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CABOT CORPORATION
ANNUAL
REPORT
2021
CABOT CORPORATION ANNUAL REPORT 2021
OUR PURPOSE
Creating materials that improve
daily life and enable a more
sustainable future.
Driving materials innovation
Supporting our customers
Creating a more sustainable world
OUR STRATEGY
Creating for Tomorrow
Grow
Innovate
Optimize
OUR VALUES
Integrity
Respect
Excellence
Responsibility
OUR OPERATING PLATFORM
Operational Excellence
Technology Leadership
Commercial Excellence
Global Business Services
Functional Excellence
2
Cabot Corporation is a leading global specialty chemicals and performance materials
company headquartered in Boston, Massachusetts, USA, that has delivered innovative
performance solutions to customers for over 135 years and employs approximately
4,500 people.
Our employees around the world are united by our shared purpose: creating materials
that improve daily life and enable a more sustainable future. As a market leader, we
continually extend the boundaries of what’s possible, leveraging our team’s expertise
and the latest technology to create materials that deliver new levels of performance and
efficiency. We collaborate with customers worldwide to develop solutions that give them
a competitive advantage and enable them to create innovative products that enhance
peoples’ lives, while also helping them achieve their sustainability goals and those of
their customers. We are also committed to reducing our own environmental impact
while delivering materials that can enable dramatic improvements in energy efficiency,
resource conservation and waste reduction.
OUR BUSINESS SEGMENTS
REINFORCEMENT MATERIALS
Reinforcing Carbons, Engineered Elastomer Composites
Products to reinforce and optimize the performance of rubber products including:
tires, hoses, belts, molded goods
PERFORMANCE CHEMICALS
Specialty Carbons, Battery Materials, Fumed Metal Oxides, Aerogel,
Specialty Compounds, Inkjet
Specialty additives that enable performance in: adhesives and sealants, batteries,
building construction materials, coatings, composites, electronics, industrial insulation,
inkjet printing, inks, plastics, silicones, toners, wire and cable
23
A MESSAGE TO
OUR SHAREHOLDERS
Sean D. Keohane
President and
Chief Executive Officer
Dear Fellow Shareholders:
There is an old saying that in every crisis lies an opportunity. While the impact of the COVID-19 pandemic was
unrelenting in 2021, as I look across our businesses and growth opportunities, I feel the company is better
positioned than ever before.
We believe the foundation for our success is grounded in our purpose — to create materials that improve daily
life and enable a more sustainable future. Powered by this shared purpose, our teams not only demonstrated
their adaptability and resilience in a difficult external environment, but also found ways to turn challenges into
opportunities and achieve exceptional fiscal 2021 results.
EXECUTING ON OUR GROWTH STRATEGY
Staying committed to a strategy in times of volatility and uncertainty can be difficult. Despite the challenges
presented by the pandemic, we made notable progress against our strategy driven by our strong execution
capability, our focus on commercial and operational excellence, and our commitment to delivering results.
We delivered record results in fiscal 2021, with adjusted EPS of $5.021 and discretionary free cash flow of
$353 million1. We also executed on important growth investments that we believe will capitalize on compelling
macrotrends and enable continued momentum from this new level of earnings. Our growth investments are
focused on building from positions of strength, in areas that we believe have the most potential to create
value and where we have a unique ability to win.
A great example of our growth investments at work is in Battery Materials, where fiscal year 2021 represented
a breakout year. Our unmatched portfolio of conductive carbon additives for lithium-ion batteries, combined
with our global footprint and strong customer focus, resulted in a doubling of revenue year-over-year. Industry
growth is expected to exceed 30% per year through 2030 driven by the sustainability trend to electrify mobility,
and we are excited about the potential of this application to create significant earnings and value for our
shareholders. In addition, our Inkjet product line is poised to capitalize on the transition to digital printing across
a range of industrial printing applications. The business achieved multiple original equipment manufacturer (OEM)
qualifications for packaging applications in 2021 that we expect to underpin our growth in this large market. Finally,
we advanced numerous capital efficient and advantaged capacity projects across our established product lines
to support revenue growth in the coming years.
1 Non-GAAP measure. For definitions and reconciliation to the most directly comparable U.S. GAAP measure, see supplemental information for Non-GAAP
Reconciliations located at cabotcorp.com/investors under Financial Information.
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CABOT CORPORATION ANNUAL REPORT 2021 ADVANCING SUSTAINABILITY
Sustainability is at the very heart of how we run our company and is embedded in our purpose. We recognize
that for a company to realize enduring success, the needs of our broad stakeholders must be balanced. We strive
to advance across all dimensions of our sustainability framework and made important progress in 2021. Though
there is much to highlight, a few key activities are noteworthy:
(cid:138) The selection by Newsweek to their America’s Most Responsible Companies 2021 list and recognition
k
from Investor’s Business Daily as one of the 100 Best ESG Companies of 2021.
y
(cid:138) As one of the inaugural sponsors of the Future of STEM Scholars Initiative (FOSSI), an industry-lead
initiative, we are helping to create pathways for students at historically black colleges and universities
to enter and succeed in STEM careers within the chemical industry.
