statements of Operations

 

Three Months Ended December 31

 

 

 

2016

 

 

 

As Originally Reported

 

 

Effect of Change

 

 

As Adjusted

 

 

 

(In millions, except per share amounts)

 

Cost of sales

 

$

454

 

 

$

(2

)

 

$

452

 

Income (loss) from continuing operations before income taxes

   and equity in earnings of affiliated companies

 

$

73

 

 

$

2

 

 

$

75

 

(Provision) benefit for income taxes

 

$

(17

)

 

$

(1

)

 

$

(18

)

Net income (loss)

 

$

58

 

 

$

1

 

 

$

59

 

Net income (loss) attributable to Cabot Corporation

 

$

54

 

 

$

1

 

 

$

55

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

   Basic

 

$

0.85

 

 

$

0.02

 

 

$

0.87

 

   Diluted

 

$

0.85

 

 

$

0.01

 

 

$

0.86

 

Consolidated Balance Sheets

 

September 30, 2017

 

 

 

As Originally Reported

 

 

Effect of Change

 

 

As Adjusted

 

 

 

(In millions)

 

Inventories

 

$

396

 

 

$

37

 

 

$

433

 

Deferred income taxes (assets)

 

$

250

 

 

$

(13

)

 

$

237

 

Retained earnings

 

$

1,683

 

 

$

24

 

 

$

1,707

 

Consolidated Statements of Cash Flows

 

Three Months Ended December 31

 

 

 

2016

 

 

 

As Originally Reported

 

 

Effect of Change

 

 

As Adjusted

 

 

 

(In millions)

 

Net income (loss)

 

$

58

 

 

$

1

 

 

$

59

 

Deferred tax provision (benefit)

 

$

(2

)

 

$

1

 

 

$

(1

)

Inventories

 

$

(34

)

 

$

(2

)

 

$

(36

)

If the Company had continued to account for its U.S. carbon black inventories under LIFO, there would have been an impact of less than $1 million to Cost of sales, (Provision) for income taxes and Net (loss) attributable to Cabot Corporation, and an increase of $0.01 in both basic and diluted loss per common share in the Consolidated Statements of Operations for the three months ended December 31, 2017. The impact to the Consolidated Balance Sheets as of December 31, 2017 would have been a decrease of $37 million in Inventories, an increase of $13 million in Deferred income taxes, and a decrease of $24 million in Retained earnings.

The cost of Specialty Fluids inventories that are classified as assets held for rent is determined using the average cost method. The cost of all other inventories is determined using the FIFO method.

Cabot periodically reviews inventory for both potential obsolescence and potential declines in anticipated selling prices. In this review, the Company makes assumptions about the future demand for and market value of the inventory, and based on these assumptions estimates the amount of any obsolete, unmarketable, slow moving, or overvalued inventory. Cabot writes down the value of these inventories by an amount equal to the difference between the cost of the inventory and its estimated net realizable value.


Pensions and Other Postretirement Benefits

The Company recognizes the funded status of defined benefit pension and other postretirement benefit plans as an asset or liability. This amount is defined as the difference between the fair value of plan assets and the benefit obligation. The Company is required to recognize as a component of other comprehensive income (loss), net of tax, the actuarial gains/losses and prior service costs/credits that arise but were not previously required to be recognized as components of net periodic benefit cost. Other comprehensive income (loss) is adjusted as these amounts are later recognized in income as components of net periodic benefit cost.

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) (“AOCI”), which is included as a component of stockholders’ equity, includes unrealized gains or losses on available-for-sale marketable securities and derivative instruments, currency translation adjustments in foreign subsidiaries, translation adjustments on foreign equity securities and minimum pension liability adjustments.

Recently Adopted Accounting Standards

In March 2016, the Financial Accounting Standards Board (“FASB”) issued a new standard that amends the accounting standard for stock compensation by simplifying several aspects of the accounting for employee share-based payment transactions, including the related accounting for income taxes, forfeitures, and the withholding of shares to satisfy the employer’s tax withholding requirements, as well as classification in the statements of cash flows. The Company adopted the standard on October 1, 2017. The following guidance was updated under the new standard, and its impact to Cabot is described below:

When accounting for forfeitures the Company may elect to estimate the number of forfeitures to be recognized over the term of an award, which was also permitted under the previous guidance, or account for forfeitures as they occur. The Company elected to modify its accounting policy and account for forfeitures as they occur. The Company applied the accounting change on a modified retrospective basis, which resulted in a cumulative-effect charge of less than $1 million to Retained earnings as of October 1, 2017.

Excess tax benefits or deficiencies related to stock compensation that were previously recorded to Additional paid-in capital are now recognized as a discrete tax benefit or expense in (Provision) benefit for income taxes within the Consolidated Statements of Operations. The impact on the (Provision) benefit for income taxes was a discrete tax benefit of $1 million during the first three months of fiscal 2018.

Excess tax benefits are no longer reclassified out of cash flows from operating activities to financing activities in the Consolidated Statement of Cash Flows. The Company elected to apply this cash flow presentation requirement retrospectively, which resulted in the reclassification of $5 million of tax benefit from share-based compensation awards from cash flows from financing activities to cash flows from operating activities in the Consolidated Statements of Cash Flows for the three months ended December 31, 2016.

Cash paid by an employer when directly withholding shares for tax withholding purposes are required to be classified as a financing activity in the Consolidated Statements of Cash Flows. This method of presentation is consistent with the Company's historical presentation.

In August 2017,November 2022, the FASB issued a new standard that amendson the hedge accounting recognition and presentation requirements under hedge accounting.disclosure of supplier financing programs. The new standard will make more financialrequires qualitative and nonfinancial hedging strategies eligiblequantitative disclosure as to the nature and potential magnitude of such programs in addition to program activity and changes for hedge accounting, amends the presentation and disclosure requirements, and simplifies how companies assess effectiveness. The Company adopted the standard on October 1, 2017. The adoption of this standard did not impact the Company’s consolidated financial statements.

Recent Accounting Pronouncements

In May 2014, the FASB issued a new standard that amends the existing accounting standards for revenue recognition.periods presented. The standard requires entities to recognize revenue when they transfer promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. This standard is applicableeffective for fiscal years beginning after December 15, 2017. The Company has completed its preliminary assessment of the new standard, which included reviewing a sample of contracts across the Company’s four business segments. Based on this assessment, the Company does not expect adoption of this standard to have a material impact on how it recognizes revenue. The Company is continuing its assessment of the new standard and preparing to implement the updates that will be necessary to its revenue recognition policy, internal controls, processes and financial statement disclosures. The Company will adopt this standard on October 1, 2018 and expects to apply a modified retrospective approach.


In February 2016, the FASB issued a new standard for the accounting for leases. This new standard requires lessees to recognize assets and liabilities for most leases, but recognize expenses on their income statements in a manner that is similar to the current accounting treatment for leases. The standard is applicable for fiscal years beginning after December 15, 2018 and for interim periods within those years,2022 and early adoption is permitted. The Company expects to adopt the standard on October 1, 2019. The Company is currently evaluating the timing of adoption and the impact of the adoption of this standard on its consolidated financial statements.Consolidated Financial Statements.

In August 2016, the FASB issued final amendments to clarify how entities should classify certain cash receipts and cash payments on the statement of cash flows, such as distributions received from equity method investees, proceeds from the settlement of insurance claims, and proceeds from the settlement of corporate-owned life insurance policies. The new standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those years, and early adoption is permitted. The Company is evaluating this standard and the timing of its adoption. The adoption of this standard is not expected to materially impact the Company’s consolidated financial statements.

In March 2017, the FASB issued a new standard that amends the requirements on the presentation of net periodic pension and postretirement benefit cost. Currently, net benefit costs are reported as employee costs within operating income. The new standard requires the service cost component to be presented with other employee compensation costs. The other components will be reported separately outside of operations. The new standard is effective for fiscal years beginning after December 15, 2017. The Company will adopt this standard on October 1, 2018. The adoption of this standard is not expected to materially impact the Company’s consolidated financial statements.

C. Acquisition of Tech Blend

Tokai Carbon (Tianjin) Co.

In November 2017,February 2022, the Company acquired allpurchased 100% of the issued and outstanding shares and cashregistered capital of Tech Blend,Tokai Carbon (Tianjin) Co., a North American producer ofcarbon black masterbatches,manufacturing facility, from Tokai Carbon Group for a preliminarynet purchase price of $65$9 million, paid in cash. The preliminary purchase price is subject to a working capital adjustment, which has not been finalized. The operating results of the business are included in the Company’s Performance Chemicals segment. The acquisition extends the Company’s global footprint in black masterbatch and compounds and provides a platform to serve global customers and grow in conductive formulations. Since the acquisition, Tech Blend revenues totaled approximately $4 million in the two month period ended December 31, 2017.

The Company incurred acquisition costs of less than $1 million through December 31, 2017 associated with the transaction, which are included in Selling and administrative expenses in the Consolidated Statements of Operations.

The allocation of the preliminary purchase price set forth below was based on preliminary estimates of the fair value of assets acquired and liabilities assumed. The Company is continuing to obtain information to complete its valuation of these accounts and the associated tax accounting.

 

 

(In millions)

 

Assets

 

 

 

 

Cash

 

$

1

 

Accounts Receivable

 

 

5

 

Inventories

 

 

3

 

Property, plant and equipment

 

 

7

 

Intangible assets

 

 

31

 

Goodwill

 

 

31

 

Total assets acquired

 

 

78

 

 

 

 

 

 

Liabilities

 

 

 

 

Current liabilities

 

 

(3

)

Deferred tax liabilities

 

 

(10

)

Total liabilities assumed

 

 

(13

)

 

 

 

 

 

Cash consideration paid

 

$

65

 


As part of the preliminary purchase price allocation, the Company determined the separately identifiable intangible assets are comprised of developed technologies of $21 million, which will be amortized over 25 years, trademarks of $2 million, which will be amortized over 10 years, and customer relationships of $8 million, which will be amortized over 12 years. The Company estimated the fair values of the identifiable acquisition-related intangible assets based on projectionsconsisting of cash flows that will arise from those assets. consideration of $14 million, including customary post-closing adjustments, and net of $5 million of cash acquired.

The projected cash flows are discounted to determine the fair value of the assets at the date of acquisition. The determinationexcess of the fair value of the intangiblenet assets acquired required the use of significant judgment with regard to (i) assumptions in the discounted cash flow model used and (ii) determination of the useful lives of the developed technologies, trademarks, and customer relationships.

The excess of the preliminary purchase price over the fair value of the tangible net assets and intangible assets acquiredpurchase price was recorded as goodwill.a gain of $24 million for the three months ended March 31, 2022. The goodwill recognized is attributableGain on bargain purchase of a business arose primarily due to equipment upgrades required after the growth and operating synergies thatpurchase to continue to utilize the existing assets.

10


D. Divestitures

Sale of Purification Solutions Business

In March 2022, the Company expectscompleted the sale of its Purification Solutions business, a reporting segment of the Company, to realize from this acquisition. Goodwill generated froman affiliate of funds advised by One Equity Partners for total cash proceeds of $85 million, net of $7 million cash transferred. The Company recognized a pre-tax impairment charge of $197 million during the acquisition will not be deductible for tax purposes.

D. Employee Benefit Plans

Net periodic defined benefit pensionfirst quarter of fiscal 2022 and other postretirement benefit costs includea pre-tax loss on sale of the following:Purification Solutions business of $10 million during fiscal 2022. The purchase price of the Purification Solutions business was subject to customary post-closing adjustments, which were finalized during the first quarter of fiscal 2023 and resulted in an additional pre-tax loss on sale of $3 million.

 

 

Three Months Ended December 31

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

 

Pension Benefits

 

 

Postretirement Benefits

 

 

 

U.S.

 

 

Foreign

 

 

U.S.

 

 

Foreign

 

 

U.S.

 

 

Foreign

 

 

U.S.

 

 

Foreign

 

 

 

(In millions)

 

Service cost

 

$

 

 

$

2

 

 

$

 

 

$

2

 

 

$

 

 

$

 

 

$

 

 

$

 

Interest cost

 

 

1

 

 

 

2

 

 

 

1

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

Expected return on plan assets

 

 

(2

)

 

 

(4

)

 

 

(3

)

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of prior service credit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Amortization of actuarial loss

 

 

 

 

 

1

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

Net periodic benefit (credit) cost

 

$

(1

)

 

$

1

 

 

$

(2

)

 

$

1

 

 

$

(1

)

 

$

 

 

$

 

 

$

 

E. Goodwill and Intangible Assets

The carrying amount of goodwill attributable to each reportable segment with goodwill balances and the changes in those balances during the three month periodnine months ended December 31, 2017June 30, 2023 are as follows:

 

 

Reinforcement
Materials

 

 

Performance
Chemicals

 

 

Total

 

 

 

(In millions)

 

Balance at September 30, 2022

 

$

46

 

 

$

83

 

 

$

129

 

Foreign currency impact

 

 

6

 

 

 

1

 

 

$

7

 

Balance at June 30, 2023

 

$

52

 

 

$

84

 

 

$

136

 

 

 

Reinforcement

Materials

 

 

Performance

Chemicals

 

 

Purification

Solutions

 

 

Total

 

 

 

(In millions)

 

Balance at September 30, 2017

 

$

53

 

 

$

9

 

 

$

92

 

 

$

154

 

Goodwill acquired(1)

 

 

 

 

 

31

 

 

 

 

 

 

31

 

Foreign currency impact

 

 

(2

)

 

 

1

 

 

 

 

 

 

(1

)

Balance at December 31, 2017

 

$

51

 

 

$

41

 

 

$

92

 

 

$

184

 

(1)

Consists of goodwill acquired in the acquisition of Tech Blend as described in Note C.

The following table provides information regarding the Company’s intangible assets:

 

 

December 31, 2017

 

 

September 30, 2017

 

 

 

Gross

Carrying

Value

 

 

Accumulated

Amortization

 

 

Net

Intangible

Assets

 

 

Gross

Carrying

Value

 

 

Accumulated

Amortization

 

 

Net

Intangible

Assets

 

 

 

(In millions)

 

Intangible assets with finite lives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Developed technologies(1)

 

$

72

 

 

$

(7

)

 

$

65

 

 

$

49

 

 

$

(7

)

 

$

42

 

Trademarks(1)

 

 

18

 

 

 

(2

)

 

 

16

 

 

 

16

 

 

 

(1

)

 

 

15

 

Customer relationships(1)

 

 

98

 

 

 

(15

)

 

 

83

 

 

 

94

 

 

 

(14

)

 

 

80

 

Total intangible assets

 

$

188

 

 

$

(24

)

 

$

164

 

 

$

159

 

 

$

(22

)

 

$

137

 

 

 

June 30, 2023

 

 

September 30, 2022

 

 

 

Gross
Carrying
Value

 

 

Accumulated
Amortization

 

 

Net
Intangible
Assets

 

 

Gross
Carrying
Value

 

 

Accumulated
Amortization

 

 

Net
Intangible
Assets

 

 

 

(In millions)

 

Intangible assets with finite lives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Developed technologies

 

$

34

 

 

$

(9

)

 

$

25

 

 

$

34

 

 

$

(8

)

 

$

26

 

Trademarks

 

 

2

 

 

 

(1

)

 

$

1

 

 

 

2

 

 

 

(1

)

 

 

1

 

Customer relationships

 

 

67

 

 

 

(30

)

 

$

37

 

 

 

59

 

 

 

(23

)

 

 

36

 

Total intangible assets

 

$

103

 

 

$

(40

)

 

$

63

 

 

$

95

 

 

$

(32

)

 

$

63

 

(1)

The changes in the gross carrying value of the Developed technologies, Trademarks, and Customer relationships intangible assets are primarily due to the acquisition of Tech Blend as described in Note C.


Intangible assets are amortized over their estimated useful lives, which range between ten and twenty-five years, with a weighted average amortization period of approximately nineteen years.seventeen years. Amortization expense for botheach of the three month periodsmonths ended December 31, 2017June 30, 2023 and 20162022 was $2$1 million. Amortization expense was $4 million and $5 million for the nine months ended June 30, 2023 and 2022, respectively. Amortization expense is included in Cost of sales, and Selling and administrative expenses and Research and technical expenses in the Consolidated Statements of Operations. Total amortization expense is estimated to be approximately $10$6 million each year for the next five fiscal years.

11


F. Stockholders’ Equity

In January 2015, the Board of Directors authorized Cabot to repurchase up to five million shares of its common stock in the open market or in privately negotiated transactions. As of December 31, 2017, under the current authorization, Cabot has repurchased 3,491,902 shares of its common stock and 1,508,098 shares remain available for repurchase. The Company retired the repurchased shares and recorded the excess of the purchase price over par value to additional paid-in capital until such amount was reduced to zero and then charged the remainder against retained earnings.

During the first three months of fiscal 2018 and 2017, Cabot paid cash dividends in the amount of $0.315 and $0.30, respectively, per share of common stock, with a total cost of $20 million and $19 million, respectively.

Noncontrolling Interest

The following table illustrates the noncontrolling interest activity for the periods presented:

 

 

2017

 

 

2016

 

 

 

(In millions)

 

Balance at September 30

 

$

121

 

 

$

98

 

Net income (loss) attributable to noncontrolling interests

 

 

10

 

 

 

4

 

Foreign currency translation adjustment attributable to

   noncontrolling interests, net of tax

 

 

3

 

 

 

(4

)

Dividends declared to noncontrolling interests

 

 

(10

)

 

 

(7

)

Balance at December 31

 

$

124

 

 

$

91

 

None of the dividends declared to noncontrolling interests during the three months ended December 31, 2017 were paid during the period. All of the dividends declared to noncontrolling interests during the three months ended December 31, 2016 were paid later in the fiscal year.

G.F. Accumulated Other Comprehensive Income (Loss) (“AOCI”)

Comprehensive income combines net income (loss) and other comprehensive income items, which are reported as components of stockholders’ equity in the accompanying Consolidated Balance Sheets.

