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

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.

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 ~~61,807,147~~55,936,984 shares of common stock, $1.00 par value per share, outstanding as of ~~February 6, 2018.~~August 3, 2023.


	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.


	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.


	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.


	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

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

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 owned~~wholly-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, ~~2017~~2022 (“~~2017~~2022 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, 2017~~June 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. If~~U.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 collected~~Inflation 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 size~~IRA 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.

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 benefit~~material 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 amends~~on the ~~hedge accounting recognition and presentation requirements under hedge accounting.~~disclosure of supplier financing programs. The new standard ~~will make more financial~~requires qualitative and ~~nonfinancial hedging strategies eligible~~quantitative 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 ~~applicable~~effective 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 all~~purchased 100% of the ~~issued and outstanding shares and cash~~registered capital of ~~Tech Blend,~~Tokai Carbon (Tianjin) Co., a ~~North American producer of~~carbon black ~~masterbatches,~~manufacturing facility, from Tokai Carbon Group for a ~~preliminary~~net 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 determination~~excess of the fair value of the ~~intangible~~net 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 acquired~~purchase price was recorded as ~~goodwill.~~a gain of $24 million for the three months ended March 31, 2022. The ~~goodwill recognized is attributable~~Gain on bargain purchase of a business arose primarily due to equipment upgrades required after the ~~growth and operating synergies that~~purchase to continue to utilize the existing assets.

D. Divestitures

Sale of Purification Solutions Business

In March 2022, the Company ~~expects~~completed the sale of its Purification Solutions business, a reporting segment of the Company, to ~~realize from this acquisition. Goodwill generated from~~an 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 pension~~first quarter of fiscal 2022 and ~~other postretirement benefit costs include~~a 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 period~~nine months ended ~~December 31, 2017~~June 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 ~~both~~each of the three ~~month periods~~months ended ~~December 31, 2017~~June 30, 2023 and ~~2016~~2022 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.

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.

~~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.

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, 2017~~June 30, 2023 and ~~2016~~2022 were asare follows:

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

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.

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.

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

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.

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 ~~2017~~2022 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 ~~liability~~liabilities for ~~existing~~pending and future respirator liability ~~claims. At December 31, 2017~~claims, 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 ~~existing~~pending 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 ~~other~~the parties that contribute to the ~~settlement~~payment 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 amount~~impact 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 than~~material.

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.

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.

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 $185~~and $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 included~~expense 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.

~~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 changes~~current period ordinary income or loss to ~~federal~~determine 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.

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 that~~estimated annual effective tax rate and are recognized in the ~~impact~~impacted interim period. Losses from jurisdictions for which no benefit can be recognized are excluded from the overall computations of the ~~Act must be accounted for~~estimated annual effective tax rate and ~~reported~~a 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 of~~benefits that arise from the ~~Act~~deferred 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 specific~~tax 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 amounts~~when 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

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.

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.

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.

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.

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.

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 ~~2013~~2020 through ~~2015~~2022 tax years generally remain subject to examination by the ~~United States Internal Revenue Service~~IRS and various tax years from ~~2005~~2013 through ~~2015~~2022 remain subject to examination by the respective state tax authorities. In ~~significant non-U.S.~~foreign jurisdictions, various tax years from ~~2002~~2005 through ~~2016~~2022 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 million~~a nil amount and $2$1 million, respectively, due to the ~~expirations~~expiration 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.

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.

⁽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.

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 ~~three~~nine months of either fiscal ~~2018~~2023 or ~~2017.~~2022.

At ~~December 31, 2017~~June 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 September~~June 30, ~~2017,~~2023, the fair value of these derivatives was a net ~~liability~~asset 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.

At ~~both December 31, 2017~~June 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, 2017~~June 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 ~~capital~~finance 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 15^th ~~and September 15~~^th 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 ~~business~~product 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 ~~four~~two 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 ~~represents~~combines the ~~rubber blacks~~reinforcing carbons and engineered elastomer composites product lines.

The Performance Chemicals segment ~~combines~~aggregates the specialty carbons, ~~and~~specialty 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 ~~represents~~consisted 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.

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

⁽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


	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

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

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 Form~~2022 10-K. ~~We have updated~~

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

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.