(cid:138) We achieved a platinum rating from EcoVadis, the world’s largest provider of business sustainability ratings.
(cid:138) The completion of a major air emissions control project at our carbon black manufacturing facility in
Franklin, Louisiana — ensuring that we can support our customers’ supply needs in the long-term while
substantially eliminating nitrogen oxides (NOX) and sulfur dioxide (SO2) emissions. We are also recovering
waste heat which is used to generate up to 50 megawatts of cogeneration power without creating any
additional emissions.
We also further advanced our commitment to transparency. In addition to reporting against the Sustainability
Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI) frameworks, we took steps to
further enhance our environment, social and governance (ESG) disclosures by committing to align with the
recommendations of the Task Force for Climate-related Financial Disclosure (TCFD). We engaged a third party
to help us evaluate climate risks and opportunities following the TCFD guidelines and the results of this
assessment are published on our website. Furthermore, we recently announced that we are working to align
our sustainability agenda with the Paris Climate Agreement to achieve net zero emissions by 2050 and intend
to follow the methodology established by the Science Based Targets Initiative (SBTi) to set interim greenhouse
gas reduction targets.
" We believe the foundation for our success is grounded in our
purpose — to create materials that improve daily life and enable
a more sustainable future."
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CABOT CORPORATION ANNUAL REPORT 2021
LOOKING AHEAD
At our recent 2021 Investor Day, we introduced the next phase of our corporate strategy “Creating for Tomorrow”.
Through this new strategy, we will focus on our core strengths to lead in performance and sustainability — today
and into the future.
Our strategy is underpinned by three pillars: Grow, Innovate and Optimize. By executing our strategy, we expect
to deliver strong financial performance and create breakout value for our shareholders. An early example of our
strategy in action is our recently announced agreement to acquire the Tokai Carbon (Tianjin) facility in China, where
we intend to make technology investments to enable further capacity for our Battery Materials growth vector.
FINAL THOUGHTS
I am very proud of our accomplishments this year and excited about our future. Looking ahead, I am confident
that we have a winning formula — a talented team, a leading portfolio of businesses set for growth, a culture of
sustainability, and a strong balance sheet. With this foundation, I believe the potential for value creation is great.
Despite the many challenges presented by the pandemic, we achieved enormous success driven by our
strong culture and our commitment to working together as a team. I would like to extend my gratitude to all
our employees around the world for their resilience, dedication, and commitment to our purpose.
I would also like to thank our shareholders for the trust you have placed in us. We strive to create differentiated
long-term value by driving:
w Global leadership in our chosen chemistries
w Sustainability in all that we do
w A track record of disciplined execution and earnings growth
w Strong cash flow generation to fund advantaged growth investments and return excess capital
to shareholders
As we navigate through these uncertain times, you can be sure that we remain driven by our purpose and
committed to the disciplined execution of our strategy.
Wishing you good health.
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6
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number 1-5667
Cabot Corporation
(Exact name of Registrant as specified in its Charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
Two Seaport Lane, Suite 1400
Boston, Massachusetts
(Address of Principal Executive Offices)
04-2271897
(I.R.S. Employer
Identification No.)
02210
(Zip Code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Registrant’s telephone number, including area code: (617) 345-0100
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
Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934: None.
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒ No ☐
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
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 every Interactive Data File required to be submitted
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 such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller
reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
Accelerated filer
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by checkmark 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 has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the
registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐
As of the last business day of the Registrant’s most recently completed second fiscal quarter (March 31, 2021), the aggregate
No ☒
market value of the Registrant’s common stock held by non-affiliates was $2,956,431,066. As of November 15, 2021, there were
56,803,284 shares of the Registrant’s common stock outstanding.
Portions of the Registrant’s definitive proxy statement for its 2022 Annual Meeting of Shareholders are incorporated by
reference into Part III of this report.
TABLE OF CONTENTS
PART I
ITEM 1.
Business ..........................................................................................................................................................................
ITEM 1A.
Risk Factors .....................................................................................................................................................................
ITEM 1B. Unresolved Staff Comments ...........................................................................................................................................
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 7.
Properties........................................................................................................................................................................
Legal Proceedings ...........................................................................................................................................................
Mine Safety Disclosures ..................................................................................................................................................
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .....
Management’s Discussion and Analysis of Financial Condition and Results of Operations ...........................................
PART II
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.........................................................................................
ITEM 8.
Financial Statements and Supplementary Data..............................................................................................................
ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..........................................
ITEM 9A.
Controls and Procedures.................................................................................................................................................
ITEM 9B. Other Information...........................................................................................................................................................
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance ..............................................................................................
ITEM 11.
Executive Compensation.................................................................................................................................................
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...........................
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence...............................................................
ITEM 14.
Principal Accounting Fees and Services ..........................................................................................................................
ITEM 15.
ITEM 16.
Exhibits, Financial Statement Schedules.........................................................................................................................
Form 10-K Summary .......................................................................................................................................................
Signatures ..........................................................................................................................................................................................