Changes in each component of AOCI, net of tax, were as follows:

 

 

Currency
Translation
Adjustment

 

 

Pension and Other
Postretirement
Benefit Liability
Adjustments

 

 

Total

 

 

 

(In millions)

 

Balance at September 30, 2022, attributable to Cabot Corporation

 

$

(429

)

 

$

(10

)

 

$

(439

)

Other comprehensive income (loss) before reclassifications

 

 

88

 

 

 

 

 

 

88

 

Amounts reclassified from AOCI

 

 

(1

)

 

 

 

 

 

(1

)

Less: Other comprehensive income (loss) attributable to
   noncontrolling interests

 

 

6

 

 

 

 

 

 

6

 

Balance at December 31, 2022, attributable to Cabot Corporation

 

 

(348

)

 

 

(10

)

 

 

(358

)

Other comprehensive income (loss) before reclassifications

 

 

49

 

 

 

 

 

 

49

 

Amounts reclassified from AOCI

 

 

(1

)

 

 

(1

)

 

 

(2

)

Less: Other comprehensive income (loss) attributable to
   noncontrolling interests

 

 

3

 

 

 

 

 

 

3

 

Balance at March 31, 2023, attributable to Cabot Corporation

 

$

(303

)

 

$

(11

)

 

$

(314

)

Other comprehensive income (loss) before reclassifications

 

 

(20

)

 

 

1

 

 

 

(19

)

Amounts reclassified from AOCI

 

 

(1

)

 

 

(1

)

 

 

(2

)

Less: Other comprehensive income (loss) attributable to
   noncontrolling interests

 

 

(6

)

 

 

 

 

 

(6

)

Balance at June 30, 2023, attributable to Cabot Corporation

 

$

(318

)

 

$

(11

)

 

$

(329

)

 

 

Currency

Translation

Adjustment

 

 

Unrealized

Gains on

Investments

 

 

Pension and Other

Postretirement

Benefit Liability

Adjustments

 

 

Total

 

 

 

(In millions)

 

Balance at September 30, 2017, attributable to Cabot Corporation

 

$

(204

)

 

$

2

 

 

$

(57

)

 

$

(259

)

Other comprehensive income (loss) before reclassifications

 

 

 

 

 

 

 

 

 

 

 

 

Amounts reclassified from AOCI

 

 

(1

)

 

 

 

 

 

 

 

 

(1

)

Less: Other comprehensive income (loss) attributable to

   noncontrolling interests

 

 

3

 

 

 

 

 

 

 

 

 

3

 

Balance at December 31, 2017, attributable to Cabot Corporation

 

$

(208

)

 

$

2

 

 

$

(57

)

 

$

(263

)


The amounts reclassified out of AOCI and into the Consolidated Statements of Operations in each of the three and nine months ended December 31, 2017June 30, 2023 and 20162022 were asare follows:

 

 

Affected Line Item in the Consolidated

 

Three Months Ended June 30

 

 

Nine Months Ended June 30

 

 

 

Statements of Operations

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

(In millions)

 

 

 

 

 

 

 

Derivatives: net investment hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Gains) losses reclassified to interest expense

 

Interest expense

 

$

(1

)

 

$

(1

)

 

$

(4

)

 

$

(4

)

(Gains) losses excluded from effectiveness testing and amortized to interest expense

 

Interest expense

 

 

 

 

 

 

 

 

1

 

 

 

1

 

Release of currency translation adjustment

 

Loss on sale of business and asset impairment charge

 

 

 

 

 

 

 

 

 

 

 

33

 

Pension and other postretirement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Release of actuarial losses and prior service cost (credit)

 

Loss on sale of business and asset impairment charge

 

 

 

 

 

 

 

 

 

 

 

1

 

Amortization of actuarial losses and prior service cost (credit)

 

Other income (expense)

 

 

(1

)

 

 

1

 

 

 

(2

)

 

 

1

 

Total before tax

 

 

 

$

(2

)

 

$

 

 

$

(5

)

 

$

32

 

12


 

 

Affected Line Item in the Consolidated

 

Three Months Ended December 31

 

 

 

Statements of Operations

 

2017

 

 

2016

 

 

 

 

 

(In millions)

 

Derivatives: net investment hedges

 

 

 

 

 

 

 

 

 

 

(Gains) losses reclassified to interest expense

 

 

 

$

(1

)

 

$

 

Pension and other postretirement

   benefit liability adjustment

 

 

 

 

 

 

 

 

 

 

Amortization of actuarial losses

 

Net Periodic Benefit Cost - see

   Note D for details

 

 

1

 

 

 

1

 

Amortization of prior service credit

 

Net Periodic Benefit Cost - see

   Note D for details

 

 

(1

)

 

 

 

Total before tax

 

 

 

 

(1

)

 

 

1

 

Tax impact

 

Provision (benefit) for income

   taxes

 

 

 

 

 

 

Total after tax

 

 

 

$

(1

)

 

$

1

 

G. Contingencies

H. Commitments and Contingencies

Purchase Commitments

Cabot has entered into long-term purchase agreements primarily for the purchase of raw materials. Under certain of these agreements, the quantity of material being purchased is fixed, but the price paid changes as market prices change. For these purchase commitments, the amounts included in the table below are based on market prices at December 31, 2017, which may differ from actual market prices at the time of purchase.

 

 

Payments Due by Fiscal Year

 

 

 

Remainder of

Fiscal 2018

 

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

Thereafter

 

 

Total

 

 

 

(In millions)

 

Reinforcement Materials

 

$

253

 

 

$

264

 

 

$

153

 

 

$

114

 

 

$

114

 

 

$

1,537

 

 

$

2,435

 

Performance Chemicals

 

 

48

 

 

 

58

 

 

 

55

 

 

 

54

 

 

 

43

 

 

 

468

 

 

 

726

 

Purification Solutions

 

 

7

 

 

 

7

 

 

 

6

 

 

 

1

 

 

 

 

 

 

 

 

 

21

 

Total

 

$

308

 

 

$

329

 

 

$

214

 

 

$

169

 

 

$

157

 

 

$

2,005

 

 

$

3,182

 

Guarantee Agreements

Cabot has provided certain indemnities pursuant to which it may be required to make payments to an indemnified party in connection with certain transactions and agreements. In connection with certain acquisitions and divestitures, Cabot has provided routine indemnities with respect to such matters as environmental, tax, insurance, product and employee liabilities. In connection with various other agreements, including service and supply agreements with customers, Cabot has provided indemnities for certain contingencies and routine warranties. Cabot is unable to estimate the maximum potential liability for these types of indemnities as a maximum obligation is not explicitly stated in most cases and the amounts, if any, are dependent upon the outcome of future contingent events, the nature and likelihood of which cannot be reasonably estimated. The duration of the indemnities vary, and in many cases are indefinite. Cabot has not recorded any liability for these indemnities in the consolidated financial statements, except as otherwise disclosed.

Contingencies

Cabot is a defendant, or potentially responsible party, in various lawsuits and environmental proceedings wherein substantial amounts are claimed or at issue.


Environmental Matters

As of both December 31, 2017 and September 30, 2017, Cabot had $12 million reserved for environmental matters. These environmental matters mainly relate to former operations. These reserves represent Cabot’s best estimates of the probable costs to be incurred at those sites where costs are reasonably estimable based on the Company’s analysis of the extent of clean up required, alternative clean-up methods available, abilities of other responsible parties to contribute and its interpretation of laws and regulations applicable to each site. Cash payments related to these environmental matters were less than $1 million in the first three months of both fiscal 2018 and fiscal 2017. Cabot reviews the adequacy of the reserves as circumstances change at individual sites and adjusts the reserves as appropriate. Almost all of Cabot’s environmental issues relate to sites that are mature and have been investigated and studied and, in many cases, are subject to agreed upon remediation plans. However, depending on the results of future testing, changes in risk assessment practices, remediation techniques and regulatory requirements, newly discovered conditions, and other factors, it is reasonably possible that the Company could incur additional costs in excess of environmental reserves currently recorded. Management estimates, based on the latest available information, that any such future environmental remediation costs that are reasonably possible to be in excess of amounts already recorded would be immaterial to the Company’s consolidated financial statements.

Respirator Liabilities

Cabot has exposure in connection with a safety respiratory products business that a subsidiary acquired from American Optical Corporation (“AO”) in an April 1990 asset purchase transaction. The subsidiary manufactured respirators under the AO brand and disposed of that business in July 1995. In connection with its acquisition of the business, the subsidiary agreed, in certain circumstances, to assume a portion of AO’s liabilities, including costs of legal fees together with amounts paid in settlements and judgments, allocable to AO respiratory products used prior to the 1990 purchase by the Cabot subsidiary. In exchange for the subsidiary’s assumption of certain of AO’s respirator liabilities, AO agreed to provide to the subsidiary the benefits of: (i) AO’s insurance coverage for the period prior to the 1990 acquisition and (ii) a former owner’s indemnity of AO holding it harmless from any liability allocable to AO respiratory products used prior to May 1982. As more fully described in the 20172022 10-K, the respirator liabilities generally involve claims for personal injury, including asbestosis, silicosis and coal worker’s pneumoconiosis, allegedly resulting from the use of respirators that are alleged to have been negligently designed and/or labeled. Neither Cabot, nor its past or present subsidiaries, at any time manufactured asbestos or asbestos-containing products. At no time did this respiratory product line represent a significant portion of the respirator market. In addition to Cabot’s subsidiary, other parties are responsible for significant portions of the costs of these respirator liabilities (as defined in the 2022 10-K, the “Payor Group”). On July 26, 2022, one of the members of the Payor Group, Aearo Technologies (“Aearo”), voluntarily filed for Chapter 11 bankruptcy protection with the stated goal of establishing a trust, funded by Aearo and its parent 3M, to satisfy respirator and other unrelated claims determined to be entitled to compensation. On June 9, 2023, the court dismissed Aearo’s bankruptcy case based on motions filed by various creditors in the case. Aearo appealed the decision but did not seek to stay the dismissal, which made the dismissal effective immediately and ended the automatic bankruptcy stay. The Company will continue to monitor Aearo’s appeal; if Aearo's appeal is successful it could reinstate the bankruptcy case.

As of both December 31, 2017 and September 30, 2017, there were approximately 37,000 claimants in pending cases asserting claims against AO in connection with respiratory products. Cabot has a reserve to cover its expected share of liabilityliabilities for existingpending and future respirator liability claims. At December 31, 2017claims, which is included in Other liabilities and Accounts payable and accrued liabilities on the Consolidated Balance Sheets. The Company expects these liabilities to be incurred over a number of years. The reserve balance was $38 million and $39 million at June 30, 2023 and September 30, 2017, the reserve was $17 million and $18 million,2022, respectively. The Company made payments related to its respirator liability of less than $1 million and $1 million in the first three months of fiscal 2018 and fiscal 2017, respectively.

The Company’s current estimate of the cost of its share of existingpending and future respirator liability claims is based on facts and circumstances existing at this time.time, including the number and nature of the remaining claims. Developments that could affect the Company’s estimate include, but are not limited to, (i) significant changes in the number of future claims, (ii) changes in the rate of dismissals without payment of pending claims, (iii) significant changes in the average cost of resolving claims, including potential settlements of groups of claims, (iv) significant changes in the legal costs of defending these claims, (v) changes in the nature of claims received or changes in our assessment of the viability of these claims, (vi) trial and appellate outcomes, (vii) changes in the law and procedure applicable to these claims, (vii)(viii) the financial viability of otherthe parties that contribute to the settlementpayment of respirator claims (viii)and future developments in the now-dismissed Aearo bankruptcy proceedings while Aearo’s appeal is ongoing, (ix) exhaustion or changes in the recoverability of the insurance coverage maintained by certain members of the Payor Group, or a change in the availability of insurance coverage maintained by certain of the other parties that contribute to the settlement of respirator claims, or the indemnity provided by a former owner of the business, (ix)AO, (x) changes in the allocation of costs among the various parties paying legal and settlement costs, and (x)(xi) a determination that the assumptions that were used to estimate Cabot’s share of liability are no longer reasonable. The Company cannot determine the impact of these potential developments on its current estimate of its share of liability for existing and future claims. Accordingly,Because reserves are limited to amounts that are probable and estimable as of a relevant measurement date, and there is inherent difficulty in projecting the actual amountimpact of potential developments on Cabot’s share of liability for these existing and future claims, it is reasonably possible that the liabilities for existing and future claims could change in the near term and that change could be different thanmaterial.

Value-added Tax (“VAT”) Matter

As outlined in Note S, Commitments and Contingencies of the reserved amount.2022 10-K, the Company had filed legal actions challenging VAT related assessments it had received from a non-U.S. taxing authority. At such time, the Company did not believe that it was probable that it would incur a loss related to these matters. However, as the interpretation and application of the VAT rules related to the assessment are an unsettled issue it was reasonably possible to incur a loss. The Company estimated it could incur a charge that ranged between a nil amount and $41 million. In June 2023, the Court of Justice of the European Union issued a judgement that is favorable to the Company’s position in these matters. As a result, the Company believes the possibility it will incur a loss related to these matters is remote.

13


Other Matters

The Company has various other lawsuits, claims and contingent liabilities arising in the ordinary course of its business and with respect to its divested businesses. The Company does not believe that any of these matters will have a material adverse effect on its financial position; however, litigation is inherently unpredictable. Cabot could incur judgments, enter into settlements or revise its expectations regarding the outcome of certain matters, and such developments could have a material impact on its results of operations in the period in which the amounts are accrued or its cash flows in the period in which the amounts are paid.

H. Insurance Recoveries

Pepinster, Belgium

In July 2021, the Company’s Specialty Compounds manufacturing and research and development facility in Pepinster, Belgium experienced significant flooding. Full production, which was temporarily halted, resumed in the second quarter of fiscal 2022.

The Company agreed to a final settlement of the related insurance claim in the second quarter of fiscal 2023 and received the final proceeds in the third quarter of fiscal 2023. During the three months and nine months ended June 30, 2023 the Company received $8 million and $14 million of insurance proceeds, respectively. Of the insurance proceeds received, $12 million related to fixed asset replacement and repairs is included in Cash provided by investing activities and $2 million is included in Cash provided by operating activities for the nine months ended June 30, 2023 in the Consolidated Statements of Cash Flows. During the three and nine months ended June 30, 2023, the Company recognized gains of nil and $9 million and loss recoveries of $4 million and $5 million, respectively, which are included within Cost of sales in the Consolidated Statements of Operations.

During the three and nine months ended June 30, 2022, the Company recorded additional expenses of $1 million and $7 million, respectively, for clean-up costs, inventory, and fixed asset impairments and simultaneously recognized a fully offsetting loss recovery from expected insurance proceeds as the Company expected insurance proceeds in excess of the total incurred costs and policy deductibles. The flood-related expenses and loss recoveries are both included within Cost of sales in the Consolidated Statements of Operations for the three and nine months ended June 30, 2022.


I. Income Tax

Effective Tax Rate

 

Three Months Ended December 31

 

 

2017

 

 

2016

 

 

Three Months Ended June 30

 

 

Nine Months Ended June 30

 

 

(Dollars in millions)

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Provision (benefit) for income taxes

 

$

205

 

 

$

18

 

 

(Dollars in millions)

 

(Provision) benefit for income taxes

 

$

(41

)

 

$

(49

)

 

$

(90

)

 

$

(73

)

Effective tax rate

 

 

224

%

 

 

24

%

 

 

32

%

 

 

32

%

 

 

28

%

 

 

35

%

For the three months and nine months ended December 31, 2017,June 30, 2023, the tax provision(Provision) benefit for income taxes included a net discrete tax expense of $188$2 million of which $185and $3 million, comprised the impact of the enactment of H.R. 1 (the “Act”), commonly referred to as the Tax Cuts and Jobs Act of 2017.respectively. For the three and nine months ended December 31, 2016,June 30, 2022, the (Provision) benefit for income taxes included a net discrete tax provision includedexpense of $14 million and a net discrete tax benefit of less than $1$22 million, respectively, after valuation allowance. The $22 million net benefit is primarily comprised of a benefit from releases of reserves for uncertain$36 million related to the Purification Solutions business divestiture, and a tax positions, partially offset by a net charge from excludible foreign exchange gains and losses.expense of $8 million related to withholding tax accruals on historic earnings due to changes in indefinite reinvestment assertions on certain entities.

Tax ReformIncome tax in Interim Periods

On December 22, 2017,The Company records its tax provision or benefit on an interim basis using an estimated annual effective tax rate. This rate is applied to the U.S. enacted significant changescurrent period ordinary income or loss to federaldetermine the income tax law affecting the Company, including a permanent reduction of the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018. Cabot expects that these changes will positively impact the Company's future after-tax earnings in the U.S., primarily dueprovision or benefit allocated to the lower federal statutory tax rate and the establishment of a full participation exemption regime for foreign earnings. In transitioning to this new full participation exemption regime for foreign earnings, Cabot is subject to a one-time tax for the deemed repatriation of certain foreign earnings. A discussion of certain provisions of the Act and the Company’s preliminary assessment of the impact of such provisions on its consolidated financial statements is set forth below.

Uncertain Impacts of the Act

interim period. The accounting standard for income taxes (“ASC 740”) requires the Company to recognize the effect of the tax law changes under the Act in the first quarter of fiscal 2018. However, due to the potential uncertainty or diversity of views in accounting for the impact of the Act, the Securities and Exchange Commission staff issued Staff Accounting Bulletin 118 (“SAB 118”) to address the application of U.S. GAAP in situations where a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of unusual or infrequent items are excluded from the Act.

In particular, SAB 118 clarifies thatestimated annual effective tax rate and are recognized in the impactimpacted interim period. Losses from jurisdictions for which no benefit can be recognized are excluded from the overall computations of the Act must be accounted forestimated annual effective tax rate and reporteda separate estimated annual effective tax rate is computed and applied to ordinary income or loss in one of three ways: (1) by reflecting the loss jurisdiction.

Valuation allowances are provided against the future tax effects ofbenefits that arise from the Actdeferred tax assets in jurisdictions for which it is expected that no benefit can be recognized. The estimated annual effective tax rate may be significantly impacted by nondeductible expenses and the accounting is complete; (2)Company’s projected earnings mix by reporting provisional amounts for those specifictax jurisdiction. Adjustments to the estimated annual effective income tax effects of the Act for which the accounting is incomplete but a reasonable estimate can be determined, with such provisional amounts (or adjustments to provisional amounts) identified in the measurement period, as defined therein, being included as an adjustment to tax expense or benefit from continuing operationsrate are recognized in the period the amountswhen such estimates are determined; or (3) where the income tax effects cannot be reasonably estimated, no provisional amounts should be reported and the registrant should continue to apply ASC 740 based on the provisions of the tax laws that were in effect immediately prior to the enactment of the Act. The measurement period begins in the reporting period that includes the Act’s enactment date and ends when the accounting has been completed, but not beyond one year from the enactment date.revised.