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.

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 the~~Company 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 the~~Company’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 portion~~second 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.

~~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 ~~discussions~~discussion of our results of operations for the periods presented ~~reflect~~reflects these structures.

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

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 reconciliation~~for 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 our~~The operating tax rate ~~we exclude~~is 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 infrequent~~the certain items ~~such as a significant release or establishment~~occurred 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 losses~~historic 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 ~~2018~~2023 versus ~~First~~Third 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 ~~2018~~2023 versus ~~First Quarter~~Third 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.

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 excluded~~exclude 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:

During the ~~first~~third quarter of fiscal ~~2018,~~2023, Income (loss) ~~from continuing operations~~ before income taxes and equity in earnings of affiliated companies ~~increased~~decreased compared to the ~~first~~third quarter of fiscal ~~2017, primarily~~2022 due to ~~higher unit margins~~a reduction in ~~the~~earnings 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 Quarter~~Third quarter of Fiscal ~~2018~~2023 versus ~~First Quarter~~Third quarter of Fiscal ~~2017—~~2022—Consolidated

The ~~$109~~$181 million ~~increase~~decrease 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 ~~quarter~~nine months of fiscal ~~2018~~2023 compared to the first ~~quarter~~nine months of fiscal ~~2017~~2022 was primarily driven by ~~a more~~lower 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) ~~predominantly~~primarily 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 volumes~~decrease was primarily due to ~~volume increases from~~lower volumes and higher fixed costs, partially offset by higher unit margins in our Reinforcement Materials ~~($9 million)~~segment.

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 million~~The decrease in selling and administrative expenses in the first ~~quarter~~nine months of fiscal ~~2018~~2023 compared to the first ~~quarter~~nine months of fiscal ~~2017,~~2022 was primarily due to ~~higher volumes~~a decrease in ~~Reinforcement Materials~~the incentive compensation accrual for the fiscal 2023 period and ~~Performance Chemicals~~prior 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 impact~~the benefit from ~~changing inventory levels and higher fixed costs.~~

~~Selling and administrative expenses increased by $6 million~~the 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 increased by $3$1 million inand $2 million for the third quarter and the first ~~quarter~~nine months of fiscal ~~2018~~2023, respectively, compared to the same ~~period~~periods of fiscal ~~2017, primarily due to higher spending on growth projects across the Company.~~2022.

Interest and dividend income increased by $1$7 million and $15 million in the ~~first quarter of fiscal 2018~~three and nine months ended June 30, 2023, respectively, compared to the same ~~period~~periods of fiscal ~~2017~~2022, primarily due to higher interest ~~earned on higher cash balances.~~rates.

Interest expense ~~was flat~~increased by $9 million and $31 million in the ~~first quarter of fiscal 2018~~three and nine months ended June 30, 2023, respectively, compared to the same ~~period in~~periods of fiscal ~~2017.~~2022, primarily due to higher interest rates.

Other ~~income (expense) changed~~expense increased by $6$2 million and $4 million in the ~~first~~third quarter of fiscal ~~2018~~2023 and the first nine months of fiscal 2023, respectively, compared to the ~~first quarter~~same 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 for Income Taxes and Reconciliation of Effective Tax Rate to Operating Tax Rate

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.

~~For fiscal 2018, our expected~~ operating tax rate ~~is reconciled~~range with an effective tax rate range because, without unreasonable effort, we are unable to ~~our expected~~predict 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 file~~realizability 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 ~~returns~~benefit in ~~jurisdictions with varying statutes~~our 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.

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 statutory~~period 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

Equity in earnings of affiliated companies, net of tax, decreased $1by $2 million and $3 million in the third quarter and the first ~~quarter~~nine months of fiscal ~~2018~~2023, respectively, compared to the same ~~period~~periods of fiscal ~~2017,~~2022 primarily due to lower ~~earnings from~~profitability at our ~~Venezuelan~~ equity ~~affiliate.~~affiliate in India.

Net income (loss) attributable to noncontrolling interests, net of tax, ~~increased $6~~decreased by $1 million in the ~~first~~third quarter ~~of fiscal 2018 as~~and increased by $2 million for the nine months ended June 30, 2023, compared to the same ~~period~~periods 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 ~~ventures~~venture in ~~China and~~ the Czech Republic.