PART IV
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25
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Information Relating to Forward-Looking Statements
This annual report on Form 10-K contains “forward-looking statements” under the Federal securities laws. These forward-
looking statements address expectations or projections about the future, including our expectations regarding our future business
performance and overall prospects; segment growth and the assumptions underlying our growth expectations; demand for our
products; when we expect to close the sale of our Purification Solutions business, the amount of the cash proceeds we expect to
receive upon the closing of the transaction and the amount of the impairment charge we will record in the first quarter of fiscal 2022
in connection with the transaction; research and development activities; the recommencing of work on our Cilegon, Indonesia plant
expansion for reinforcing carbons, and the resumption of activities at our facility in Pepinster, Belgium; when we expect production
of specialty carbons to begin at our new facility in Jiangsu Province, China; when we expect to complete our new specialty
compounds unit at our plant in Cilegon, Indonesia; when we expect to close our purchase from Tokai Carbon Group of its carbon
black facility in Tianjin, China and when we expect the conversion of the first unit at the site to be completed; the timing of
payments for costs associated with reorganization actions; 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; our plans to refinance the 3.7% Notes
that mature in July 2022; anticipated capital spending, including environmental-related and technology controls capital
expenditures; regulatory developments; restructuring and transformation plan charges and charges related to flooding at our
Pepinster, Belgium facility; cash requirements and uses of available cash, including future cash outlays associated with long-term
contractual obligations, restructurings, contributions to employee benefit plans, environmental remediation costs and future
respirator liabilities and the timing of such outlays; exposure to interest rate and foreign exchange risk; future benefit plan payments
we expect to make; future amortization expenses; our ability to recover deferred tax assets; our operating tax rate; and the possible
outcome of legal and environmental proceedings, and value-added tax matters. 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 past results and from those expressed in the forward-looking statements.
Important factors that could cause our actual results to differ materially from those expressed in our forward-looking statements are
described in Item 1A in this report.
We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future
events or otherwise, except as required by law. Investors are advised, however, to consult any further disclosures we make on
related subjects in our 10-Q and 8-K reports filed with the Securities and Exchange Commission (the “SEC”).
3
Item 1.
General
Business
PART I
Cabot is a global specialty chemicals and performance materials company headquartered in Boston, Massachusetts. Our
principal products are reinforcing and specialty carbons, specialty compounds, fumed metal oxides, activated carbons, inkjet
colorants, and aerogel. Cabot and its affiliates have manufacturing facilities and operations in the United States (“U.S.”) and over 20
other countries. Cabot’s business was founded in 1882 and incorporated in the State of Delaware in 1960. The terms “Cabot”,
“Company”, “we”, and “our” as used in this report refer to Cabot Corporation and its consolidated subsidiaries.
Our “advancing the core” corporate strategy is to extend our leadership in performance materials by investing for growth in
our core businesses, driving application innovation with our customers, and generating strong cash flows through efficiency and
optimization. Our products are generally based on technical expertise and innovation in one or more of our four core competencies:
making and handling very fine particles; modifying the surfaces of very fine particles to alter their functionality; designing particles to
impart specific properties to a formulation; and combining particles with other ingredients to deliver a formulated performance
intermediate or composite. We focus on creating particles, and formulations of those particles, with the composition, morphology,
and surface functionalities to deliver the requisite performance to support our customers’ existing and emerging applications.
Our business is organized into three reportable segments: Reinforcement Materials; Performance Chemicals; and Purification
Solutions. On November 25, 2021, we entered into an agreement to sell our Purification Solutions business, which we expect to
close in the second quarter of fiscal 2022. Upon the consummation of this transaction, our business will be organized into two
reportable segments. Our business segments are discussed in more detail later in this section.
Our internet address is www.cabotcorp.com. We make available free of charge on or through our website our annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after electronically filing
such material with, or furnishing it to, the SEC. Information appearing on our website is not a part of, and is not incorporated in, this
Annual Report on Form 10-K.
Reinforcement Materials
Products
Carbon black is a form of elemental carbon that is manufactured in a highly controlled process to produce particles and
aggregates of varied structure and surface chemistry, resulting in many different performance characteristics for a wide variety of
applications. Reinforcing carbons (a class of carbon blacks manufactured by Cabot) are used to enhance the physical properties of
the systems and applications in which they are incorporated.
Our reinforcing carbons products are used in tires and industrial products. Reinforcing carbons have traditionally been used in
the tire industry as a rubber reinforcing agent to increase tread durability and are also used as a performance additive to reduce
rolling resistance and improve traction. In industrial products such as hoses, belts, extruded profiles and molded goods, reinforcing
carbons are used to improve the physical performance of the product, including the product’s physical strength, fluid resistance,
conductivity and resistivity.
In addition to our reinforcing carbons, we manufacture engineered elastomer composites (“E2C™”) solutions that are
composites of reinforcing carbons and rubber made using our patented elastomer composites manufacturing process. These
composites improve abrasion/wear resistance, reduce fatigue of rubber parts and reduce rolling resistance compared to reinforcing
carbons/rubber compounds made entirely by conventional rubber mix methods enabling rubber product manufacturers to reduce
the need to make performance trade-offs. Additionally, because E2C™ solutions can be integrated into current product methods
without additional significant capital investment, and require fewer mixing stages, lower mixing temperatures and shorter mixing
cycles than conventional products, operating and production costs may be reduced.