Due to various uncertainties as described below, the Company has not completed its accounting for certain tax impacts of the Act. However, as provided in SAB 118, reasonable estimates have been made and recorded as provisional amounts in its financial results for the first quarter of fiscal 2018. A discussion of the material impacts of tax law changes under the Act for which the accounting is incomplete follows:14


Revaluation of Deferred Tax Assets: Due to the Company’s September 30 fiscal year-end, the reduction in the corporate tax rate to 21% effective January 1, 2018 will apply on a pro-rata basis for fiscal 2018, resulting in a U.S. federal statutory tax rate of 24.53% for the fiscal year. The reduction requires the Company to revalue its deferred tax assets and liabilities to account for the future financial impact of these amounts.

As of December 31, 2017, the accounting for this item was incomplete. Additional information is necessary in order to complete the accounting for this item, including: (1) further analysis regarding the impact of the reduced rate on the reversal of deferred tax assets and liabilities for the full fiscal 2018 at the pro-rata rate, and (2) the true-up of deferred tax assets and liabilities upon the filing of the U.S. income tax return for fiscal 2017. However, a provisional tax expense of $13 million has been recorded in the first quarter of fiscal 2018 related to the impact of the rate change on deferred tax balances.


Deemed Repatriation: In general, the Act provides that U.S. shareholders of a “specified foreign corporation”, as defined in the Act, must include in U.S. taxable income its pro-rata share of certain undistributed and previously untaxed post-1986 foreign earnings and profits (“E&P”). The amount of E&P taken into account is the amount determined either as of November 2, 2017 or December 31, 2017, whichever is greater. This inclusion is offset by a deduction that results in an effective U.S. federal income tax rate of either 15.5% or 8%. The 15.5% rate applies to the “aggregate cash position”, as defined in the Act, of the specified foreign corporations and the 8% rate applies to the extent that the income inclusion exceeds the aggregate cash position. The aggregate cash position is determined as the cash position either as of September 30, 2018, or the average of September 30, 2016 and September 30, 2017, whichever is greater. Finally, the U.S. cash tax impact of the deemed repatriation inclusion may be offset by the utilization of foreign tax credits, which are pro-rated to reflect the deduction described above.

As of December 31, 2017, the accounting for this item is incomplete. Significant additional information will need to be obtained and analyzed in order to complete the accounting for this item. This includes: (1) the determination of the full fiscal 2018 E&P and foreign tax credits of the specified foreign corporations; (2) the true-up of the pre-fiscal 2018 E&P and foreign tax credits of the specified foreign corporations upon the filing of the U.S. income tax return for fiscal 2017 (tax year 2016); (3) establishing the appropriate foreign exchange rate for the full fiscal year 2018 used to translate foreign taxes; (4) clarification of the state income tax impact of the repatriation, including guidance from states in which Cabot has a taxable presence on the extent to which the state will conform with the provisions of the Act, as well as determination of the apportionment of the Company’s income for the full fiscal year 2018; (5) uncertainty as to which of the alternative aggregate cash position measurement dates will apply to the Company; and (6) further guidance from the U.S. Treasury Department on the interpretation and application of the rules.

In the absence of such additional information, Cabot has made a reasonable estimate of the financial impact of this item. The Company has recorded a provisional charge of $149 million during the first quarter of fiscal 2018 to the (Provision) benefit for income taxes for deemed repatriation. This amount is expected to be a fully non-cash charge due to the Company’s existing tax attributes.

Deferred Tax Liability on Unremitted Earnings: In addition to the deemed repatriation of foreign earnings, going forward, the Act effectively establishes a participation exemption system of taxation that, in general, provides a 100% deduction for dividends from specified foreign corporations. However, the Company is still required to provide non-U.S. withholding taxes, as well as other potential tax impacts, on undistributed earnings of non-U.S. subsidiaries that it does not consider to be indefinitely reinvested.

As of December 31, 2017, the accounting for this item is incomplete. Additional information necessary to complete the accounting includes: (1) finalization of U.S. previously taxed income resulting from the deemed repatriation of foreign earnings; (2) further analysis of the amount of distributable reserves, including treatment thereof under local law, available in various non-U.S. subsidiaries; (3) clarification of the state income tax impact of unremitted earnings that are not indefinitely reinvested; and (4) evolving interpretations of the U.S. GAAP rules applicable to the Act. As a result of the Act, the Company has made certain changes to its indefinite reinvestment assertion and has made a reasonable estimate of the financial impact of this item. The Company has recorded a provisional amount of $23 million during the first quarter of fiscal 2018 to its tax expense for this item.Uncertainties

The Company will continue to evaluate the impact of the Act on its business and consolidated financial statements and will make any adjustments to its provisional amounts in subsequent reporting periods upon obtaining, preparing or analyzing additional information affecting the income tax effects initially reported as a provisional amount.

Accounting for the Global Intangible Low-Taxed Income Tax

Under the Act, Cabot may be subject to a tax on global intangible low-taxed income (“GILTI”) in future years. In general, GILTI is a 10.5% tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. This tax is effective for taxable years beginning after December 31, 2017. The Company has not yet adopted an accounting policy with respect to whether (i) to recognize deferred taxes for temporary differences (including outside basis differences) expected to reverse as GILTI or (ii) to recognize these temporary differences as period costs if and when incurred.


Other Material Provisions of the Act Effective in Future Periods

The Act also contains a number of other provisions that may have a material financial impact on the Company in the future. These include base erosion anti-abuse tax, foreign derived intangible income and the interest expense limitation under Internal Revenue Code section 163(j). These tax law changes apply only to tax years beginning after December 31, 2017. Therefore, the Company has not and will not record any amounts related to these items in its fiscal 2018 financial results.

Uncertainties

Cabot and certain subsidiaries are under audit in a number of jurisdictions. In addition, certain statutes of limitations are scheduled to expire in the near future. It is reasonably possible that a further change in the unrecognized tax benefits may also occur within the next twelve months related to the settlement of one or more of these audits or the lapse of applicable statutes of limitations. However, an estimated range of the impact on the unrecognized tax benefits cannot be quantified at this time.

Cabot files U.S. federal and state and non-U.S. income tax returns in jurisdictions with varying statutes of limitations. The 20132020 through 20152022 tax years generally remain subject to examination by the United States Internal Revenue ServiceIRS and various tax years from 20052013 through 20152022 remain subject to examination by the respective state tax authorities. In significant non-U.S.foreign jurisdictions, various tax years from 20022005 through 20162022 remain subject to examination by their respective tax authorities. As of December 31, 2017, Cabot’s significant non-U.S. jurisdictions include Canada, China, France, Germany, Italy, Japan, and the Netherlands.

During the three and nine months ended December 31, 2017 and 2016,June 30, 2023, Cabot released uncertain tax positions of $1 milliona nil amount and $2$1 million, respectively, due to the expirationsexpiration of statutes of limitations in various jurisdictions. During the three and nine months ended June 30, 2022, Cabot released uncertain tax positions of a nil amount and $2 million, respectively, due to the expiration of statutes of limitations in various jurisdictions.

15


J. Earnings Per Share

The following tables summarize the components of the basic and diluted earnings (loss) per common share (“EPS”) computations:

 

 

Three Months Ended June 30

 

 

Nine Months Ended June 30

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(In millions, except per share amounts)

 

Basic EPS:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Cabot
   Corporation

 

$

82

 

 

$

97

 

 

$

211

 

 

$

115

 

Less: Dividends and dividend equivalents
   to participating securities

 

 

 

 

 

 

 

 

1

 

 

 

1

 

Less: Undistributed earnings allocated to
   participating securities
(1)

 

 

1

 

 

 

1

 

 

 

3

 

 

 

1

 

Earnings (loss) allocated to common
   shareholders (numerator)

 

$

81

 

 

$

96

 

 

$

207

 

 

$

113

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares and
   participating securities outstanding

 

 

57.3

 

 

 

57.2

 

 

 

57.5

 

 

 

57.4

 

Less: Participating securities(1)

 

 

1.2

 

 

 

0.9

 

 

 

1.3

 

 

 

0.9

 

Adjusted weighted average common
   shares (denominator)

 

 

56.1

 

 

 

56.3

 

 

 

56.2

 

 

 

56.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share - basic:

 

$

1.44

 

 

$

1.70

 

 

$

3.68

 

 

$

2.00

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS:

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) allocated to common
   shareholders

 

$

81

 

 

$

96

 

 

$

207

 

 

$

113

 

Plus: Earnings allocated to
   participating securities

 

 

1

 

 

 

1

 

 

 

4

 

 

 

2

 

Less: Adjusted earnings allocated to
   participating securities
(2)

 

 

1

 

 

 

1

 

 

 

4

 

 

 

2

 

Earnings (loss) allocated to common
   shareholders (numerator)

 

$

81

 

 

$

96

 

 

$

207

 

 

$

113

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted weighted average common
   shares outstanding

 

 

56.1

 

 

 

56.3

 

 

 

56.2

 

 

 

56.5

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

Common shares issuable(3)

 

 

0.4

 

 

 

0.5

 

 

 

0.5

 

 

 

0.4

 

Adjusted weighted average common
   shares (denominator)

 

 

56.5

 

 

 

56.8

 

 

 

56.7

 

 

 

56.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share - diluted:

 

$

1.43

 

 

$

1.69

 

 

$

3.65

 

 

$

1.99

 

 

 

Three Months Ended December 31

 

 

 

2017

 

 

2016

 

 

 

(In millions, except per share amounts)

 

Basic EPS:

 

 

 

 

 

 

 

 

Net income (loss) attributable to Cabot

   Corporation

 

$

(122

)

 

$

55

 

Earnings (loss) allocated to common

   shareholders (numerator)

 

$

(122

)

 

$

55

 

 

 

 

 

 

 

 

 

 

Weighted average common shares and

   participating securities outstanding

 

 

62.6

 

 

 

62.7

 

Less: Participating securities(1)

 

 

0.7

 

 

 

0.5

 

Adjusted weighted average common

   shares (denominator)

 

 

61.9

 

 

 

62.2

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share - basic:

 

$

(1.98

)

 

$

0.87

 

 

 

 

 

 

 

 

 

 

Diluted EPS:

 

 

 

 

 

 

 

 

Earnings (loss) allocated to common

   shareholders (numerator)

 

$

(122

)

 

$

55

 

 

 

 

 

 

 

 

 

 

Adjusted weighted average common

   shares outstanding

 

 

61.9

 

 

 

62.2

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

Common shares issuable(3)

 

 

 

 

 

0.6

 

Adjusted weighted average common

   shares (denominator)

 

 

61.9

 

 

 

62.8

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share - diluted:

 

$

(1.98

)

 

$

0.86

 

(1)
Participating securities consist of shares underlying unvested time-based restricted stock units (the "TSUs"), earned and unvested performance-based restricted stock units (the "PSUs", and referred to in this note collectively with the TSUs as the "RSUs"), stock units accounted for under the Supplemental 401(k) Plan portion of the Company’s Deferred Compensation and Supplemental Retirement Plan, and stock units and phantom stock units accounted for under the Company’s Non-Employee Directors’ Deferral Plan. The holders of RSUs are entitled to receive dividend equivalents, payable in cash, to the extent dividends are paid on the outstanding shares of Common Stock, and equal in value to the dividends that would have been paid in respect of the Common Stock underlying the RSU. The accounts of holders of stock units and phantom stock units are credited with dividend equivalents, which are payable, in stock or cash, as the case may be, with the distribution of account balances.

16

(1)

Participating securities consist of shares underlying outstanding and achieved performance-based restricted stock units issued during and after fiscal 2017 and all unvested time-based restricted stock units.


Undistributed earnings are the earnings which remain after dividends declared during the period are assumed to be distributed to the common and participating shareholders. Undistributed earnings are allocated to common and participating shareholders on the same basis as dividend distributions. The calculation of undistributed earnings is as follows:

 

 

Three Months Ended December 31

 

 

 

2017

 

 

2016

 

 

 

(In millions)

 

Calculation of undistributed earnings (loss):

 

 

 

 

 

 

 

 

Net income (loss) attributable to Cabot Corporation

 

$

(122

)

 

$

55

 

Less: Dividends declared on common stock

 

 

20

 

 

 

19

 

Undistributed earnings (loss)

 

$

(142

)

 

$

36

 

 

 

 

 

 

 

 

 

 

Allocation of undistributed earnings (loss):

 

 

 

 

 

 

 

 

Undistributed earnings (loss) allocated to

   common shareholders

 

$

(142

)

 

$

36

 

Undistributed earnings (loss)

 

$

(142

)

 

$

36

 

 

 

Three Months Ended June 30

 

 

Nine Months Ended June 30

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(In millions)

 

Calculation of undistributed earnings (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Cabot Corporation

 

$

82

 

 

$

97

 

 

$

211

 

 

$

115

 

Less: Dividends declared on common stock

 

 

23

 

 

 

21

 

 

 

64

 

 

 

63

 

Less: Dividends declared on participating
   securities

 

 

 

 

 

 

 

 

1

 

 

 

1

 

Undistributed earnings (loss)

 

$

59

 

 

$

76

 

 

$

146

 

 

$

51

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allocation of undistributed earnings (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Undistributed earnings (loss) allocated to
   common shareholders

 

$

58

 

 

$

75

 

 

$

143

 

 

$

50

 

Undistributed earnings allocated to
   participating shareholders

 

 

1

 

 

 

1

 

 

 

3

 

 

 

1

 

Undistributed earnings (loss)

 

$

59

 

 

$

76

 

 

$

146

 

 

$

51

 

(2)

(2)

Undistributed earnings are adjusted for the assumed distribution of dividends to the dilutive securities, which are described in (3) below, and then reallocated to participating securities.

(3)

Represents incremental shares of common stock from the (i) assumed exercise of stock options issued under Cabot’s equity incentive plans; (ii) assumed issuance of shares to employees pursuant to the Company’s Deferred Compensation and Supplemental Retirement Plan; and (iii) assumed issuance of shares for outstanding and achieved performance-based restricted stock unit awards issued before fiscal 2017 under Cabot’s equity incentive plans using the treasury stock method. For the three months ended December 31, 2017 and 2016, respectively, 764,077 and 173,927 incremental shares of common stock, were excluded from the calculation of diluted earnings per share because the inclusion of these shares would have been antidilutive.

K. Restructuring

Cabot recorded charges of approximately $1 million and a net benefit of less than $1 million related to restructuring activity in Cost of sales in its Consolidated Statements of Operations for the assumed distribution of dividends to the dilutive securities, which are described in (3) below, and then reallocated to participating securities.

(3)
Represents incremental shares of common stock from the assumed exercise of stock options issued under Cabot’s equity incentive plans. For the three and nine months ended December 31, 2017June 30, 2023, 156,550 and 2016, respectively.

Details133,039 incremental shares of all restructuring activities andcommon stock were excluded from the related reserves duringcalculation of diluted earnings per share because the inclusion of these shares would have been antidilutive. For the three and nine months ended December 31, 2017June 30, 2022, 169,425 and 204,796 incremental shares of common stock were as follows:

 

 

Severance

and Employee

Benefits

 

 

Environmental

Remediation

 

 

Other

 

 

Total

 

 

 

(In millions)

 

Reserve at September 30, 2017

 

$

1

 

 

$

2

 

 

$

 

 

$

3

 

Charges

 

 

 

 

 

 

 

 

1

 

 

 

1

 

Cash paid

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

Reserve at December 31, 2017

 

$

1

 

 

$

2

 

 

$

 

 

$

3

 

Cabot’s severance and employee benefit reserves and other closure related reserves are reflected in Accounts payable and accrued liabilities onexcluded from the Company’s Consolidated Balance Sheets. Cabot’s environmental remediation reserves related to restructuring activities are reflected in Other liabilities oncalculation of diluted earnings per share because the Company’s Consolidated Balance Sheets.

Marshall, Texas Plan

In October 2017, Cabot indefinitely idled threeinclusion of the seven production units at its activated carbon manufacturing facility in Marshall, Texas. The decision, affecting approximately 40 local employees, was driven by the need to better match the business’ production capacity and cost structure with the current demand for powdered activated carbon in North America. Total costs related to this plan are expected to be approximately $8 million, comprised of approximately $8 million of non-cash accelerated depreciation costs and less than $1 million of severance costs. The Company recorded charges of less than $1 million in the three months ended December 31, 2017, comprised mainly of accelerated depreciation charges. The Company anticipates charges related to these actions of approximately $1 million in the remainder of fiscal 2018 and approximately $7 million thereafter.


2016 Plan

In October 2015, in response to challenging macroeconomic conditions, the Company announced its intention to restructure its operations subject to local consultation requirements and processes in certain locations. Cabot’s plan resulted in the termination of employment for approximately 300 employees across the Company’s global locations.

Most of the charges and cash outlays related to this plan were recorded in fiscal 2016. The Company recorded pre-tax cash charges related to plan of less than $1 million in the first three months of both fiscal 2018 and 2017, and expects to record approximately $2 million of cash charges in the remainder of fiscal 2018. The charges recorded and anticipated are comprised of severance, employee benefits and other transition costs. As of December 31, 2017, Cabot has less than $1 million of accrued severance charges in the Consolidated Balance Sheets related to these actions.

Additionally, in fiscal 2016 Cabot closed its carbon black manufacturing facility in Merak, Indonesia to consolidate production in Asia using the Company’s Cilegon, Indonesia and other Asian and global carbon black production sites to meet regional demand. The decision was driven by the financial performance at the Merak facility in the years preceding the closure. Manufacturing operations ceased at the end of January 2016.

Most of the charges and cash outlays related to the Merak closure were recorded in fiscal 2016. The Company recorded a pre-tax cash benefit of less than $1 million in the first quarter of fiscal 2017.