In the third quarter and first ~~quarter~~nine months of fiscal ~~2018,~~2023, we reported ~~net~~Net 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 ~~net~~Net 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 Quarter~~Fiscal 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, 2017~~June 30, 2023 and ~~2016~~2022 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.

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 ~~quarter~~nine 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 total~~in 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 ~~increased~~decreased by ~~$18~~$47 million ~~when~~in the first nine months of fiscal 2023 as compared to the same period ofin fiscal ~~2017. The increases were primarily~~2022 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 translation~~Performance 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 spot~~due to improved pricing ~~environment in Asia~~ and product mix in ~~Reinforcement Materials.~~our annual tire customer agreements.

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

~~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.

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.

Sales and EBIT for Reinforcement Materials for the third quarter and first ~~quarter~~nine months of fiscal ~~2018~~2023 and ~~fiscal 2017~~2022 were as follows:

Sales in Reinforcement Materials ~~increased~~decreased by ~~$92~~$106 million in the ~~first~~third quarter of fiscal ~~2018~~2023 compared to the same period of fiscal ~~2017,~~2022, primarily due to ~~a more~~lower 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 prices~~lower 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 ~~quarter~~first 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 ~~adjustments~~and 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 in~~and 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 ~~first~~third quarter of fiscal ~~2018~~2023 increased by $19 million compared to the same period of fiscal ~~2017, primarily due to~~2022. During the third quarter of fiscal 2023, the segment had higher unit margins, net of higher costs ($2138 million), ~~higher~~partially offset by lower volumes ($419 million) and the ~~favorable~~unfavorable impact from foreign currency translation ($1 million),. The higher unit

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.

Sales and EBIT for Performance Chemicals for the third quarter and first ~~quarter~~nine months of fiscal ~~2018~~2023 and ~~fiscal 2017~~2022 were as follows:

Sales in Performance Chemicals ~~increased~~decreased by ~~$24~~$69 million in the ~~first~~third quarter of fiscal ~~2018~~2023 compared to the same period of fiscal ~~2017,~~2022, primarily due to ~~higher~~lower volumes ($1632 million), aless favorable pricing and product mix ($27 million), the unfavorable impact ~~from~~of foreign currency translation ($56 million) and ~~a more~~lower 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 ~~higher~~less favorable product mix in our battery materials and specialty carbons product lines.

In the first nine months of fiscal 2023, sales ~~volumes~~ in ~~Europe~~Performance 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 ~~quarter~~nine months of fiscal ~~2018~~2023 compared to the same period of fiscal ~~2017, primarily~~2022, 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.

Sales and EBIT for Purification Solutions for the third quarter and first ~~quarter~~nine months of fiscal ~~2018~~2023 and ~~fiscal 2017~~2022 were as follows:

We divested the Purification Solutions ~~increased by $1 million~~business in ~~the first quarter~~March 2022. Refer to Note D of ~~fiscal 2017 compared~~our 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

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

~~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.~~

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.

Our liquidity position, as measured by cash and cash equivalents plus borrowing availability, ~~decreased~~increased by $91$233 million during the first ~~three~~nine months of fiscal ~~2018,~~2023, which was ~~attributable~~primarily due to a ~~lower~~higher 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 ~~agreement~~agreements of $1$1.1 billion. ~~Our~~