Drivers of Demand and Sales and Customers
Demand for our Reinforcement Materials products is largely driven by the growth and development of the tire and
automotive industries. In addition to general global economic conditions, demand for reinforcing carbons in tires is mainly
influenced by the number of replacement and original equipment tires produced, which in turn is driven by (i) vehicle and driving
trends, including the number of miles driven, and the number of vehicles produced and registered, (ii) demand for high-performance
tires, (iii) demand for larger tires and larger vehicles, such as trucks, buses, off-road vehicles used in agriculture, mining and similar
vehicles, (iv) consumer and industrial spending on new vehicles and (v) changes in regulatory requirements impacting vehicle fuel
efficiency and tire regulations. Demand for reinforcing carbons for industrial products is mainly influenced by vehicle production and
design trends, construction activity and general industrial production.
4
Demand in the developed Western European, Japanese, and North American regions is mainly driven by demographic
changes, customers’ high-quality requirements, stringent tire regulation standards, changes in consumer preference (e.g., different
tire sizes, model and powertrain types), and relatively stable tire replacement demand. Demand in developing markets, such as
China, Southeastern Asia, South America and Eastern Europe, is mainly driven by the growing middle class, rapid industrialization,
infrastructure spending and increasing car ownership trends. The growth in vehicle production in turn drives demand for both
original equipment tires and replacement tires in developing regions.
Sales of reinforcing carbons and E2C™ solutions are made primarily by Cabot employees and secondarily through distributors
and sales representatives. Sales to five major tire customers represent a material portion of Reinforcement Materials’ total net sales
and operating revenues. The loss of any of these customers, or a significant reduction in volumes sold to them, could have a material
adverse effect on the segment.
Under appropriate circumstances, we have entered into supply arrangements with certain customers, the typical duration of
which is one year. These arrangements typically provide for sales price adjustments to account for changes in relevant feedstock
indices and, in many cases, changes in other relevant costs (such as the cost of natural gas). In fiscal 2021, approximately 60% of our
reinforcing carbons volume was sold under these supply arrangements. The majority of the volumes sold under these arrangements
are sold to customers in the Americas and Europe.
We licensed our patented elastomer composites manufacturing process to Manufacture Francaise des Pneumatiques Michelin
for their exclusive use in tire applications through fiscal 2017, and for a period of limited exclusivity in tire applications through fiscal
2019. As consideration, we receive quarterly royalty payments extending through calendar year 2022.
Much of the reinforcing carbons we sell is used in tires and automotive products and, therefore, our financial results may be
affected by the cyclical nature of the automotive industry. However, a large portion of the market for our products is in replacement
tires that historically have been less subject to automotive industry cycles.
Competition
We are one of the leading manufacturers of carbon black in the world. We compete in the sale of reinforcing carbons with four
companies that operate globally and numerous other companies that operate regionally, a number of which export product outside
their region. Competition for our Reinforcement Materials products is based on product performance, quality, reliability, price,
service, technical innovation, and logistics. We believe our product differentiation, technological leadership, global manufacturing
presence, operations and logistics excellence and customer service provide us with a competitive advantage.
Raw Materials
The principal raw material used in the manufacture of our reinforcing carbons is composed of residual heavy oils derived from
petroleum refining operations, the distillation of coal tars, and the production of ethylene throughout the world. Natural gas is also
used in the production of our reinforcing carbons. Raw materials are, in general, readily available and in adequate supply. Raw
material costs generally are influenced by the availability of various types of our feedstocks and natural gas, supply and demand of
such raw materials and related transportation costs.
Operations
We own, or have a controlling interest in, and operate plants that produce reinforcing carbons in Argentina, Brazil, Canada,
China, Colombia, the Czech Republic, France, Indonesia, Italy, Japan, Mexico, the Netherlands and the U.S. An equity affiliate
operates a reinforcing carbons plant in Venezuela. In addition, we have a 98% ownership interest in an entity that manufactures our
E2C™ products in Port Dickson, Malaysia.
The following table shows our ownership interest as of September 30, 2021 in segment operations in which we own less than
100%:
Location
Shanghai, China
Tianjin, China
Xingtai City, China
Valasske Mezirici (Valmez), Czech Republic
Cilegon, Indonesia
Port Dickson,Malaysia
Valencia, Venezuela
Percentage Interest
70% (consolidated subsidiary)
70% (consolidated subsidiary)
60% (consolidated subsidiary)
52% (consolidated subsidiary)
98% (consolidated subsidiary)
98% (consolidated subsidiary)
49% (equity affiliate)
5
During fiscal 2019, we began engineering work on an expansion of our Cilegon, Indonesia plant, which would have added
approximately 90,000 metric tons of capacity to our network. In fiscal 2020, after a review of our capital allocation priorities, we
temporarily suspended further work on this expansion and currently expect to recommence work on this project at a later time.