The Company entered into an agreement to sell the land in Merak on which the facility is located. The sale is anticipated to be completed in the second quarter of fiscal 2018 for approximately $14 million, resulting in a net gain of approximately $11 million. The Company received a refundable deposit of $4 million in cash related to this transaction in the first quarter of fiscal 2018 that is recorded in Accounts payable and accrued liabilities on the Consolidated Balance Sheets.

As of December 31, 2017, Cabot has less than $1 million of accrued severance costs in the Consolidated Balance Sheets related to the Merak facility closure.

Other Actions

Cabot has recorded less than $1 million of severance charges in the three months ended December 31, 2017, nearly all of which has been paid in the first quarter of fiscal 2018.

Additionally, in previous years, the Company has entered into other various restructuring actions thatshares would have been substantially completed, other than the sale of assets from certain closed sites that remain to be completed. The Company has recorded a net benefit of less than $1 million in the three months ended December 31, 2016, driven by gains from the sale of certain assets related to these actions.

antidilutive.

Cabot expects to pay approximately $3 million related to these activities in the remainder of fiscal 2018 and thereafter, mainly for accrued environmental and other closure related costs. As of December 31, 2017, Cabot has approximately $2 million of accrued environmental costs and approximately $1 million of accrued severance costs in the Consolidated Balance Sheets related to these actions.

L.K. Financial Instruments and Fair Value Measurements

The FASB authoritative guidance on fair value measurements defines fair value, provides a framework for measuring fair value, and requires certain disclosures about fair value measurements. The required disclosures focus on the inputs used to measure fair value. The guidance establishes the following hierarchy for categorizing these inputs:

Level 1

Quoted market prices in active markets for identical assets or liabilities

Level 2

Significant other observable inputs (e.g., quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs)

Level 3

Significant unobservable inputs

There were no transfers of financial assets or liabilities measured at fair value between Level 1 and Level 2 and there were no Level 3 investments during the first threenine months of either fiscal 20182023 or 2017.2022.


At December 31, 2017June 30, 2023 and September 30, 2017,2022, the fair values of cash and cash equivalents, accounts and notes receivable, accounts payable and accrued liabilities, and short-term borrowings and variable rate debt approximated their carrying values due to the short-term nature of these instruments. Each of these financial asset and liability categories is classified as Level 1 within the fair value hierarchy.

At June 30, 2023 and September 30, 2022, Cabot had derivatives relating to foreign currency risks, including a net investment hedge and forward foreign currency contracts, carried at fair value. At December 31, 2017 and SeptemberJune 30, 2017,2023, the fair value of these derivatives was a net liabilityasset of $18$8 million and $13 million, respectively, and was included in Prepaid expenses and other current assets, Accounts payable and accrued liabilities, and Other assets on the Consolidated Balance Sheets. At September 30, 2022, the fair value of these derivatives was a net asset of $28 million and was included in Prepaid expenses and other current assets, Accounts payable and accrued liabilities, and Other assets on the Consolidated Balance Sheets. These derivatives are classified as Level 2 instruments within the fair value hierarchy as the fair value determination was based on observable inputs.

17


At both December 31, 2017June 30, 2023 and September 30, 2017,2022, the fair value of guaranteed investment contracts included in Other assets on the Consolidated Balance Sheets was $12 million.$9 million and $8 million, respectively. Guaranteed investment contracts were classified as Level 2 instruments within the fair value hierarchy as the fair value determination was based on other observable inputs.

At December 31, 2017 and September 30, 2017, the fair values of cash and cash equivalents, accounts and notes receivable, accounts payable and accrued liabilities, and notes payable and variable rate debt approximated their carrying values due to the short-term nature of these instruments. The carrying value and fair value of the long-term fixed rate debt were $0.91$1.08 billion and $0.93$1.07 billion, respectively, as of December 31, 2017June 30, 2023 and $0.91$1.08 billion and $0.94$1.06 billion, respectively, as of September 30, 2017.2022. The fair values of Cabot’s fixed rate long-term debt are estimated based on comparable quoted market prices at the respective period ends. The carrying amounts of Cabot’s floating rate long-term debt and capitalfinance and operating lease obligations approximate their fair values. All such measurements are based on observable inputs and are classified as Level 2 within the fair value hierarchy. The valuation technique used is the discounted cash flow model.

M. Derivatives

Foreign Currency Risk Management

Cabot’s international operations are subject to certain risks, including currency exchange rate fluctuations and government actions. Cabot endeavors to match the currency in which debt is issued to the currency of the Company’s major, stable cash receipts. In some situations, Cabot has issued debt denominated in U.S. dollars and then entered into cross-currency swaps that exchange the dollar principal and interest payments into Euro denominated principal and interest payments.

Additionally, the Company has foreign currency exposure arising from its net investments in foreign operations. Cabot may enter into cross-currency swaps to mitigate the impact of currency rate changes on the Company’s net investments.

The Company also has foreign currency exposure arising from the denomination of monetary assets and liabilities in foreign currencies other than the functional currency of a given subsidiary as well as the risk that currency fluctuations could affect the dollar value of future cash flows generated in foreign currencies. Accordingly, Cabot uses short-term forward contracts to minimize the exposure to foreign currency risk. In certain situations where the Company has forecasted purchases under a long-term commitment or forecasted sales denominated in a foreign currency, Cabot may enter into appropriate financial instruments in accordance with the Company’s risk management policy to hedge future cash flow exposures.

The following table provides details of the derivatives held as of December 31, 2017 and September 30, 2017 to manage foreign currency risk.

Notional Amount

Description

Borrowing

December 31, 2017

September 30, 2017

Hedge Designation

Cross-Currency Swaps

3.4% Notes

USD 250 million swapped to EUR 223 million

USD 250 million swapped to EUR 223 million

Net investment

Forward Foreign Currency Contracts (1)

N/A

USD 11 million

USD 5 million

No designation

(1)

Cabot’s forward foreign exchange contracts are denominated in the Indonesian rupiah and Czech koruna.

Accounting for Derivative Instruments and Hedging Activities

The Company determines the fair value of financial instruments using quoted market prices whenever available. When quoted market prices are not available for various types of financial instruments (such as forwards, options and swaps), the Company uses standard models with market-based inputs, which take into account the present value of estimated future cash flows and the ability of Cabot or the financial counterparty to perform. For interest rate and cross-currency swaps, the significant inputs to these models are interest rate curves for discounting future cash flows and are adjusted for credit risk. For forward foreign currency contracts, the significant inputs are interest rate curves for discounting future cash flows, and exchange rate curves of the foreign currency for translating future cash flows.


Fair Value Hedge

For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in current period earnings.

Cash Flow Hedge

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is recorded in AOCI and reclassified to earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current period earnings.

Net Investment Hedge

For net investment hedges, changes in the fair value of the effective portion of the derivatives’ gains or losses are reported as foreign currency translation gains or losses in AOCI while changes in the ineffective portion are reported in earnings. Effectiveness is assessed based on the hypothetical derivative method. The gains or losses on derivative instruments reported in AOCI are reclassified to earnings in the period in which earnings are affected by the underlying item, such as a disposal or substantial liquidations of the entities being hedged. Effective October 1, 2017, the Company elected to de-designate its existing net investment hedge instruments in which hedge effectiveness was assessed using the method based on changes in forward exchange rates and re-designate the net investment hedges in which hedge effectiveness will be assessed using the method based on changes in spot exchange rates.

The Company has cross-currency swaps with a notional amount of $250 million, which are designated as hedges of its net investments in certain Euro denominated subsidiaries. Cash settlements occur semi-annually on March 15th and September 15th for fixed rate interest payments and a cash exchange of the notional currency amount will occur at the end of the term in 2026. As of December 31, 2017, the fair value of these swaps was a net liability of $18 million and was included in Prepaid expenses and other current assets and Other liabilities and the cumulative loss of $15 million was included in AOCI on the Consolidated Balance Sheets. As of September 30, 2017, the fair value of these swaps was a net liability of $13 million and was included in Prepaid expenses and other current assets and Other Liabilities and the cumulative loss of $9 million was included in AOCI on the Consolidated Balance Sheets. The following table summarizes the impact of the cross-currency swaps to AOCI and the Consolidated Statements of Operations:

 

 

Three Months Ended December 31

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Description

 

Gain/(Loss) Recognized in AOCI

 

 

(Gain)/Loss Reclassified from AOCI into Interest Expense in the Consolidated Statements of Operations

 

 

(Gain)/Loss Recognized in Interest Expense in the Consolidated Statements of Operations (Amount Excluded from Effectiveness Testing)

 

 

 

(In millions)

 

Cross-currency swaps (1)

 

$

(5

)

 

$

7

 

 

$

(1

)

 

$

 

 

$

 

 

$

 

(1)

As noted above, effective October 1, 2017, the Company changed the method it uses to assess effectiveness from the method based on changes in forward exchange rates, in which all gains/losses were recognized in AOCI, to the method based on changes in spot exchange rates.

Other Derivative Instruments

From time to time, the Company may enter into certain derivative instruments that may not be designated as hedges for accounting purposes, which may include cross-currency swaps, foreign currency forward contracts and commodity derivatives. For cross-currency swaps and foreign currency forward contracts not designated as hedges, the Company uses standard models with market-based inputs. The significant inputs to these models are interest rate curves for discounting future cash flows, and exchange rate curves of the foreign currency for translating future cash flows. In determining the fair value of the commodity derivatives, the significant inputs to valuation models are quoted market prices of similar instruments in active markets. Although these derivatives do not qualify for hedge accounting, Cabot believes that such instruments are closely correlated with the underlying exposure, thus managing the associated risk. The gains or losses from changes in the fair value of derivative instruments that are not accounted for as hedges are recognized in current period earnings.

At both December 31, 2017 and September 30, 2017, the fair value of derivative instruments not designated as hedges were immaterial and were presented in Prepaid expenses and other current assets and Accounts payable and accrued liabilities on the Consolidated Balance Sheets.


N. Venezuela

Cabot owns 49% of a carbon black operating affiliate in Venezuela, which is accounted for as an equity affiliate, through wholly-owned subsidiaries that carry the investment and receive its dividends. As of December 31, 2017, these subsidiaries carried the operating affiliate investment of $14 million.

During the three months ended December 31, 2017 and 2016, the Company received dividends in the amounts of $2 million and $1 million, respectively, which were paid in U.S. dollars.

A significant portion of the Company’s operating affiliate’s sales are exports denominated in U.S. dollars. The Venezuelan government mandates that a certain percentage of the dollars collected from these sales be converted into bolivars. The exchange rate made available to the Company as of December 31, 2017 was 3,345 bolivars to the U.S. dollar, which was unchanged from the exchange rate available to the Company as of September 30, 2017.

The operating entity has generally been profitable. The Company continues to closely monitor developments in Venezuela and their potential impact on the recoverability of its equity affiliate investment. Any future change in the exchange rate made available to the Company could cause the Company to change the exchange rate it uses and result in gains or losses on the bolivar denominated assets held by its operating affiliate and wholly-owned subsidiaries.

O.L. Financial Information by Segment

The Company identifies a businessproduct line as an operating segment if: (i)i) it engages in business activities from which it may earn revenues and incur expenses; (ii)ii) its operating results are regularly reviewed by the Chief Operating Decision Maker (“CODM”), who is Cabot’s President and Chief Executive Officer, to make decisions about resources to be allocated to the segment and assess its performance; and (iii)iii) it has available discrete financial information. The Company has determined that all of its businesses are operating segments. The CODM reviews financial information at the operating segment level to allocate resources and to assess the operating results and financial performance for each operating segment. Operating segments are aggregated into a reportable segment if the operating segments are determined to have similar economic characteristics and if the operating segments are similar in the following areas: (i)i) nature of products and services; (ii)ii) nature of production processes; (iii)iii) type or class of customer for their products and services; (iv)iv) methods used to distribute the products or provide services; and (v)v) if applicable, the nature of the regulatory environment.

The Company has fourtwo reportable segments:segments consisting of Reinforcement Materials and Performance Chemicals,Chemicals. The Company’s former Purification Solutions and Specialty Fluids.business was a separate reporting segment prior to divestiture in the second quarter of fiscal 2022.

The Reinforcement Materials segment representscombines the rubber blacksreinforcing carbons and engineered elastomer composites product lines.

The Performance Chemicals segment combinesaggregates the specialty carbons, andspecialty compounds, and inkjet colorants product lines into the Specialty Carbons and Formulations business, and combines the fumed metal oxides, battery materials, inkjet colorants, and aerogel product lines into the Metal Oxides business.lines. These businesses are similar in terms of economic characteristics, nature of products, processes, customer class and product distribution methods, and therefore have been aggregated into one reportable segment. The net sales from each of these businesses for the three months ended December 31, 2017 and 2016 were as follows:

 

 

Three Months Ended December 31

 

 

 

2017

 

 

2016

 

 

 

(In millions)

 

Specialty Carbons and Formulations

 

$

160

 

 

$

138

 

Metal Oxides

 

 

69

 

 

 

67

 

Total Performance Chemicals

 

$

229

 

 

$

205

 

The Purification Solutions segment representsconsisted of the Company’s activated carbon business and the Specialty Fluids segment includes cesium formate oil and gas drilling fluids and high-purity fine cesium chemicals product lines.business.

Income (loss) from continuing operations before income taxes (“Segment EBIT”) is presented for each reportable segment in the table below. Segment EBIT excludes Interest expense, general unallocated income (expense), unallocated corporate costs, and certain items, meaning items management does not consider representative of on-going operating segment results. In addition, Segment EBIT includes Equity in earnings of affiliated companies, net of tax, the full operating results of a contractual joint venture in Purification Solutions, royalties, Net income attributable to noncontrolling interests, net of tax, and discounting charges for certain Notes receivable, but excludes Interest expense, foreign currency transaction gains and losses, interest income, dividend income, unearned revenue, general unallocated expense and unallocated corporate costs.receivable.

18



Financial information by reportable segment is as follows:

 

 

Reinforcement
Materials

 

 

Performance
Chemicals

 

 

Purification
Solutions

 

 

Segment
Total

 

 

Unallocated
and Other
(1)

 

 

Consolidated
Total

 

 

 

(In millions)

 

Three Months Ended June 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers(3)

 

$

624

 

 

$

307

 

 

$

 

 

$

931

 

 

$

37

 

 

$

968

 

Income (loss) before income taxes(4)

 

$

132

 

 

$

32

 

 

$

 

 

$

164

 

 

$

(34

)

 

$

130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers(2)(3)

 

$

730

 

 

$

376

 

 

$

 

 

$

1,106

 

 

$

43

 

 

$

1,149

 

Income (loss) before income taxes(4)

 

$

113

 

 

$

63

 

 

$

 

 

$

176

 

 

$

(24

)

 

$

152

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended June 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers(3)

 

$

1,939

 

 

$

919

 

 

$

 

 

$

2,858

 

 

$

108

 

 

$

2,966

 

Income (loss) before income taxes(4)

 

$

348

 

 

$

89

 

 

$

 

 

$

437

 

 

$

(113

)

 

$

324

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers(2)(3)

 

$

1,947

 

 

$

1,045

 

 

$

97

 

 

$

3,089

 

 

$

120

 

 

$

3,209

 

Income (loss) before income taxes(4)

 

$

299

 

 

$

185

 

 

$

 

 

$

484

 

 

$

(278

)

 

$

206

 

 

 

Reinforcement

Materials

 

 

Performance

Chemicals

 

 

Purification

Solutions

 

 

Specialty

Fluids

 

 

Segment

Total

 

 

Unallocated

and Other(1)

 

 

Consolidated

Total

 

 

 

(In millions)

 

Three Months Ended December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers(2)

 

$

387

 

 

$

229

 

 

$

70

 

 

$

6

 

 

$

692

 

 

$

28

 

 

$

720

 

Income (loss) from continuing operations

   before income taxes(3)

 

$

62

 

 

$

47

 

 

$

6

 

 

$

(2

)

 

$

113

 

 

$

(21

)

 

$

92

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers(2)

 

$

295

 

 

$

205

 

 

$

69

 

 

$

11

 

 

$

580

 

 

$

31

 

 

$

611

 

Income (loss) from continuing operations

   before income taxes(3)

 

$

40

 

 

$

49

 

 

$

4

 

 

$

2

 

 

$

95

 

 

$

(20

)

 

$

75

 

(1)
Unallocated and Other includes certain items and eliminations necessary to reflect management’s reporting of operating segment results. These items are reflective of the segment reporting presented to the CODM.
(2)
Beginning in fiscal 2023, the Company began allocating energy center by-product revenue within the applicable segment’s Revenue from external customers. The Company recast prior period financial information to conform to the new presentation. The allocation of such revenue resulted in an increase of $23 million in the Reinforcement Materials segment and $4 million in the Performance Chemicals segment, respectively, with an offsetting decrease in Unallocated and Other revenue for the three months ended June 30, 2022. The allocation of such revenue resulted in an increase of $72 million in the Reinforcement Materials segment and $11 million in the Performance Chemicals segment, respectively, with an offsetting decrease in Unallocated and Other revenue for the nine months ended June 30, 2022. There was no impact to the Consolidated Total Revenues from external customers.
(3)
Consolidated Total Revenues from external customers reconciles to Net sales and other operating revenues on the Consolidated Statements of Operations. Revenues from external customers that are categorized as Unallocated and Other reflects royalties, external shipping and handling fees, the impact of unearned revenue, discounting charges for certain Notes receivable, and other by-product revenue. Details are provided in the table below:

 

 

Three Months Ended June 30

 

 

Nine Months Ended June 30

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(In millions)

 

Shipping and handling fees

 

$

31

 

 

$

44

 

 

$

100

 

 

$

124

 

Other

 

 

6

 

 

 

(1

)

 

 

8

 

 

 

(4

)

Total

 

$

37

 

 

$

43

 

 

$

108

 

 

$

120

 

19


(1)

Unallocated and Other includes certain items and eliminations necessary to reflect management’s reporting of operating segment results. These items are reflective of the segment reporting presented to the CODM.