~~At December 31, 2017,~~As of June 30, 2023, we were in compliance with ~~all~~the debt covenants under ~~our revolving credit facility, including~~ the ~~total~~Credit 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, depreciation~~not 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. ~~Cash~~We 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. The~~usually reduce our commercial paper balance ~~is generally paid down~~and, 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 that~~If additional funds are needed in the U.S., we ~~have~~expect 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 on~~As of June 30, 2023, we had $1.1 billion of availability under our ~~liquidity position due to our existing tax attributes. We are evaluating~~Credit 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 to~~Euro 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 agreement~~the 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 $250~~In 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 2012~~Peso denominated net assets. As described above, currently there are currency controls that ~~matured on January 15, 2018. This debt was repaid using a combination~~prevent 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 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 ~~three~~nine months of fiscal ~~2018~~2023 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 ~~three~~nine months of fiscal ~~2018~~2023 was driven ~~primarily~~ by business earnings excluding the non-cash impacts of depreciation and amortization of ~~$39~~$107 million and ~~an increase~~a decrease in ~~our deferred tax provision~~net working capital of ~~$186 million, which more than offset our~~$96 million. The decrease in net ~~loss. In addition, there~~working capital was ~~an increase~~largely driven by a decrease in ~~Accounts~~accounts 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 ~~provided~~used by operating activities in the first ~~three~~nine months of fiscal ~~2017~~2022 was driven ~~primarily~~ by an increase in net ~~income excluding the non-cash impact~~working capital of ~~depreciation and amortization of $38~~$390 million. ~~In addition, there~~The increase in net working capital was ~~a decrease~~driven by an increase in ~~Accounts~~accounts receivable due to higher sales and an increase in ~~Accounts payable and accrued liabilities. Partially offsetting these cash inflows was~~inventory driven by a higher cost of raw materials, partially offset by an increase in ~~Inventories.~~accounts payable.

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

In the first nine months of ~~cash acquired~~fiscal 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 ~~three~~first nine months ~~ended December 31, 2016,~~of fiscal 2022, investing activities ~~consumed $23~~included $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 ~~2018~~2023 are expected to be approximately $250 million. Our planned capital spending program for fiscal ~~2018~~2023 is primarily for sustaining, compliance, and improvement capital projects at our operating facilities as well as capacity expansion expenditures in the Performance Chemicals segment.

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, primarily~~costs for the ~~construction~~installation 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.

Financing activities consumed ~~$36~~$371 million of cash in the first ~~three~~nine months of fiscal ~~2018~~2023 compared to ~~$32~~$129 million of cash ~~consumed in~~provided during the same period of fiscal 2022.

In the first ~~three~~nine 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 ~~three~~nine months of ~~both~~ fiscal ~~2018 and 2017, these~~2022, financing activities primarily consisted of ~~share repurchases~~the 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.

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.

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

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 expect~~timing 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 ~~the~~our forward-looking statements: ~~changes in raw material costs; lower than expected demand for our products; changes in~~industry 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 ~~loss~~Russian invasion of ~~one~~Ukraine; a significant adverse change in a customer relationship or ~~more~~the 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. Other~~claims. These other factors and risks are discussed more fully in our ~~2017 10-K.~~

~~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.

Information about market risks for the period ended ~~December 31, 2017~~June 30, 2023 does not differ materially from that discussed under Item 7A of our ~~2017~~2022 10-K.

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 Officer~~principal 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 Officer~~principal executive officer and our ~~Executive Vice President and Chief Financial Officer~~principal financial officer concluded that our disclosure controls and procedures were effective as of that date.

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

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

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.


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


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐ ~~(Do not check if smaller reporting company)~~	Smaller reporting company	☐

Emerging growth company	☐


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.	~~Exhibits~~Other Information	3832
	Item 6.	Exhibits	33


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


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


	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


	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

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

	(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

	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	)


	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

	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

	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

	~~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	%


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

~~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 ~~3.2~~3.2*		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 Agreement~~Amendment No. 1, dated ~~October 6, 2017~~as of April 21, 2023, to ~~the~~ Credit Agreement dated ~~October 23, 2015,~~as of August 6, 2021, by and among Cabot Corporation, ~~JPMorgan Chase~~the 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 Fargo~~Dublin branch, U.S. Bank National Association, and ~~the other lenders party thereto.~~Mizuho Bank, Ltd.

Exhibit 18.131.1		~~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).


	CABOT CORPORATION

Date: ~~February~~August 8, ~~2018~~2023	By:	/s/ E~~duardo~~ ~~E. Cordeiro~~Erica McLaughlin
		~~Eduardo E. Cordeiro~~Erica McLaughlin
		Executive Vice President and Chief Financial Officer
		(Duly Authorized Officer)


Date: ~~February~~August 8, ~~2018~~2023	By:	/s/ J~~ames~~ ~~P. Kelly~~Lisa m. Dumont
		~~James P. Kelly~~Lisa M. Dumont
		Vice President and Controller (Chief Accounting Officer)