One of the main environmental challenges of a carbon black plant is the management of exhaust gas from production
processes. This exhaust gas contains a number of regulated pollutants, including carbon monoxide and sulfur compounds. Our most
common method for controlling these gases is through combustion, which produces useable energy as a by-product. Currently, nine
reinforcing carbons and three reinforcing carbons/specialty carbons manufacturing sites have energy centers, which allow us to
utilize these gases through some form of energy co-generation, such as the sale or reuse of steam, gas or electricity. Depending on
our capacity utilization, our energy centers generally reduce our manufacturing operating costs.
Performance Chemicals
Our Performance Chemicals reporting segment is organized into two businesses: our Performance Additives business and our
Formulated Solutions business. Our Performance Additives business combines our specialty carbons, including battery materials,
fumed metal oxides and aerogel product lines, and our Formulated Solutions business combines our specialty compounds and inkjet
product lines.
In Performance Chemicals, we design, manufacture and sell materials that deliver performance in a broad range of customer
applications across the automotive, construction, infrastructure, inkjet printing, electronics, and consumer products sectors and in
applications related to the generation, transmission and storage of energy. Our focus areas for growth include carbon additives and
other materials for battery applications (which materials we currently refer to as our “Battery Materials”, and formerly referred to as
“Energy Materials”), inkjet dispersions for post print corrugated packaging applications, and conductive compounds and
concentrates for various plastics applications. The investments we have made for growth in this segment, including in respect of
these specific areas of focus, are described below under the heading “Operations”.
Products
Performance Additives Business
Carbon black is a form of elemental carbon that is manufactured in a highly controlled process to produce particles and
aggregates of varied structure and surface chemistry, resulting in many different performance characteristics for a wide variety of
applications.
Our specialty carbons are used to impart color, provide rheology control, enhance conductivity and static charge control,
provide UV protection, enhance mechanical properties, and provide formulation flexibility through surface treatment. These
specialty carbon products are used in a wide variety of applications, such as plastics, which applications represent the largest use for
our products, inks, coatings, adhesives, toners, batteries, and displays.
Our Battery Materials applications include our conductive carbon additives (carbon black and carbon nanotubes) and fumed
metal oxides, which are used principally in advanced lead acid and lithium-ion batteries used in electric vehicles. In lithium-ion
batteries, our conductive carbon additives are used in both cathode and anode applications to enable enhanced energy density over
longer cycle life.
Fumed silica is an ultra-fine, high-purity particle used as a reinforcing, thickening, abrasive, thixotropic, suspending or anti-
caking agent in a wide variety of products for the automotive, construction, microelectronics, batteries, and consumer products
industries. These products include adhesives, sealants, cosmetics, batteries, inks, toners, silicone elastomers, coatings, polishing
slurries and pharmaceuticals. Fumed alumina, also an ultra-fine, high-purity particle, is used as an abrasive, absorbent or barrier
agent in a variety of products, such as inkjet media, lighting, coatings, cosmetics and polishing slurries.
Aerogel is a hydrophobic, silica-based particle with a high surface area that is used in a variety of thermal insulation and
specialty chemical applications. In the building and construction industry, the product is used in insulative sprayable plasters and
composite building products, as well as translucent skylight, window, wall and roof systems for insulating eco-daylighting
applications. In the specialty chemicals industry, the product is used to provide matte finishing, insulating and thickening properties
for use in a variety of applications.
Formulated Solutions Business
Our masterbatch and conductive compound products, which we refer to as “specialty compounds”, are formulations derived
from specialty carbons mixed with polymers and other additives. These products are generally used by plastic resin producers and
converters in applications for the automotive, industrial, packaging, infrastructure, agriculture, consumer products, and electronics
industries. As an alternative to directly mixing specialty carbon blacks, these formulations offer greater ease of handling and help
customers achieve their desired levels of dispersion and color and manage the addition of small doses of additives. In addition, our
electrically conductive compound products generally are used to help ensure uniform conductive performance and reduce risks
associated with electrostatic discharge in plastics applications.
6
Our inkjet colorants are high-quality pigment-based black and color dispersions and inks. Our dispersions are based on our
patented pigment surface modification technology and polymer encapsulation technology. The dispersions are used in aqueous
inkjet inks to impart color, sharp print characteristics and durability, while maintaining high printhead reliability. These products are
used in various inkjet printing applications, including traditional work-from-home and corporate office settings, and, increasingly, in
commercial and corrugated packaging, that all require a high level of dispersibility and colloidal stability. Our inkjet inks, which utilize
our pigment-based colorant dispersions, are used in the commercial printing segment for digital print.
Drivers of Demand and Sales and Customers
Our specialty carbons products have a wide variety of end-uses and demand is largely driven by the growth and development
of the construction and infrastructure, automotive, electronics and consumer products industries. Demand for our conductive
carbon additives for use in batteries is largely driven by the trend in electrification of vehicles. Demand for fumed silica is mainly
influenced by trends in key markets for silicones, adhesives and coatings applications, notably, structural adhesives for automobile
light-weighting, epoxy bonding paste for wind turbines, high-performance coatings and hybrid sealants for construction and silicones
for medical devices and the proliferation of electronics. Demand for specialty compounds is mainly influenced by growth and
development of the automotive, infrastructure, consumer goods and electronical and electronic devices, packaging and agriculture
industries.