(4)
Consolidated Total Income (loss) before income taxes reconciles to Income (loss) before income taxes and equity in earnings of affiliated companies on the Consolidated Statements of Operations. Income (loss) before income taxes that are categorized as Unallocated and Other includes:

 

 

Three Months Ended June 30

 

 

Nine Months Ended June 30

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(In millions)

 

Interest expense

 

$

(24

)

 

$

(15

)

 

$

(69

)

 

$

(38

)

Certain items(a)

 

 

 

 

 

 

 

 

 

 

 

 

Gain on bargain purchase of a business (Note C)

 

 

 

 

 

 

 

 

 

 

 

24

 

Gain on sale of land

 

 

 

 

 

17

 

 

 

1

 

 

 

17

 

Loss on sale of business and asset impairment charge (Note D)

 

 

 

 

 

(2

)

 

 

(3

)

 

 

(206

)

Legal and environmental matters and reserves

 

 

 

 

 

(1

)

 

 

(2

)

 

 

(9

)

Acquisition and integration-related charges

 

 

(1

)

 

 

(1

)

 

 

(2

)

 

 

(4

)

Divestiture related charges

 

 

 

 

 

 

 

 

 

 

 

(5

)

Global restructuring activities

 

 

 

 

 

(1

)

 

 

 

 

 

(3

)

Other

 

 

 

 

 

 

 

 

(1

)

 

 

1

 

Total certain items, pre-tax

 

 

(1

)

 

 

12

 

 

 

(7

)

 

 

(185

)

Unallocated corporate costs(b)

 

 

(11

)

 

 

(15

)

 

 

(42

)

 

 

(45

)

General unallocated income (expense)(c)

 

 

3

 

 

 

(3

)

 

 

9

 

 

 

(3

)

Less: Equity in earnings of affiliated companies, net
   of tax
(d)

 

 

1

 

 

 

3

 

 

 

4

 

 

 

7

 

Total

 

$

(34

)

 

$

(24

)

 

$

(113

)

 

$

(278

)

(a)
Certain items are items of expense and income that management does not consider representative of the Company’s fundamental on-going segment results and they are, therefore, excluded from Segment EBIT.

(2)

Consolidated Total Revenues from external customers reconciles to Net sales and other operating revenues on the Consolidated Statement of Operations. Revenues from external customers that are categorized as Unallocated and Other reflects royalties, 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. Details are provided in the table below:

(b)
Unallocated corporate costs are costs that are not controlled by the segments and primarily benefit corporate interests.
(c)
General unallocated income (expense) consists of gains (losses) arising from foreign currency transactions, net of other foreign currency risk management activities, Interest and dividend income, the profit or loss related to the corporate adjustment for unearned revenue and unrealized holding gains (losses) for investments.
(d)
Equity in earnings of affiliated companies, net of tax, is included in Segment EBIT and is removed in Unallocated and other to reconcile to Income (loss) from operations before income taxes and equity in earnings from affiliated companies.

The Company’s segments operate globally. In addition to presenting Revenue from external customers by reportable segment, the following tables further disaggregate Revenues from external customers by geographic region.

 

 

Three Months Ended June 30, 2023

 

 

 

Reinforcement
Materials

 

 

Performance
Chemicals

 

 

Purification
Solutions

 

 

Consolidated Total

 

 

 

(In millions)

 

Americas

 

$

260

 

 

$

94

 

 

$

 

 

$

354

 

Asia Pacific

 

 

234

 

 

 

119

 

 

 

 

 

 

353

 

Europe, Middle East and Africa

 

 

130

 

 

 

94

 

 

 

 

 

 

224

 

Segment revenues from external customers

 

 

624

 

 

 

307

 

 

 

 

 

 

931

 

Unallocated and other

 

 

 

 

 

 

 

 

 

 

 

37

 

Net sales and other operating revenues

 

 

 

 

 

 

 

 

 

 

$

968

 

20


 

 

Three Months Ended June 30, 2022

 

 

 

Reinforcement
Materials

 

 

Performance
Chemicals

 

 

Purification
Solutions

 

 

Consolidated Total

 

 

 

(In millions)

 

Americas

 

$

302

 

 

$

114

 

 

$

 

 

$

416

 

Asia Pacific

 

 

265

 

 

 

147

 

 

 

 

 

 

412

 

Europe, Middle East and Africa

 

 

163

 

 

 

115

 

 

 

 

 

 

278

 

Segment revenues from external customers

 

 

730

 

 

 

376

 

 

 

 

 

 

1,106

 

Unallocated and other

 

 

 

 

 

 

 

 

 

 

 

43

 

Net sales and other operating revenues

 

 

 

 

 

 

 

 

 

 

$

1,149

 

 

 

Nine Months Ended June 30, 2023

 

 

 

Reinforcement
Materials

 

 

Performance
Chemicals

 

 

Purification
Solutions

 

 

Consolidated Total

 

 

 

(In millions)

 

Americas

 

$

781

 

 

$

283

 

 

$

 

 

$

1,064

 

Asia Pacific

 

 

752

 

 

 

368

 

 

 

 

 

 

1,120

 

Europe, Middle East and Africa

 

 

406

 

 

 

268

 

 

 

 

 

 

674

 

Segment revenues from external customers

 

 

1,939

 

 

 

919

 

 

 

 

 

 

2,858

 

Unallocated and other

 

 

 

 

 

 

 

 

 

 

 

108

 

Net sales and other operating revenues

 

 

 

 

 

 

 

 

 

 

$

2,966

 

 

 

Nine Months Ended June 30, 2022

 

 

 

Reinforcement
Materials

 

 

Performance
Chemicals

 

 

Purification
Solutions

 

 

Consolidated Total

 

 

 

(In millions)

 

Americas

 

$

767

 

 

$

314

 

 

$

43

 

 

$

1,124

 

Asia Pacific

 

 

773

 

 

 

422

 

 

 

14

 

 

 

1,209

 

Europe, Middle East and Africa

 

 

407

 

 

 

309

 

 

 

40

 

 

 

756

 

Segment revenues from external customers

 

 

1,947

 

 

 

1,045

 

 

 

97

 

 

 

3,089

 

Unallocated and other

 

 

 

 

 

 

 

 

 

 

 

120

 

Net sales and other operating revenues

 

 

 

 

 

 

 

 

 

 

$

3,209

 

 

 

Three Months Ended December 31

 

 

 

2017

 

 

2016

 

 

 

(In millions)

 

Royalties, the impact of unearned

   revenue, the removal of 100% of

   the sales of an equity method

   affiliate and discounting charges

   for certain notes receivable

 

$

1

 

 

$

5

 

Shipping and handling fees

 

 

27

 

 

 

26

 

Total

 

$

28

 

 

$

31

 

(3)

Consolidated Total Income (loss) from continuing operations before income taxes reconciles to Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies on the Consolidated Statement of Operations. Income (loss) from continuing operations before income taxes that are categorized as Unallocated and Other includes:

 

 

Three Months Ended December 31

 

 

 

2017

 

 

2016

 

 

 

(In millions)

 

Interest expense

 

$

(13

)

 

$

(13

)

Certain items (a)

 

 

 

 

 

 

 

 

   Global restructuring activities

 

 

(1

)

 

 

 

   Legal and environmental matters and reserves

 

 

(1

)

 

 

 

   Gains (losses) on sale of investments

 

 

10

 

 

 

 

   Other

 

 

(1

)

 

 

 

             Total certain items, pre-tax

 

 

7

 

 

 

 

Unallocated corporate costs(b)

 

 

(14

)

 

 

(12

)

General unallocated income (expense)(c)

 

 

 

 

 

7

 

Less: Equity in earnings of affiliated

   companies, net of tax(d)

 

 

1

 

 

 

2

 

Total

 

$

(21

)

 

$

(20

)

(a)

Certain items are items of expense and income that management does not consider representative of the Company’s fundamental on-going segment results and they are, therefore, excluded from Segment EBIT.

(b)

Unallocated corporate costs are costs that are not controlled by the segments and primarily benefit corporate interests.


(c)

General unallocated income (expense) consists of gains (losses) arising from foreign currency transactions, net of other foreign currency risk management activities, the profit or loss related to the corporate adjustment for unearned revenue, and the impact of including the full operating results of a contractual joint venture in Purification Solutions Segment EBIT. Fiscal 2017 amounts have been recast to reflect the retrospective application of the Company’s election to change its inventory valuation method of accounting for its U.S. carbon black inventories from the LIFO method to the FIFO method, which resulted in a decrease in General unallocated income (expense) of $2 million.

(d)

Equity in earnings of affiliated companies, net of tax, is included in Segment EBIT and is removed in Unallocated and other to reconcile to Income (loss) from operations before income taxes and equity in earnings from affiliated companies.

21


Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies

Our consolidated financial statements have been prepared in conformity with accounting policies generally accepted in the United States (“GAAP”). The preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosure of contingent assets and liabilities. We consider an accounting estimate to be critical to the financial statements if (i) the estimate is complex in nature or requires a high degree of judgment and (ii) different estimates and assumptions were used, the results could have a material impact on the consolidated financial statements. On an ongoing basis, we evaluate our estimates and the application of our policies. We base our estimates on historical experience, current conditions and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Our critical accounting policies have not substantially changed from those described in the 2017 Form2022 10-K. We have updated

Recently Issued Accounting Pronouncements

Refer to the discussion ofunder the Inventory Valuation and Intangible Asset and Goodwill Impairment policies included below to reflect recent events.

Inventory Valuation

Effective October 1, 2017, we changed our method of accounting for U.S. carbon black inventories from the LIFO method to the FIFO method. Total U.S. inventories accounted for utilizing the LIFO cost flow assumption represented 7% of total worldwide inventories as of September 30, 2017 prior to this change in method. We believe the FIFO method is preferable because it: (i) conforms the accounting for U.S. carbon black inventories to the inventory valuation methodology for the majority of our other inventories; (ii) better represents how management assesses and reports on the performance of the Reinforcement Materials and Performance Chemicals operating segments that carry U.S. carbon black inventories, as the impact of accounting for this inventory on a LIFO basis has historically been excluded from segment results; (iii) better aligns the accounting for U.S. carbon black inventories with the physical flow of that inventory; and (iv) improves comparability with many of our peers. We applied this change retrospectively to all prior periods presented for which details are presentedheading “Recent Accounting Pronouncements” in Note B of our Notes to the Consolidated Financial Statements (“Note B”).Statements.

Results of Operations

The cost of Specialty Fluids inventories that are classified as assets held for rent is determined using the average cost method. The cost of all other inventories is determined using the FIFO method.

We periodically review inventory for both potential obsolescence and potential declines in anticipated selling prices. In this review, we make assumptions about the future demand for and market value of the inventory, and based on these assumptions estimate the amount of any obsolete, unmarketable, slow moving or overvalued inventory. We write down the value of our inventories by an amount equal to the difference between the cost of the inventory and its estimated net realizable value. Historically, such write-downs have not been material. If actual market conditions are less favorable than those projected by management at the time of the assessment, however, additional inventory write-downs may be required, which could reduce our gross profit and our earnings.

Intangible Assets and Goodwill Impairment

We record tangible and intangible assets acquired and liabilities assumed in business combinations under the acquisition method of accounting. Amounts paid for an acquisition are allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition. We use assumptions and estimates in determining the fair value of assets acquired and liabilities assumed in a business combination. The determination of the fair value of intangible assets requires the use of significant judgment with regard to assumptions used in the valuation model. We estimate the fair value of identifiable acquisition-related intangible assets principally based on projections of cash flows that will arise from these assets. The projected cash flows are discounted to determine the fair value of the assets at the dates of acquisition.


Definite-lived intangible assets, which are comprised of trademarks, customer relationships and developed technologies, are amortized over their estimated useful lives and are reviewed for impairment when indication of potential impairment exists, such as a significant reduction in cash flows associated with the assets. As discussed in Note C of our Notes to the Consolidated Financial Statements, we acquired Tech Blend in November 2017, and the preliminary purchase price allocation included separately identifiable intangible assets of $31 million.

Goodwill is comprised of the purchase price of business acquisitions in excess of the fair value assigned to the net tangible and identifiable intangible assets acquired. Goodwill is not amortized, but is reviewed for impairment annually as of May 31, or when events or changes in the business environment indicate that the carrying value of the reporting unit may exceed its fair value. A reporting unit, for the purpose of the impairment test, is at or below the operating segment level, and constitutes a business for which discrete financial information is available and regularly reviewed by segment management. As part of the Tech Blend acquisition, goodwill of $31 million was generated and is reflected in the Specialty Compounds reporting unit. The other reporting units with goodwill balances are Reinforcement Materials, Purification Solutions, and Fumed Metal Oxides. The separate businesses included within Performance Chemicals are considered separate reporting units. As such, the goodwill balance relative to Performance Chemicals is recorded in the Fumed Metal Oxides and Specialty Compounds reporting units.

For the purpose of the goodwill impairment test, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an initial qualitative assessment identifies that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, an additional quantitative evaluation is performed. Alternatively, we may elect to proceed directly to the quantitative goodwill impairment test. If based on the quantitative evaluation the fair value of the reporting unit is less than its carrying amount, a goodwill impairment loss would result. The goodwill impairment loss would be the amount by which the carrying value of the reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit. The fair value of a reporting unit is based on discounted estimated future cash flows. The fair value is also benchmarked against a market approach using the guideline public companies method. The assumptions used to estimate fair value include management’s best estimates of future growth rates, operating cash flows, capital expenditures and discount rates over an estimate of the remaining operating period at the reporting unit level.

Based on our most recent annual goodwill impairment test performed as of May 31, 2017, the fair values of theCompany has two reportable segments: Reinforcement Materials and Fumed Metal Oxides reporting units were substantially in excess of their carrying values.Performance Chemicals. The fair value of theCompany’s former Purification Solutions business was a separate reporting unit exceeded its carrying amount by 13%. The fair value of the Purification Solutions reporting unit includes certain growth assumptions that are primarily dependent on: (1) growth in demand for our existing portfolio of activated carbon products and new products developed for environmental and specialty applications; and (2) stable demandsegment prior to divestiture in the mercury removal related portionsecond quarter of the business, which is largely dependent on the amount of coal-based power generation used in the U.S. and the continued regulation of those utilities under the U.S. Mercury and Air Toxics Standards regulation (“MATS”). In April 2017, the U.S. Environmental Protection Agency (“EPA”) indicated that it intends to review the cost benefit analysis previously prepared by the EPA in support of MATS to determine if the EPA should reconsider MATS or some part of it. This analysis continues to be under review by the EPA. In addition, we continue to review our strategic options for this business and look for opportunities to better position the business for growth and long-term value enhancement.  Failure to achieve our projected growth in environmental or specialty applications, actions taken by the EPA related to MATS that decrease demand for our products, or the result of the strategic options or opportunities we may pursue could have a negative impact on the fair value of the Purification Solutions reporting unit, which may lead to impairment.

Results of Operations

Cabot is organized into four reportable business segments: Reinforcement Materials, Performance Chemicals, Purification Solutions and Specialty Fluids.fiscal 2022. Cabot is also organized for operational purposes into three geographic regions: the Americas; Europe, Middle East and Africa;Africa (“EMEA”); and Asia Pacific. The discussionsdiscussion of our results of operations for the periods presented reflectreflects these structures.

Our analysis of our financial condition and operating results should be read with our consolidated financial statements and accompanying notes.

Definition of Terms and Non-GAAP Financial Measures

When discussing our results of operations, we use several terms as described below.

The term “product mix” refers to the mix of types and grades 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 and/or segment.


Our discussion under the heading “Provision (Benefit)“(Provision) Benefit for Income Taxes and Reconciliation of Effective Tax Rate to Operating Tax Rate” includes a discussion and reconciliation of our “effective tax rate” and our “operating tax rate” and includes a reconciliationfor the periods presented, as well as management’s projection of our operating tax rate range for the two rates.full fiscal year. Our operating tax rate is a non-GAAP financial measure and should not be considered as an alternative to our effective tax rate, the most comparable GAAP financial measure. In calculating ourThe operating tax rate we excludeis calculated based upon management's forecast of the annual operating tax rate for the fiscal year applied to adjusted pre-tax earnings. The operating tax rate excludes income tax (expense) benefit on certain items, discrete tax items and, on a quarterly basis the timing of losses in certain jurisdictions. The income tax (expense) benefit on certain items is determined using the applicable rates in the taxing jurisdictions in which include: (i) unusual or infrequentthe certain items such as a significant release or establishmentoccurred and includes both current and deferred income tax (expense) benefit based on the nature of athe certain items. Discrete tax items include, but are not limited to, changes in valuation allowance, (ii) items related to uncertain tax positions, such as the tax impact of audit settlements, interest on tax reserves, and the release of tax reserves from the expiration of statutes of limitations, and (iii) other discrete tax items, such as the tax impact of legislative changes and tax accruals on a quarterly basis, the timing of losseshistoric earnings due to changes in certain jurisdictions and the cumulative rate adjustment, if applicable. We also exclude the tax impact of certain items, as defined below in the discussion of Total segment EBIT, on both operating income and the tax provision.indefinite reinvestment assertions. Our definition of the operating tax rate may not be comparable to the definition used by other companies. Management believes that this non-GAAP financial measure 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.

Our discussion under the heading “First“Third Quarter of Fiscal 20182023 versus FirstThird Quarter of Fiscal 2017—2022—By Business Segment” includes a discussion of Total segment EBIT, which is a non-GAAP financial measure defined as Income (loss) from continuing operations before income taxes and equity in earnings from affiliated companies less certain items and other unallocated items. Our Chief Operating Decision Maker, who is our President and Chief Executive Officer, uses segment EBIT to evaluate the operating results of each segment and to allocate resources to the segments. We believe Total segment EBIT, which reflects the sum of EBIT from our four reportable segments, provides useful supplemental information for our investors as it is an important indicator of our operational strength and performance, allows investors to see our results through the eyes of management, and provides context for our discussion of individual business segment performance. Our definition of Total segment EBIT may not be comparable to the definition used by other companies and it should not be considered an alternative for Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies, which is the most directly comparable GAAP financial measure. A reconciliation of Total segment EBIT to Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies is provided under the heading “First Quarter“Third quarter of Fiscal 20182023 versus First QuarterThird quarter of Fiscal 2017—2022—By Business Segment”. 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.

22


In calculating Total segment EBIT, we exclude from our Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies (i) items of expense and income that management does not consider representative of our fundamental on-going segment results, which we refer to as “certain items”, and (ii) items that, because they are not controlled by the business segments and primarily benefit corporate objectives, are not allocated to our business segments, such as interest expense and other corporate costs, which include unallocated corporate overhead expenses such as certain corporate salaries and headquarter expenses, plus costs related to special projects and initiatives, which we refer to as “other unallocated items”. Management believes excluding the items identified as certain 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 also facilitates an evaluation of our operating performance without the impact of these costs or benefits. The items of income and expense that we have excludedexclude from Total segment EBIT as applicable, but that are included in our GAAP Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies, as applicable in a particular reporting period, include, but are described below.not limited to, the following:

Asset impairment charges, which primarily include charges associated with an impairment of goodwill, other long-lived assets or assets held for sale.

Charges related to the divestiture of our Purification Solutions business, which include accelerated costs associated with the change in control and employee incentive compensation.
Legal and environmental reserves and matters, which consist of costs or benefits for matters typically related to former businesses or that are otherwise incurred outside of the ordinary course of business.
Global restructuring activities, which 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.

Non-recurring gains (losses) on foreign exchange, which primarily relate to the impact of controlled currency devaluations on our net monetary assets denominated in that currency.

Legal and environmental reserves and matters, which 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, which include incremental charges, including stock compensation charges, associated with the retirement or termination of employment of senior executives of the Company.

Asset impairment charges, which primarily include charges associated with an impairment of goodwill or other long-lived assets.

Acquisition and integration-related charges, which include transaction costs, redundant costs incurred during the period of integration, and costs associated with transitioning certain management and business processes to ourCabot’s processes.


Gains (losses) on sale of a business.

Gains (losses) on sale of investments, which primarily relate to the sale of investments accounted for using the cost method.

Gain associated with the bargain purchase of a business.
Gain realized on the sale of land.

Overview

During the firstthird quarter of fiscal 2018,2023, Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies increaseddecreased compared to the firstthird quarter of fiscal 2017, primarily2022 due to higher unit marginsa reduction in theearnings in our Performance Chemicals segment partially offset by stronger results in our Reinforcement Materials segment from favorable spot pricing in Asia and the impact from the calendar year 2017 tire customer agreements.segment.

First QuarterThird quarter of Fiscal 20182023 versus First QuarterThird quarter of Fiscal 2017—2022—Consolidated

Net Sales and Other Operating Revenues and Gross Profit

 

Three Months Ended December 31

 

 

Three Months Ended June 30

 

 

Nine Months Ended June 30

 

 

2017

 

 

2016

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

(In millions)

 

 

(In millions)

 

Net sales and other operating revenues

 

$

720

 

 

$

611

 

 

$

968

 

 

$

1,149

 

 

$

2,966

 

 

$

3,209

 

Gross profit

 

$

178

 

 

$

159

 

 

$

223

 

 

$

235

 

 

$

614

 

 

$

665

 

The $109$181 million increasedecrease in net sales and other operating revenues in the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022 was driven by lower volumes in both segments ($92 million), unfavorable price and product mix (combined $56 million), the negative impact from foreign currency translation ($19 million), and lower by-product revenue ($8 million).

The $243 million decrease in net sales and other operating revenues in the first quarternine months of fiscal 20182023 compared to the first quarternine months of fiscal 20172022 was primarily driven by a morelower volumes ($198 million) the unfavorable impact from foreign currency translation ($130 million), the impact of the divestiture of our Purification Solutions business in fiscal 2022 ($97 million) and lower by-product revenue ($22 million). These decreases were partially offset by favorable price and product mix (combined $80$217 million) predominantlyprimarily in our Reinforcement Materials higher volumes ($20 million)segment.

For the three and nine months ended June 30, 2023, gross profit decreased by $12 million and $51 million, respectively, compared to the favorable impact from foreign currency translation ($13 million).same periods of fiscal 2022. The increase in volumesdecrease was primarily due to volume increases fromlower volumes and higher fixed costs, partially offset by higher unit margins in our Reinforcement Materials ($9 million)segment.

23


Selling and Performance Chemicals ($16 million),Administrative Expenses

 

 

Three Months Ended June 30

 

 

Nine Months Ended June 30

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(In millions)

 

Selling and administrative expenses

 

$

58

 

 

$

51

 

 

$

184

 

 

$

196

 

Selling and administrative expenses increased by $7 million in the third quarter of fiscal 2023 and decreased by $12 million for the nine months ended June 30, 2023, compared to the same periods of fiscal 2022.

The increase in selling and administrative expenses in the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022was primarily due to a $17 million benefit from the sale of land in the fiscal 2022 period, partially offset by a decrease in volumes from Specialty Fluids ($5 million).the incentive compensation accrual for the fiscal 2023 period.

Gross profit increased by $19 millionThe decrease in selling and administrative expenses in the first quarternine months of fiscal 20182023 compared to the first quarternine months of fiscal 2017,2022 was primarily due to higher volumesa decrease in Reinforcement Materialsthe incentive compensation accrual for the fiscal 2023 period and Performance Chemicalsprior year charges related to the Purification Solutions divestiture and higher unit margins in Reinforcement Materials,our legal reserve for respirator matters, partially offset by an unfavorable impactthe benefit from changing inventory levels and higher fixed costs.

Selling and Administrative Expenses

 

 

Three Months Ended December 31

 

 

 

2017

 

 

2016

 

 

 

(In millions)

 

Selling and administrative expenses

 

$

69

 

 

$

63

 

Selling and administrative expenses increased by $6 millionthe sale of land in the first quarter of fiscal 2018 compared to the same period of fiscal 2017, primarily due to ongoing Corporate projects and higher personnel costs.2022 period.

Research and Technical Expenses

 

 

Three Months Ended December 31

 

 

 

2017

 

 

2016

 

 

 

(In millions)

 

Research and technical expenses

 

$

15

 

 

$

12

 

 

 

Three Months Ended June 30

 

 

Nine Months Ended June 30

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(In millions)

 

Research and technical expenses

 

$

15

 

 

$

14

 

 

$

43

 

 

$

41

 

Research and technical expenses increased by $3$1 million inand $2 million for the third quarter and the first quarternine months of fiscal 20182023, respectively, compared to the same periodperiods of fiscal 2017, primarily due to higher spending on growth projects across the Company.2022.

Interest and Dividend Income, Interest Expense and Other Income (Expense)

 

Three Months Ended December 31

 

 

Three Months Ended June 30

 

 

Nine Months Ended June 30

 

 

2017

 

 

2016

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

(In millions)

 

 

(In millions)

 

Interest and dividend income

 

$

3

 

 

$

2

 

 

$

7

 

 

$

 

 

$

22

 

 

$

7

 

Interest expense

 

$

(13

)

 

$

(13

)

 

$

(24

)

 

$

(15

)

 

$

(69

)

 

$

(38

)

Other income (expense)

 

$

8

 

 

$

2

 

 

$

(3

)

 

$

(1

)

 

$

(13

)

 

$

(9

)

Interest and dividend income increased by $1$7 million and $15 million in the first quarter of fiscal 2018three and nine months ended June 30, 2023, respectively, compared to the same periodperiods of fiscal 20172022, primarily due to higher interest earned on higher cash balances.rates.

Interest expense was flatincreased by $9 million and $31 million in the first quarter of fiscal 2018three and nine months ended June 30, 2023, respectively, compared to the same period inperiods of fiscal 2017.2022, primarily due to higher interest rates.


Other income (expense) changedexpense increased by $6$2 million and $4 million in the firstthird quarter of fiscal 20182023 and the first nine months of fiscal 2023, respectively, compared to the first quartersame periods of fiscal 2017,2022, driven by higher foreign currency losses, primarily due to the gains on sale of cost-method investments,in Argentina, partially offset by an unfavorable comparison of foreign currency movements.increase in investment income in Argentina and Brazil.

Provision (Benefit)

24


(Provision) Benefit for Income Taxes and Reconciliation of Effective Tax Rate to Operating Tax Rate

 

 

Three Months Ended June 30

 

 

 

2023

 

 

2022

 

 

 

(Provision) / Benefit for Income Taxes

 

 

Rate

 

 

(Provision) / Benefit for Income Taxes

 

 

Rate

 

Dollars in millions

 

 

 

 

 

 

 

 

 

 

 

 

Effective tax rate

 

$

(41

)

 

 

32

%

 

$

(49

)

 

 

32

%

Less: Non-GAAP tax adjustments(1)

 

 

2

 

 

 

 

 

 

(15

)

 

 

 

Operating tax rate

 

$

(43

)

 

 

33

%

 

$

(34

)

 

 

24

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended June 30

 

 

 

2023

 

 

2022

 

 

 

(Provision) / Benefit for Income Taxes

 

 

Rate

 

 

(Provision) / Benefit for Income Taxes

 

 

Rate

 

Dollars in millions

 

 

 

 

 

 

 

 

 

 

 

 

Effective tax rate

 

$

(90

)

 

 

28

%

 

$

(73

)

 

 

35

%

Less: Non-GAAP tax adjustments(1)

 

 

3

 

 

 

 

 

 

29

 

 

 

 

Operating tax rate

 

$

(93

)

 

 

28

%

 

$

(102

)

 

 

26

%

 

 

Three Months Ended December 31

 

 

 

2017

 

 

2016

 

 

 

(Dollars in millions)

 

Provision (benefit) for income taxes

 

$

205

 

 

$

18

 

 

 

 

 

 

 

 

 

 

Effective tax rate

 

 

224

%

 

 

24

%

Impact of discrete tax items(1):

 

 

 

 

 

 

 

 

Unusual or infrequent items

 

 

(200

)%

 

 

(1

)%

Items related to uncertain tax positions

 

 

(1

)%

 

 

2

%

Other discrete tax items

 

 

(1

)%

 

 

(1

)%

Impact of certain items

 

 

(1

)%

 

 

%

Operating tax rate

 

 

21

%

 

 

24

%

(1)
Non-GAAP tax adjustments made to arrive at the operating tax provision include the income tax (expense) benefit on certain items, discrete tax items, and, on a quarterly basis, the timing of losses in certain jurisdictions, as further described above under the heading “Definition of Terms and Non-GAAP Financial Measures”.

For the three months ended June 30, 2023, the (Provision) benefit for income taxes was a provision of $41 million compared to $49 million for the same period in 2022. For the nine months ended June 30, 2023, the (Provision) benefit for income taxes was a provision of $90 million compared to $73 million for the same period in 2022. Included in the (Provision) benefit for income taxes in the nine months ended June 30, 2022 is a net discrete tax benefit of $22 million primarily comprised of $36 million related to the divestiture of the Purification Solutions business, and a tax expense of $8 million related to withholding tax accruals on historic earnings due to changes in indefinite reinvestment assertion on certain entities. Our income taxes are affected by the mix of earnings in the tax jurisdictions in which we operate, and by the presence of valuation allowances in certain tax jurisdictions.

(1)

For the three months ended December 31, 2017 and 2016, Impact of discrete tax items included a net discrete tax expense of $185 million and a net discrete tax benefit of less than $1 million, respectively. The nature

For fiscal 2023, the Operating tax rate is expected to be in the range of 27% to 29%. We are not providing a forward-looking reconciliation of the discrete tax items for the periods ended December 31, 2017 and 2016 were as follows:

(a)

Unusual or infrequent items during the three months ended December 31, 2017 consists of the net tax impacts resulting from the enactment of H.R. 1 (the “Act”) as discussed further below and in the discussion under the heading “Tax Reform” in Note I of our Notes to the Consolidated Financial Statements (“Note I”) ($185 million), as well as immaterial impacts related to stock compensation deductions. Additionally, unusual or infrequent items during the three months ended December 31, 2017 and 2016 included the tax impact of excludible foreign exchange gains and losses in certain jurisdictions;

(b)

Items related to uncertain tax positions during the three months ended December 31, 2017 and 2016 included net tax benefits from the reversal of accruals for uncertain tax positions due to the expiration of statutes of limitations and the settlement of tax audits, the accrual of interest on uncertain tax positions, and, for fiscal 2018 only, the refinement of the accrual for existing uncertain tax positions;

(c)

Other discrete tax items during the three months ended December 31, 2017 and 2016 included net tax impacts from various return to provision adjustments related to tax return filings and, for fiscal 2018 only, changes in non-U.S. tax laws.

For fiscal 2018, our expected operating tax rate is reconciledrange with an effective tax rate range because, without unreasonable effort, we are unable to our expectedpredict with reasonable certainty the matters we would allocate to “certain items,” which have historically included unusual gains and losses, costs associated with future restructurings, acquisition-related expenses and litigation outcomes. Matters allocated to certain items are unpredictable, depend on various factors, and could have a material impact on the effective tax rate in future periods.

We regularly evaluate the table below.

Forecast for the Year Ended September 30, 2018

Effective tax rate

74

%

Impact of discrete tax items:

Unusual or infrequent items

(52

)%

Items related to uncertain tax positions

%

Other discrete tax items

%

Impact of certain items

(1

)%

Operating tax rate

21

%

We filerealizability of our net deferred tax assets. As of June 30, 2023, substantially all our U.S. federal and state and non-U.S.deferred tax assets, net of deferred tax liabilities, were subject to valuation allowances. There is a reasonable possibility that within the next twelve months, sufficient positive evidence may become available to reach a conclusion that all or a significant portion of the valuation allowances will no longer be required. Such a release would result in a material non-cash income tax returnsbenefit in jurisdictions with varying statutesour Consolidated Statement of limitations. We are under audit in a number of jurisdictions. It is possible that some of these audits will be resolved in fiscal 2018 and could impact our anticipated effective tax rate. We have filed our tax returns in accordance with the tax laws, in all material respects, in each jurisdiction and maintain tax reserves for uncertain tax positions.


Tax Reform

On December 22, 2017, the U.S. enacted significant changes to federal income tax law affecting us, including a permanent reduction of the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018. We expect that these changes will positively impact our future after-tax earningsOperations in the U.S., primarily due to the lower federal statutoryperiod of release and an increase of net deferred tax rate and the establishment of a full participation exemption regime for foreign earnings. In transitioning to this new full participation exemption regime for foreign earnings, we are subject to a one-time tax for the deemed repatriation of certain foreign earnings. Refer to the discussion under the heading “Tax Reform” in Note I.assets on our Consolidated Balance Sheet.

Equity in Earnings of Affiliated Companies and Net Income (Loss) Attributable to Noncontrolling Interests

 

Three Months Ended December 31

 

 

Three Months Ended June 30

 

 

Nine Months Ended June 30

 

 

2017

 

 

2016

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

(In millions)

 

 

(In millions)

 

Equity in earnings of affiliated companies, net

of tax

 

$

1

 

 

$

2

 

 

$

1

 

 

$

3

 

 

$

4

 

 

$

7

 

Net income (loss) attributable to

noncontrolling interests, net of tax

 

$

10

 

 

$

4

 

 

$

8

 

 

$

9

 

 

$

27

 

 

$

25

 

Equity in earnings of affiliated companies, net of tax, decreased $1by $2 million and $3 million in the third quarter and the first quarternine months of fiscal 20182023, respectively, compared to the same periodperiods of fiscal 2017,2022 primarily due to lower earnings fromprofitability at our Venezuelan equity affiliate.affiliate in India.

25


Net income (loss) attributable to noncontrolling interests, net of tax, increased $6decreased by $1 million in the firstthird quarter of fiscal 2018 asand increased by $2 million for the nine months ended June 30, 2023, compared to the same periodperiods of fiscal 2017,2022. The lower income for the three month period was primarily due to the lower profitability of our joint ventures in China. The higher income for the nine month period was primarily due to the higher profitability of our joint venturesventure in China and the Czech Republic.

Net Income Attributable to Cabot Corporation

In the third quarter and first quarternine months of fiscal 2018,2023, we reported netNet income (loss) attributable to Cabot Corporation of ($122)$82 million and $211 million, or ($1.98)$1.43 per diluted common share.share and $3.65 per diluted common share, respectively. This compares to netNet income (loss) attributable to Cabot Corporation of $55$97 million and $115 million, or $0.86$1.69 per diluted common share and $1.99 per diluted common share, respectively, in the third quarter and first nine months of fiscal 2022. The lower net income in the third quarter of fiscal 2023 compared with the same period in fiscal 2022 is primarily due to lower volumes and higher fixed costs partially offset by higher unit margins. The higher net income in the first nine months of fiscal 2023 compared with the same period in fiscal 2022 is primarily due to an impairment charge associated with the divestiture of Purification Solutions in fiscal 2022 that did not reoccur in fiscal 2023.

Third quarter of fiscal 2017. The net loss in fiscal 2018 is due to a tax charge recorded of $185 million in connection with the enactment of the tax Act.

First QuarterFiscal 2023 versus Third quarter of Fiscal 2018 versus First Quarter of Fiscal 2017—2022—By Business Segment

Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies, certain items, other unallocated items, and Total segment EBIT for the three and nine months ended December 31, 2017June 30, 2023 and 20162022 are set forth in the table below. The details of certain items and other unallocated items are shown below and in Note OL of our Notes to the Consolidated Financial Statements.

 

Three Months Ended December 31

 

 

2017

 

 

2016

 

 

Three Months Ended June 30

 

 

Nine Months Ended June 30

 

 

(In millions)

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Income (loss) from continuing operations

before income taxes and equity in

earnings of affiliated companies

 

$

92

 

 

$

75

 

 

(In millions)

 

Income (loss) before income taxes and
equity in earnings of affiliated companies

 

$

130

 

 

$

152

 

 

$

324

 

 

$

206

 

Less: Certain items

 

 

7

 

 

 

 

 

 

(1

)

 

 

12

 

 

 

(7

)

 

 

(185

)

Less: Other unallocated items

 

 

(28

)

 

 

(20

)

 

 

(33

)

 

 

(36

)

 

 

(106

)

 

 

(93

)

Total segment EBIT

 

$

113

 

 

$

95

 

 

$

164

 

 

$

176

 

 

$

437

 

 

$

484

 

In the third quarter of fiscal 2023, Income (loss) before income taxes and equity in earnings of affiliated companies decreased by $22 million and Total segment EBIT decreased by $12 million. The decreases in Income (loss) before income taxes and equity earnings of affiliated companies and in Total segment EBIT were driven by lower volumes, higher fixed costs and the unfavorable impact of foreign currency movements partially offset by higher unit margins in Reinforcement Materials. Lower volumes in the Reinforcement Materials ($19 million) and Performance Chemicals segments ($20 million) were primarily due to demand softness in key end markets. Higher unit margins in the Reinforcement Materials segment ($42 million) were primarily due to improved pricing and product mix in our annual tire customer agreements.