Demand for our inkjet colorants is mainly influenced by developments in print media, pages printed in office and work-from-
home environments, as well as press sales and utilization levels as digital aqueous pigment-based inks penetrate commercial and
packaging applications historically served by analog printing methods.
Sales of these products are made by Cabot employees and through distributors and sales representatives. In our specialty
carbons and specialty compounds product lines, sales are generally to a broad number of customers. In our fumed metal oxides
product line, sales under contracts with six customers account for approximately one-third of the revenue.
Competition
We are a leading producer of the products we sell in this segment. We compete in the sale of carbon black with four
companies that operate globally and numerous other companies that operate regionally, a number of which export product outside
their region. For battery applications, we produce conductive carbon and carbon nanotubes for both lithium ion and lead acid
batteries. For battery applications, we compete primarily with two companies that operate globally that manufacture conductive
carbon additives and we compete primarily with one China-based company that manufactures carbon nanotubes. For fumed silica,
we compete primarily with two companies with a global presence and several other companies which have a regional presence. For
aerogel, we compete principally with one other company that produces aerogel products. We also compete with non-aerogel
insulation products manufactured by regional companies throughout the world. For specialty compounds, we compete with many
regional companies and a small number of global companies. Our inkjet colorants and inks are designed to replace traditional
pigment dispersions and dyes used in inkjet printing applications. Competitive products for inkjet colorants are organic dyes and
other dispersed pigments manufactured and marketed by large chemical companies and small independent producers.
Competition for our Performance Chemicals products is based on product performance, quality, reliability, service, technical
innovation and price. We believe our product differentiation, technological leadership, operations excellence and customer service
provide us with a competitive advantage.
Raw Materials
Raw materials for our products are, in general, readily available and in adequate supply. The principal raw material used in the
manufacture of our specialty carbons is composed of residual heavy oils derived from petroleum refining operations, the distillation
of coal tars, and the production of ethylene throughout the world. Natural gas is also used in the production of our specialty
carbons. These raw material costs generally are influenced by the availability of various types of our feedstocks and natural gas,
supply and demand of such raw materials and related transportation costs. Changes in certain of our raw material supplier’s
operating conditions could reduce the availability of certain very specialized feedstocks.
Raw materials for the production of fumed silica are various chlorosilane feedstocks. We purchase feedstocks and for certain
customers convert their feedstock to product on a fee-basis (so called “toll conversion”). We also purchase aluminum chloride as
feedstock for the production of fumed alumina. We have long-term procurement contracts or arrangements in place for the
purchase of fumed silica feedstock primarily from fence-line partners, which we believe will enable us to meet our raw material
requirements for the foreseeable future. In addition, we buy some raw materials in the spot market to help ensure flexibility and
minimize costs. The principal raw materials for the production of aerogel are silica sol and/or sodium silicate.
7
The primary raw materials used for our specialty compounds include carbon black, primarily sourced from our carbon black
plants, prime and recycled thermoplastic resins and mineral fillers supplied from various sources. Raw materials for inkjet colorants
include carbon black sourced from our carbon black plants, organic pigments and other treating agents available from various
sources. Raw materials for inkjet inks include pigment dispersions, solvents and other additives.
Operations
We own, or have a controlling interest in, and operate plants that produce specialty carbons primarily in China, the
Netherlands and the U.S. We also own, or have a controlling interest in, manufacturing plants that produce fumed metal oxides in
China, Germany, the United Kingdom (“U.K”), and the U.S. and a manufacturing plant that produces aerogel in Frankfurt, Germany.
An equity affiliate operates a fumed metal oxides plant in India. Our specialty compounds are predominately produced in facilities
that we own, or have a controlling interest in, located in Belgium, Canada, China and the United Arab Emirates. Our inkjet colorants
and inks are manufactured at our facility in the U.S.
The following table shows our ownership interest as of September 30, 2021 in these segment operations in which we own less
than 100%:
Location
Tianjin, China
Jiangxi Province, China
Wuhai, China
Mettur Dam, India
Percentage Interest
90% (consolidated subsidiary)
90% (consolidated subsidiary)
80% (consolidated subsidiary)
50% (equity affiliate)
Currently, three of our reinforcing carbons/specialty carbons manufacturing sites have energy centers.
We are investing for growth with a number of capacity expansion projects and other transactions. In September 2018, we
acquired NSCC Carbon (Jiangsu) Co., Ltd. from Nippon Steel Carbon Co., Ltd., a subsidiary of Nippon Steel Chemical & Material Co.,
Ltd., adding to our portfolio a 50,000-metric ton facility in Pizhou, Jiangsu Province, China. We have begun modifying this facility to
produce specialty carbons, and expect production to begin in fiscal 2022. In addition, during fiscal 2018, we purchased Tech Blend, a
leading North American producer of black masterbatches, extending our geographic footprint in black masterbatch and compounds.
The acquisition added a manufacturing facility in Saint-Jean-sur-Richelieu, Québec, Canada to our manufacturing network. In June
2019, we acquired certain intangible assets from a leading masterbatch producer in Asia, which extended our global footprint in
black masterbatch. In addition, to meet anticipated demand, we are in the process of expanding our specialty compounds
manufacturing capacity with a new specialty compounds unit at our reinforcing carbons plant in Cilegon, Indonesia, which we expect
to be completed in 2023.
We also continue to expand our fumed silica manufacturing capacity, with new plants in Wuhai, China and Carrollton,
Kentucky, U.S. In fiscal 2019, we completed construction and began operations at our facility in Wuhai, and in August 2020 we
completed construction and began operations at our facility in Carrollton, which is adjacent to DowDuPont’s existing silicone
monomer plant.
To strengthen our formulations capabilities for batteries, in April 2020, we acquired carbon nano-tube producer Shenzhen
Sanshun Nano New Materials Co., Ltd. In addition to additional technology capabilities, this acquisition added a manufacturing
facility in Zhuhai, China to our manufacturing network. We intend to further expand our manufacturing capacity for our Battery
Materials product line to meet anticipated demand, and in November 2021, we entered into an agreement with Tokai Carbon Group
to purchase its carbon black manufacturing facility in Tianjin, China, which we expect to close in the second quarter of fiscal 2022.
We plan to convert certain manufacturing units to allow us to produce specialty carbons, including products for our Battery
Materials product line, and expect the conversion of the first unit at the site to be completed in calendar year 2024. We plan to
manufacture reinforcing carbons at this facility initially and during the period of conversion.
Purification Solutions
Products
Activated carbon is a porous material consisting mainly of elemental carbon treated with heat, steam and/or chemicals to
create high internal porosity, resulting in a large internal surface area that resembles a sponge. It is generally produced in two forms,
powdered and granular, and is manufactured in different sizes, shapes and levels of purity and using a variety of raw materials for a
wide variety of applications. Activated carbon is used to remove contaminants from liquids and gases using a process called
adsorption, whereby the interconnected pores of activated carbon trap contaminants.
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Our activated carbon products are used for the purification of water, air, food and beverages, pharmaceuticals and other
liquids and gases, as either a colorant or a decolorizing agent in the manufacture of products for food and beverage applications and
as a chemical carrier in slow release applications. In gas and air applications, one of the uses of activated carbon is for the removal of
mercury in flue gas streams. In certain applications, used activated carbon can be reactivated for further use by removing the
contaminants from the pores of the activated carbon product. The most common applications for our reactivated carbon are water
treatment and food and beverage purification. In addition to our activated carbon production and reactivation, we also provide
activated carbon solutions through on-site equipment and services, including delivery systems for activated carbon injection in coal-
fired utilities, mobile water filter units and carbon reactivation services.
Drivers of Demand and Sales and Customers
Demand for our activated carbon products is driven primarily by the demand for activated carbon-based solutions for water,
gas and air, pharmaceuticals, food and beverages, catalysts and other chemical applications.
Sales of activated carbon are made by Cabot employees and through distributors and sales representatives to a broad range of
customers, including coal-fired utilities, food and beverage processors, water treatment plants, pharmaceutical companies and
catalyst producers. Some of our sales of activated carbon are made under annual contracts or longer-term agreements, particularly
in mercury removal applications.
Competition
We are one of the leading manufacturers of activated carbon in the world. We compete in the manufacture of activated
carbon with a number of companies, some of which have a global presence and others that have a regional or local presence,
although not all of these companies manufacture activated carbon for the range of applications for which we sell our products.
Competition for activated carbon and activated carbon equipment and services is based on quality, price, performance, and supply-
chain stability. We believe our commercial strengths include our product and application diversity, product differentiation,
technological leadership, and quality.
Raw Materials
The principal raw materials we use in the manufacture of activated carbon are various forms of coal, including lignite, wood
and other carbonaceous materials, which are, in general, readily available and we believe we have in adequate supply. With respect
to our operations in North America, we owned a lignite mine that was operated by Caddo Creek Resources Company, LLC, a
subsidiary of the North American Coal Company, and which supplied our Marshall, Texas facility (the “Marshall Facility”). On
September 30, 2020, we sold our interest in the mine to ADA Carbon Solutions (Operations) LLC, a subsidiary of Advanced Emissions
Solutions, Inc. (“ADES”), and entered into a long-term supply agreement with ADA Carbon Solutions (Red River), LLC, a subsidiary of
ADES, under which it will manufacture and supply our proprietary portfolio of lignite-based activated carbon products exclusively to
us. As a result of these actions, effective September 30, 2020, we ceased manufacturing lignite-based activated carbon at our
Marshall Facility and idled our activation kilns at that facility.