In the first quarternine months of fiscal 2018,2023, Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies increased by $17$118 million. The increase is primarily due to the Purification Solutions loss on sale and asset impairment charge of $206 million and totalin fiscal 2022, partially offset by the gain on the Tokai Carbon acquisition of $24 million that did not reoccur in fiscal 2023. Total segment EBIT increaseddecreased by $18$47 million whenin the first nine months of fiscal 2023 as compared to the same period ofin fiscal 2017. The increases were primarily2022 driven by lower volumes, higher volumes ($8 million),fixed costs and the unfavorable impact of foreign currency movements in both segments, partially offset by higher unit margins in Reinforcement Materials. Lower volumes in the Reinforcement Materials ($1944 million) and a favorable impact from foreign currency translationPerformance Chemicals segments ($148 million), partially offset by an unfavorable impact from changing inventory levels ($6 million) were primarily due to demand softness in key end markets and higher fixed costs ($6 million).destocking. Higher unit margins in the Reinforcement Materials segment ($130 million) were primarily driven by a better spotdue to improved pricing environment in Asia and product mix in Reinforcement Materials.our annual tire customer agreements.


26


Certain Items

Details of the certain items for the first quarter of fiscal 2018three and nine months ended June 30, 2023 and 2022 are as follows:

 

Three Months Ended December 31

 

 

2017

 

 

Three Months Ended June 30

 

 

Nine Months Ended June 30

 

 

(In millions)

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

(In millions)

 

Gain on bargain purchase of a business (Note C)

 

$

 

 

$

 

 

$

 

 

$

24

 

Gain on sale of land

 

 

 

 

 

17

 

 

 

1

 

 

 

17

 

Loss on sale of business and asset impairment charge (Note D)

 

 

 

 

 

(2

)

 

 

(3

)

 

 

(206

)

Legal and environmental matters and reserves

 

 

 

 

 

(1

)

 

 

(2

)

 

 

(9

)

Acquisition and integration-related charges

 

 

(1

)

 

 

(1

)

 

 

(2

)

 

 

(4

)

Divestiture related charges

 

 

 

 

 

 

 

 

 

 

 

(5

)

Global restructuring activities

 

$

(1

)

 

 

 

 

 

(1

)

 

 

 

 

 

(3

)

Legal and environmental matters and reserves

 

 

(1

)

Gains (losses) on sale of investments

 

 

10

 

Other

 

 

(1

)

 

 

 

 

 

 

 

 

(1

)

 

 

1

 

Total certain items, pre-tax

 

 

7

 

 

 

(1

)

 

 

12

 

 

 

(7

)

 

 

(185

)

Tax-related certain items:

 

 

 

 

Tax impact of certain items

 

 

(2

)

Discrete tax items

 

 

(185

)

Total tax-related certain items

 

 

(187

)

Non-GAAP tax adjustments

 

 

2

 

 

 

(15

)

 

 

3

 

 

 

29

 

Total certain items, after tax

 

$

(180

)

 

$

1

 

 

$

(3

)

 

$

(4

)

 

$

(156

)

Certain items for the first quarter of fiscal 2017 included charges of less than $1 million.

The tax impact of certain items is determined by (1) starting with the current and deferred income tax expense or benefit included in Net income (loss) 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, as defined under the heading “Definition of Terms and Non-GAAP Financial Measures”, to adjusted earnings.

Other Unallocated Items

 

Three Months Ended December 31

 

 

Three Months Ended June 30

 

 

Nine Months Ended June 30

 

 

2017

 

 

2016

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

(In millions)

 

 

(In millions)

 

Interest expense

 

$

(13

)

 

$

(13

)

 

$

(24

)

 

$

(15

)

 

$

(69

)

 

$

(38

)

Unallocated corporate costs

 

 

(14

)

 

 

(12

)

 

 

(11

)

 

 

(15

)

 

 

(42

)

 

 

(45

)

General unallocated income (expense)

 

 

 

 

 

7

 

 

 

3

 

 

 

(3

)

 

 

9

 

 

 

(3

)

Less: Equity in earnings of affiliated

companies, net of tax

 

 

1

 

 

 

2

 

 

 

1

 

 

 

3

 

 

 

4

 

 

 

7

 

Total other unallocated items

 

$

(28

)

 

$

(20

)

 

$

(33

)

 

$

(36

)

 

$

(106

)

 

$

(93

)

A discussion of items that we refer to as “other unallocated items” can be found under the heading “Definition of Terms and Non-GAAP Financial Measures”. The balances of unallocated corporate costs are primarily comprised of expenditures related to managing a public company that are not allocated to the segments and corporate business development costs related to ongoing corporate projects. The balances of General unallocated income (expense) consist of gains (losses) arising from foreign currency transactions, net of other foreign currency risk management activities, the profit or loss related to the corporate adjustment for unearned revenue and the impact of including the full operating results of a contractual joint venture in Purification Solutions segment EBIT.unrealized holding gains (losses) for investments.

Total other unallocated items changed by $8 million in the first quarter of fiscal 2018 as compared to the same period in fiscal 2017, primarily due to the unfavorable impact of foreign currency translation which is included in General unallocated income (expense) and an increase in Unallocated corporate costs for corporate projects.

Reinforcement Materials

Sales and EBIT for Reinforcement Materials for the third quarter and first quarternine months of fiscal 20182023 and fiscal 20172022 were as follows:

 

Three Months Ended December 31

 

 

Three Months Ended June 30

 

 

Nine Months Ended June 30

 

 

2017

 

 

2016

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

(In millions)

 

 

(In millions)

 

Reinforcement Materials Sales

 

$

387

 

 

$

295

 

 

$

624

 

 

$

730

 

 

$

1,939

 

 

$

1,947

 

Reinforcement Materials EBIT

 

$

62

 

 

$

40

 

 

$

132

 

 

$

113

 

 

$

348

 

 

$

299

 


Sales in Reinforcement Materials increaseddecreased by $92$106 million in the firstthird quarter of fiscal 20182023 compared to the same period of fiscal 2017,2022, primarily due to a morelower volumes ($59 million), less favorable price and product mix (combined $78$29 million), higher volumes ($9 million) and a favorable the unfavorable impact from foreign currency translation ($12 million) and lower by-product revenue ($5 million). The less favorable price and product mix impact was primarily due to higher selling priceslower feedstock costs that are generally passed through to our customers. Volumes were lower across all regions primarily due to lower replacement tire demand.

In the first nine months of fiscal 2023, sales in Reinforcement Materials decreased by $8 million compared to the quarterfirst nine months of fiscal 2022. The decrease was primarily due to lower volumes ($130 million), the unfavorable impact from foreign currency translation ($88 million) and lower by-product revenue ($15 million), partially offset by improved price adjustmentsand product mix (combined $225 million). Lower volumes were primarily due to customers for increases in raw material costs,lower replacement tire demand and customer destocking. The improved price improvements inand product mix was primarily due to favorable 2022 and 2023 calendar year 2017 customer agreements and higher spot prices in Asia.agreements.

EBIT in Reinforcement Materials increased by $22 million in the firstthird quarter of fiscal 20182023 increased by $19 million compared to the same period of fiscal 2017, primarily due to2022. During the third quarter of fiscal 2023, the segment had higher unit margins, net of higher costs ($2138 million), higherpartially offset by lower volumes ($419 million) and the favorableunfavorable impact from foreign currency translation ($1 million),. The higher unit

27


margins were primarily driven by favorable pricing and product mix in the 2023 calendar year customer agreements. Volumes were lower across all regions primarily due to lower replacement tire demand.

EBIT in Reinforcement Materials increased by $49 million in the first nine months of fiscal 2023 compared to the same period of fiscal 2022. The increase was driven by higher unit margins, net of higher costs ($99 million) partially offset by lower volumes ($44 million) and the unfavorable impact from foreign currency translation ($6 million). The higher unit margins were primarily driven by favorable pricing and product mix in the 2022 and 2023 calendar year customer agreements. Volumes were lower across all regions primarily due to lower replacement tire demand and destocking at our major tire customers.

As we look to the fourth quarter of the fiscal year, we expect EBIT to decrease sequentially due to seasonally lower volumes in Europe and higher fixed costs ($2 million) and an unfavorable impact from changing inventory levels ($2 million). Higher unit margins were driven by price improvements in calendar year 2017 customer agreements, a more favorable product mix, and spot pricing in Asia.related to the timing of maintenance activities.

Performance Chemicals

Sales and EBIT for Performance Chemicals for the third quarter and first quarternine months of fiscal 20182023 and fiscal 20172022 were as follows:

 

Three Months Ended December 31

 

 

2017

 

 

2016

 

 

Three Months Ended June 30

 

 

Nine Months Ended June 30

 

 

(In millions)

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Specialty Carbons and Formulations Sales

 

$

160

 

 

$

138

 

Metal Oxides Sales

 

 

69

 

 

 

67

 

 

(In millions)

 

Performance Chemicals Sales

 

$

229

 

 

$

205

 

 

$

307

 

 

$

376

 

 

$

919

 

 

$

1,045

 

Performance Chemicals EBIT

 

$

47

 

 

$

49

 

 

$

32

 

 

$

63

 

 

$

89

 

 

$

185

 

Sales in Performance Chemicals increaseddecreased by $24$69 million in the firstthird quarter of fiscal 20182023 compared to the same period of fiscal 2017,2022, primarily due to higherlower volumes ($1632 million), aless favorable pricing and product mix ($27 million), the unfavorable impact fromof foreign currency translation ($56 million) and a morelower by-product revenue ($2 million). The lower volumes in the third quarter of fiscal 2023 were driven by demand softness in key end markets, particularly in our fumed metal oxides product line. The less favorable price and product mix (combined $3 million). The increase in volumes was primarily due to higherless favorable product mix in our battery materials and specialty carbons product lines.

In the first nine months of fiscal 2023, sales volumes in EuropePerformance Chemicals decreased by $126 million compared to the same period of fiscal 2017.2022 due to lower volumes ($68 million), the unfavorable impact of foreign currency translation ($42 million), lower by-product revenue ($7 million) and less favorable pricing and product mix ($9 million). The lower volumes were primarily due to customer destocking, demand softness in key end markets and the impact from COVID-19 outbreaks in China.

EBIT in Performance Chemicals decreased by $2$31 million in the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022, due to lower volumes ($20 million), lower unit margins ($9 million) and higher costs associated with the unfavorable impact of the reduction in inventory levels ($4 million). The lower volumes in the third quarter of fiscal 2023 were driven by demand softness across all regions. Lower unit margins were primarily due to less favorable product mix in the specialty carbons and battery materials product lines.

EBIT in Performance Chemicals decreased by $96 million in the first quarternine months of fiscal 20182023 compared to the same period of fiscal 2017, primarily2022, due to lower volumes ($48 million), lower unit margins ($24 million), the unfavorable impact of a reduction in inventory levels ($15 million) and the unfavorable impact of foreign currency translation ($9 million). Lower unit margins were largely due to less favorable product mix in the specialty carbons and battery materials product lines. The segment also experienced higher costs associated with the unfavorable impact of reduction in inventory levels ($15 million). Lower volumes were driven by customer destocking, demand softness in key end markets, and the impact from COVID-19 outbreaks in China.

As we look ahead to the fourth quarter of the fiscal year, we expect EBIT to improve sequentially due to higher fixed costs ($6 million), an unfavorable impact from changing inventory levels ($3 million) and lower unit margins ($1 million), partially offset by higher volumes ($7 million) and a favorable impact from foreign currency translation ($1 million). Higher fixed costs were primarily driven by increased spending on maintenance and selling and administrative costs. The higher volumes during the quarter were primarily due to higher sales volumes in Europe.our battery materials and inkjet product lines.

Purification Solutions

Sales and EBIT for Purification Solutions for the third quarter and first quarternine months of fiscal 20182023 and fiscal 20172022 were as follows:

 

Three Months Ended December 31

 

 

Three Months Ended June 30

 

 

Nine Months Ended June 30

 

 

2017

 

 

2016

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

(In millions)

 

 

(In millions)

 

Purification Solutions Sales

 

$

70

 

 

$

69

 

 

$

 

 

$

 

 

$

 

 

$

97

 

Purification Solutions EBIT

 

$

6

 

 

$

4

 

 

$

 

 

$

 

 

$

 

 

$

 

Sales in28


We divested the Purification Solutions increased by $1 millionbusiness in the first quarterMarch 2022. Refer to Note D of fiscal 2017 comparedour Notes to the same period of fiscal 2017 due to higher volumes ($1 million)Consolidated Financial Statements.

Liquidity and a favorable impact from foreign currency translation ($2 million), partially offset by a less favorable price and product mix (combined $2 million).Capital Resources

EBIT in Purification Solutions increased by $2 million in the first quarter of fiscal 2018 compared to the same period of fiscal 2017, primarily due to higher volumes ($1 million) and the accelerated receipt of royalty payments ($3 million), partially offset by an unfavorable impact from changing inventory levels ($2 million). The royalty payment received in the quarter consists of all the remaining payments due to the Company under that royalty arrangement.Overview

Specialty Fluids

Sales and EBIT for Specialty Fluids for the first quarter of fiscal 2018 and 2017 were as follows:

 

 

Three Months Ended December 31

 

 

 

2017

 

 

2016

 

 

 

(In millions)

 

Specialty Fluids Sales

 

$

6

 

 

$

11

 

Specialty Fluid EBIT

 

$

(2

)

 

$

2

 


Sales in Specialty Fluids decreased by $5 million in the first quarter of fiscal 2018 compared to the same period of fiscal 2017 primarily due to lower volumes from reduced project activity.

EBIT in Specialty Fluids decreased by $4 million in the first quarter of fiscal 2018 compared to the same period of fiscal 2017 primarily due to lower volumes from reduced project activity.

Outlook

During the second quarter, we anticipate that Reinforcement Materials will benefit from the calendar year 2018 customer agreements along with a firm spot market in Europe and Asia. In Performance Chemicals we are expecting an improvement sequentially due to higher seasonal volumes and the positive impact from price increases, but anticipate margins will be impacted somewhat by rising feedstock costs in specialty carbons and higher costs to support growth investments. We also expect Purification Solutions to benefit from continued momentum in the specialty applications but it will be challenged by continued competitive pricing in the mercury removal application. In Specialty Fluids, we expect a similar level of project activity for the next quarter with an uptick in activity in the second half of the year.

Cash Flows and Liquidity

Overview

Our liquidity position, as measured by cash and cash equivalents plus borrowing availability, decreasedincreased by $91$233 million during the first threenine months of fiscal 2018,2023, which was attributableprimarily due to a lowerhigher cash balance, at December 31, 2017.lower outstanding commercial paper and the impact of foreign currency rates partially offset by increased borrowing on the Euro Credit Agreement (as defined below). As of December 31, 2017,June 30, 2023, we had cash and cash equivalents of $189$220 million and borrowing availability under our revolving credit agreementagreements of $1$1.1 billion. Our

We have access to borrowings under the following two credit agreements:

$1 billion unsecured revolving credit agreement (the “U.S. Credit Agreement”)with JPMorgan Chase Bank, N.A., as Administrative Agent, Citibank, N.A., as Syndication Agent, and the other lenders party thereto, which was amendedmatures in October 2017August 2026, subject to a one-year option to extend the maturity, exercisable on or prior to October 2022,August 6, 2023. Effective August 4, 2023, we closed on the one-year option extending the maturity date to August 2027. The U.S. Credit Agreement supports our issuance of commercial paper, program and borrowings under it may be used for working capital, letters of credit and other general corporate purposes.

Effective May 17, 2023, we amended and restated our €300 million unsecured revolving credit agreement (the “Euro Credit Agreement”, and together with the U.S. Credit Agreement, the “Credit Agreements”), changing the Administrative Agent, updating the Designated Borrowers (as defined therein). The Euro Credit Agreement with PNC Bank, National Association, as Administrative Agent, and the other lenders party thereto, matures in August 2027. Borrowings under the Euro Credit Agreement may be used for the repatriation of earnings of our foreign subsidiaries to the United States, the repayment of indebtedness of our foreign subsidiaries owing to us or any of our subsidiaries and for working capital and general corporate purposes.

At December 31, 2017,As of June 30, 2023, we were in compliance with allthe debt covenants under our revolving credit facility, including the totalCredit Agreements, which, with limited exceptions, require us to comply on a quarterly basis with a leverage test requiring the ratio of consolidated net debt to consolidated EBITDA (earnings before interest, taxes, depreciationnot to exceed 3.50 to 1.00. Consolidated net debt is defined as consolidated debt offset by the lesser of (i) unrestricted cash and amortization) covenant.cash equivalents and (ii) $150 million.

A significant portion of our business occurs outside the U.S. and our cash generation does not always align geographically with our cash needs. The vast majority of our cash and cash equivalent holdings tend to be held outside the U.S. CashWe generally use a combination of U.S. earnings, repatriation of certain foreign earnings, commercial paper issuances and borrowings under our U.S. Credit Agreement to meet our U.S. cash needs. With the exception of Argentina, which has currency controls that prevent the distribution of cash, we are generally able to move cash throughout the Company through our cash pooling structures, intercompany accounts and/or distributions, as needed. Although we repatriate certain foreign earnings, cash held by foreign subsidiaries is generally considered permanently reinvested and is used to finance the subsidiaries’ operational activities and future investments. We use commercial paper throughout the year to manage short-term U.S. cash needs. Theusually reduce our commercial paper balance is generally paid downand, if applicable, borrowings under our Credit Agreements, at quarter-end using cash derived from customer collections, settlement of intercompany balances and short-term intercompany loans. In the unusual event thatIf additional funds are needed in the U.S., we haveexpect to be able to repatriate cash, including cash from China, while paying any withholding or other taxes. Changes in tax laws in the U.S. or foreign countries could restrict our ability to repatriate additional funds.transfer funds or impose material costs on such transfers.

We do not expect Tax Reform, discussed in more detail in Note I, to have a material impact onAs of June 30, 2023, we had $1.1 billion of availability under our liquidity position due to our existing tax attributes. We are evaluatingCredit Agreements. As of June 30, 2023, we had $118 million of borrowings under the impact of tax reform on our opportunities to repatriate some portion of our foreign cash balances toEuro Credit Agreement and no outstanding borrowings under the U.S. Credit Agreement. There was $134 million of commercial paper outstanding as of June 30, 2023.

We generally manage our cash and debt on a global basis to provide for working capital requirements as needed by region or site. Cash and debt are generally denominated in the local currency of the subsidiary holding the assets or liabilities, except where there are operational cash flow reasons to hold non-functional currency or debt.

We anticipate sufficient liquidity from (i) cash on hand; (ii) cash flows from operating activities; and (iii) cash available from our revolving credit agreementthe Credit Agreements and our commercial paper program to meet our operational and capital investment needs and financial obligations for the foreseeable future. The liquidity we derive from cash flows from operations is, to a large degree, predicated on our ability to collect our receivables in a timely manner, the cost of our raw materials, and our ability to manage inventory levels.

We issued $250In addition, our subsidiary in Argentina may incur a foreign currency loss as a result of a significant government driven currency devaluation. The timing of any government action is uncertain, but could be in the near term and any loss we record would negatively impact earnings. As of June 30, 2023, we had approximately $35 million of 2.55% fixed rate debt in fiscal 2012Peso denominated net assets. As described above, currently there are currency controls that matured on January 15, 2018. This debt was repaid using a combinationprevent the distribution or conversion of foreign cash and commercial paper borrowings.from Argentina, which makes up the majority of these net assets.

We issued $30 million of 7.42% medium term notes in fiscal 1999 that mature on December 11, 2018 and are included in Current portion of long-term debt on the Consolidated Balance Sheets as of December 31, 2017. We intend to pay off these notes at maturity with cash on hand and/or commercial paper borrowings.29


The following discussion of the changes in our cash balance refers to the various sections of our Consolidated Statements of Cash Flows.

Cash Flows from Operating Activities

Cash provided by operating activities, which consists of net income adjusted for the various non-cash items included in income, changes in working capital and changes in certain other balance sheet accounts, totaled $45$457 million in the first threenine months of fiscal 20182023 compared to $107$5 million of cash used by operating activities during the same period of fiscal 2017.2022.


Cash provided by operating activities in the first threenine months of fiscal 20182023 was driven primarily by business earnings excluding the non-cash impacts of depreciation and amortization of $39$107 million and an increasea decrease in our deferred tax provisionnet working capital of $186 million, which more than offset our$96 million. The decrease in net loss. In addition, thereworking capital was an increaselargely driven by a decrease in Accountsaccounts receivable due to lower customer prices from lower cost of raw materials and decreased sales volumes and a decrease in inventories and accounts payable and accrued liabilities. Partially offsetting these cash inflows was an increase in Accounts and notes receivable and Inventories.expenses driven by lower cost of raw materials.

Cash providedused by operating activities in the first threenine months of fiscal 20172022 was driven primarily by an increase in net income excluding the non-cash impactworking capital of depreciation and amortization of $38$390 million. In addition, thereThe increase in net working capital was a decreasedriven by an increase in Accountsaccounts receivable due to higher sales and an increase in Accounts payable and accrued liabilities. Partially offsetting these cash inflows wasinventory driven by a higher cost of raw materials, partially offset by an increase in Inventories.accounts payable.

Cash Flows from Investing Activities

In the three months ended December 31, 2017, investingInvesting activities consumed $101$139 million of cash which was primarily driven by $64in the first nine months of fiscal 2023 compared to $31 million of cash paid for our acquisitionconsumed in the first nine months of Tech Blend, netfiscal 2022.

In the first nine months of cash acquiredfiscal 2023, investing activities included $166 million of $1 million, and capital expenditures of $52 million. These capital expenditures were for sustaining and compliance capital projects at our operating facilities as well as growth-related capital, including capacity expansion capital expenditures. projects in Performance Chemicals, partially offset by proceeds from the sale of land of $7 million, proceeds from the sale of our Purification Solutions business of $6 million, and proceeds from insurance settlements of $12 million.

In the threefirst nine months ended December 31, 2016,of fiscal 2022, investing activities consumed $23included $121 million of cash which was primarily driven by capital expenditures of $22 million. These capital expenditures were primarily for sustaining and compliance capital projects at our operating facilities.facilities as well as capacity expansion capital expenditures primarily in Performance Chemicals. In addition, the first nine months of fiscal 2022 includes $79 million of net cash proceeds from the sale of our Purification Solutions business, $18 million of proceeds from the sale of land, and $9 million of cash paid for the acquisition of Tokai Carbon, net of cash assumed of $5 million.

Capital expenditures for fiscal 20182023 are expected to be approximately $250 million. Our planned capital spending program for fiscal 20182023 is primarily for sustaining, compliance, and improvement capital projects at our operating facilities as well as capacity expansion expenditures in the Performance Chemicals segment.

Province of Ontario Regulation 419 Update

As described in Part I, Item 1 of the 2022 10-K under the heading “Safety, Health, Environment, and Sustainability”, under the Province of Ontario Ministry of Environment, Conservation and Parks’ (“MECP”) Regulation 419, a new requirement for sulfur dioxide (“SO2”) emissions went into effect on July 1, 2023 for our reinforcing carbons plant in Sarnia, Ontario. On June 30, 2023, we received a letter from the MECP indicating that as of July 1 we are out of compliance with the new air standards for SO2 and in response submitted our required abatement plan in accordance with the regulation. We are continuing discussions with the MECP on a new technical standard for SO2 emissions controls at our plant as an alternative to this requirement that in its current form would require the installation of air pollution controls at the plant by July 1, 2028. We intend to continue to engage with the MECP on this alternative, or another compliance plan approach that is acceptable to the MECP. We anticipate that we will need to incur significant capital expenditures, primarilycosts for the constructioninstallation of our fumed silica manufacturing plants in Carrollton, Kentucky and Wuhai, China.these new SO2 emissions controls, particularly during the 24-month period prior to the date of installation.

Cash Flows from Financing Activities

Financing activities consumed $36$371 million of cash in the first threenine months of fiscal 20182023 compared to $32$129 million of cash consumed inprovided during the same period of fiscal 2022.

In the first threenine months of fiscal 2017. 2023, financing activities primarily consisted of the repayment of commercial paper of $188 million, dividend payments to stockholders of $65 million, share repurchases of $48 million, cash dividends paid to noncontrolling interests of $41 million, net repayments of short-term borrowings of $24 million and repayments of long-term debt of $88 million. These payments were partially offset by proceeds from long-term borrowings of $79 million.

In the first threenine months of both fiscal 2018 and 2017, these2022, financing activities primarily consisted of share repurchasesthe issuance of commercial paper of $193 million and proceeds from short-term borrowings of $26 million. These proceeds were partially offset by dividend payments to stockholders.stockholders of $63 million, share repurchases of $48 million, dividend payments to noncontrolling interests of $22 million, and repayments of long-term debt of $357 million.

Purchase Commitments30


We have entered into long-term purchase agreements primarily for the purchase of raw materials. Under certain of these agreements the quantity of material being purchased is fixed, but the price paid changes as market prices change. For those commitments, the amounts included in the table below are based on market prices at December 31, 2017, which may differ from actual market prices at the time of purchase.

 

 

Payments Due by Fiscal Year

 

 

 

Remainder of

Fiscal 2018

 

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

Thereafter

 

 

Total

 

 

 

(In millions)

 

Reinforcement Materials

 

$

253

 

 

$

264

 

 

$

153

 

 

$

114

 

 

$

114

 

 

$

1,537

 

 

$

2,435

 

Performance Chemicals

 

 

48

 

 

 

58

 

 

 

55

 

 

 

54

 

 

 

43

 

 

 

468

 

 

 

726

 

Purification Solutions

 

 

7

 

 

 

7

 

 

 

6

 

 

 

1

 

 

 

 

 

 

 

 

 

21

 

Total

 

$

308

 

 

$

329

 

 

$

214

 

 

$

169

 

 

$

157

 

 

$

2,005

 

 

$

3,182

 

Off-Balance Sheet Arrangements

As of December 31, 2017, we had no material transactions that meet the definition of an off-balance sheet arrangement.

Forward-Looking Information

This report on Form 10-Q contains “forward-looking statements” under the Federal securities laws. These forward-looking statements address expectations or projections about the future, including our expectations for future financial performance;regarding segment performance in the fourth quarter of fiscal 2023 as compared with EBIT in the third quarter of fiscal 2023 and the factors we expect will decrease EBIT in our Reinforcement Materials segment and increase EBIT in our Performance Chemicals segment; demand for our products; the amount and timing of the charge to earnings we will record and the cash outlays we will make in connection with the closing of certain manufacturing facilities and restructuring initiatives; our estimated future amortization expenses for our intangible assets; the sufficiency of our cash on hand, cash provided from operations and cash available under our credit and commercial paper facilities to fund our cash requirements; anticipated capital spending, including with respect to the installation of new SO2 emissions controls at our Sarnia, Ontario reinforcing carbons plant; regulatory developments; cash requirements including for the repayment of the current portion of our long-term debt;and uses of available cash, including anticipated capital spending and future cash outlays associated with long-term contractual obligations;respirator liabilities and the impact we expecttiming of such outlays; amortization expenses; our operating tax reform legislation in the U.S. to have on our future after-tax earnings and liquidity position, and our expected tax rate for fiscal 2018;rate; and the possible outcome of legal and environmental proceedings. From time to time, we also provide forward-looking statements in other materials we release to the public and in oral statements made by authorized officers.


Forward-looking 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 or difficult to predict. If known or unknown risks materialize, our actual results could differ materially from those expressed in the forward-looking statements.

In addition to factors described elsewhere in this report, the following are some of the factors that could cause our actual results to differ materially from those expressed in theour forward-looking statements: changes in raw material costs; lower than expected demand for our products; changes inindustry capacity utilization and competition from other specialty chemical companies; safety, health and environmental requirements and related constraints imposed on our business; regulatory and financial risks related to climate change developments; volatility in the U.S.;price and availability of energy and raw materials, including with respect to the lossRussian invasion of oneUkraine; a significant adverse change in a customer relationship or morethe failure of a customer to perform its obligations under agreements with us; failure to achieve growth expectations from new products, applications and technology developments; failure to realize benefits from acquisitions, alliances, or joint ventures or achieve our important customers;portfolio management objectives; negative or uncertain worldwide or regional economic conditions and market opportunities, including from trade relations, global health matters including the COVID-19 pandemic or geo-political conflicts; litigation or legal proceedings; tax rates and fluctuations in foreign currency exchange and interest rates; our inability to complete capacity expansions or other development projects; the availability of raw materials; our failure to develop new products or to keep pace with technological developments; fluctuations in currency exchange rates; patent rights of others; stock and credit market conditions; the timely commercialization of products under development (which may be disrupted or delayed by technical difficulties, market acceptance, competitors’ new products, as well as difficulties in moving from the experimental stage to the production stage); demand for our customers’ products; competitors’ reactions to market conditions; unanticipated disruptions or delays in plant operations or development projects; delays in the successful integration of structural changes, including acquisitions or joint ventures; severe weather events that cause business interruptions, including plant and power outages or disruptions in supplier or customer operations; the accuracy of the assumptions we used in establishing reserves for environmental matters and for our share of liability for respirator claims; and the outcome of pending litigation. Otherclaims. These other factors and risks are discussed more fully in our 2017 10-K.

Recently Issued Accounting Pronouncements

Refer to the discussion under the headings “Recently Adopted Accounting Standards”2022 10-K and “Recent Accounting Pronouncements” in Note B.our subsequent SEC filings.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Information about market risks for the period ended December 31, 2017June 30, 2023 does not differ materially from that discussed under Item 7A of our 20172022 10-K.

Item 4.

Controls and Procedures

Item 4. Controls and Procedures

As of December 31, 2017,June 30, 2023, we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officerprincipal executive officer and our Executive Vice President and Chief Financial Officer,principal financial officer, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).amended. Based upon that evaluation, our Principal Executive Officerprincipal executive officer and our Executive Vice President and Chief Financial Officerprincipal financial officer concluded that our disclosure controls and procedures were effective as of that date.

There were no changes in our internal controlcontrols over financial reporting that occurred during our fiscal quarter ended December 31, 2017June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


31


Part II. Other Information

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The table below sets forth information regarding Cabot’s purchases of its equity securities during the quarter ended December 31, 2017:June 30, 2023:

Period

 

Total Number of
Shares
Purchased
(1)(2)

 

 

Average Price
Paid per Share

 

 

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs
(1)

 

 

Maximum Number (or
Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the Plans or
Programs
(1)

 

April 1, 2023 - April 30, 2023

 

 

 

 

$

 

 

 

 

 

 

3,903,733

 

May 1, 2023 - May 31, 2023

 

 

195,000

 

 

$

70.65

 

 

 

195,000

 

 

 

3,708,733

 

June 1, 2023 - June 30, 2023

 

 

17,161

 

 

$

71.30

 

 

 

17,161

 

 

 

3,691,572

 

Total

 

 

212,161

 

 

 

 

 

 

212,161

 

 

 

 

Period

 

Total Number of

Shares

Purchased(1)(2)

 

 

Average Price

Paid per Share

 

 

Total Number of

Shares Purchased

as Part of Publicly

Announced Plans or

Programs(1)

 

 

Maximum Number (or

Approximate Dollar

Value) of Shares that

May Yet Be Purchased

Under the Plans or

Programs(1)

 

October 1, 2017- October 31, 2017

 

 

 

 

$

 

 

 

 

 

 

1,715,824

 

November 1, 2017- November 30, 2017

 

 

140,500

 

 

$

60.70

 

 

 

140,500

 

 

 

1,575,324

 

December 1, 2017- December 31, 2017

 

 

67,226

 

 

$

58.33

 

 

 

67,226

 

 

 

1,508,098

 

Total

 

 

207,726

 

 

 

 

 

 

 

207,726

 

 

 

 

 

(1)
On July 13, 2018, Cabot publicly announced that the Board of Directors authorized the Company to repurchase up to an additional ten million shares of its common stock on the open market or in privately negotiated transactions, increasing the balance of shares available for repurchase at that time to approximately eleven million shares. The current authorization does not have a set expiration date.
(2)
Total number of shares purchased does not include 1,262 shares withheld to pay taxes on the vesting of equity awards made under the Company's equity incentive plans or to pay the exercise price of options exercised during the period.

Item 5. Other Information

(1)

On January 13, 2015, the Company announced that the Board of Directors authorized us to repurchase up to five million shares of our common stock on the open market or in privately negotiated transactions. This authorization does not have a set expiration date.

(2)

Total number of shares purchased does not include 56,995 shares withheld to pay taxes on the vesting of equity awards made under the company's equity incentive plans or to pay the exercise price of options exercised during the period.

(c). During our fiscal quarter ended June 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934, as amended) entered into, modified (as to amount, price or timing of trades) or terminated (i) contracts, instructions or written plans for the purchase or sale of our securities that are intended to satisfy the conditions specified in Rule 10b5-1(c) under the Exchange Act for an affirmative defense against liability for trading in securities on the basis of material nonpublic information or (ii) non-Rule 10b5-1 trading arrangements (as defined in Item 408(c) of Regulation S-K).

32


Item 6. Exhibits

Item 6.Exhibit No.

Exhibits

Exhibit No.

Description

Exhibit 3.1

Restated Certificate of Incorporation of Cabot Corporation effective January 9, 2009 (incorporated herein by reference to Exhibit 3.1 of Cabot’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2008, file reference 1-5667, filed with the SEC on February 9, 2009).

Exhibit 3.23.2*

The By-laws of Cabot Corporation as amended January 8, 2016 (incorporated herein by reference to Exhibit 3.1 of Cabot Corporation’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2015, file reference 1-5667, filed with the SEC on February 5, 2016).May 11, 2023

Exhibit 10.1*

Extension AgreementAmendment No. 1, dated October 6, 2017as of April 21, 2023, to the Credit Agreement dated October 23, 2015,as of August 6, 2021, by and among Cabot Corporation, JPMorgan Chasethe designated borrowers, the lenders party thereto, and the Administrative Agent

Exhibit 10.2*

Amendment No. 2, dated as of July 27, 2023 to Credit Agreement dated as of August 6, 2021, by and among Cabot Corporation, the designated borrowers, the lenders party thereto, and the Administrative Agent

Exhibit 10.3*

Credit Agreement, dated as of May 17, 2023, among certain subsidiaries of Cabot Corporation, guaranteed by Cabot Corporation, PNC Bank, N.A.National Association, ING Bank. N.V., J.P. Morgan Securities LLS, Citigroup Global Markets Inc., Citibank, N.A., Bank of America, N.A., Mizuho Bank, Ltd., TD Bank, N.A., and Wells FargoDublin branch, U.S. Bank National Association, and the other lenders party thereto.Mizuho Bank, Ltd.

Exhibit 18.1*31.1*

Preferability letter regarding LIFO to FIFO change in inventory accounting.

Exhibit 31.1*

Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.

Exhibit 31.2*

Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.

Exhibit 32**

Certifications of the Principal Executive Officer and the Principal Financial Officer pursuant to 18 U.S.C. Section 1350.

Exhibit 101.INS*

Inline XBRL Instance Document.Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

Exhibit 101.SCH*

Inline XBRL Taxonomy Extension Schema Document.

Exhibit 101.CAL*

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

Exhibit 101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase Document.

Exhibit 101.LAB*

Inline XBRL Taxonomy Extension Label Linkbase Document.

Exhibit 101.PRE*

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

Exhibit 104*

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, formatted in Inline XBRL (included in Exhibit 101).

*Filed herewith.

**Furnished herewith.


SIGNATURES

33


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CABOT CORPORATION

Date: FebruaryAugust 8, 20182023

By:

/s/ Eduardo E. CordeiroErica McLaughlin

Eduardo E. CordeiroErica McLaughlin

Executive Vice President and Chief Financial Officer

(Duly Authorized Officer)

Date: FebruaryAugust 8, 20182023

By:

/s/ James P. KellyLisa m. Dumont

James P. KellyLisa M. Dumont

Vice President and Controller

(Chief Accounting Officer)

3934