Operations
We own, or have a controlling interest in, and operate plants that produce activated carbon in Italy, the Netherlands, the U.K.
and the U.S. Since September 30, 2020, operations at our Marshall Facility have been limited to certain operational activities not
involving the production of activated carbon, including washing of activated carbon, as well as packaging and warehousing
operations. We also have joint venture interests in activated carbon plants in Canada and Mexico, and a reactivation plant in
Singapore. The following table shows our ownership interest as of September 30, 2021 in activated carbon operations in which we
own less than 100%:
Location
Estevan, Saskatchewan, Canada
Atitalaquia, Hidalgo, Mexico
Republic of Singapore
Patents and Trademarks
Percentage Interest
50% (contractual joint venture)
49% (equity affiliate)
35% (equity affiliate)
We own and are a licensee of various patents, which expire at different times, covering many of our products as well as
processes and product uses. Although the products made and sold under these patents and licenses are important to Cabot, the loss
of any particular patent or license would not materially affect our business, taken as a whole. We sell our products under a variety of
trademarks we own and take reasonable measures to protect them. While our trademarks are important to Cabot, the loss of any
one of our trademarks would not materially affect our business, taken as a whole.
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Research and Development
Our reinforcing and specialty carbon products are highly versatile and meet specific performance requirements across many
industries, creating opportunities for innovation. In each of fiscal 2020 and fiscal 2021, we spent approximately $55 million on
technology development and R&D focused in the areas of conductive carbons, dispersions and engineered elastomer composites.
Our process technology innovation efforts have been focused largely on process yield and optimization to reduce our Scope 1
emissions. Going forward, as part of our sustainability efforts, we expect to focus our R&D and innovation on opportunities to
further enhance waste heat recovery, integrate reclaimed carbon, recycled polymers and alternative feedstocks into our products,
explore the viability and cost effectiveness of the use of carbon capture and storage/use, as well as developing products that enable
customers to create products with improved sustainability profiles.
Seasonality
Our businesses are generally not seasonal in nature, although we may experience some regional seasonal declines during
holiday periods and some weather-related seasonality in Purification Solutions.
Human Capital Resources
Our success is realized through the engagement and commitment of our people. We believe that our globally distributed
workforce positions us well to serve our broad customer base in the regions and geographies in which they operate. As of
September 30, 2021, we had approximately 4,500 employees across our operations, with 40% of our employees in the Americas
(65% of whom are in the United States), 31% in EMEA, and 29% in Asia Pacific (75% of whom are in China). Of this global employee
base, 44% are employed in manufacturing roles.
Our Management Executive Committee (“Executive Committee”) is comprised of our CEO and his nine direct reports who,
collectively, have management responsibility for our businesses, our financial, legal, safety, health and environment, human
resources, research and development, global business services, and digital functions, and our regional operations.
Our main human capital objectives are to attract, retain and develop the highest quality talent and ensure they feel safe,
supported and empowered to do the best work they can do. Accordingly, our management team places significant focus and
attention on matters concerning the Company’s workforce – particularly in the areas of diversity, talent retention and development,
total rewards, and employee health and safety. These areas of focus are also represented in our 2025 Sustainability Goals, which
include:
• fostering an environment where employees report high levels of inclusion and support for their professional development;
• increasing diverse representation in leadership and professional roles; and
• reducing injuries and frequency of significant process safety events by 50%.
Diversity, Equity and Inclusion
In support of our goals and commitment to foster a diverse and inclusive environment where all employees can contribute,
thrive and grow, we have focused on several areas during fiscal 2021, including:
(cid:129) We introduced a global diversity and inclusion training program focused on unconscious bias for our people
managers. This program was well-received, with 99% of our people managers (525 people) and another 470
employees participating in this program in fiscal 2021. We expect to continue to provide this training regularly.
(cid:129) We launched and expanded several Employee Resource Groups (ERGs): Women & Allies, Black Employees and Allies
United, VETS, and Pride@Cabot. The objectives of these ERGs are to help foster a diverse, inclusive workplace by
educating and building awareness across the Company on challenges underrepresented groups often face, how to be
more inclusive, supporting career development and recruiting efforts, and leading community outreach efforts.
(cid:129) We facilitated additional educational programs, workshops and discussions on a variety of diversity and inclusion
topics for global, regional and local employee groups to engage individuals and teams.
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With respect to gender representation, our demographic breakdown is as follows:
Number of Employees by Level and Gender
Executive Committee
Management*
Professional Contributor
Hourly & Associate Staff
Total Population
Male
% of total
Female
% of total
7
623
854
1,975
3,459
70%
75%
73%
80%
77%
3
205
318
506
1,032
30%
25%
27%
20%
23%
Total
Employees
10
828
1,172
2,481
4,491
*Management includes both people managers and senior-level individual contributor roles.
Talent Retention and Development
We have numerous initiatives and programs to attract, develop and retain our talent tailored to specific employee populations
and geographies, including leadership and executive development programs, technical training, and other skill-based training. In
fiscal 2021, we deployed programs specific to professional growth for our process engineers that encompassed the development of
technical skills and capability as well as general business acumen. We also introduced a new online career development portal to
provide our employees with tools to empower them to drive their own career development with support from their managers.
We have well-established performance management and talent development processes in which managers provide regular
feedback and coaching to develop employees. Throughout the year, managers and employees engage in annual objective setting,
quarterly reviews of goal progress, performance feedback, career development discussions, and a year-end performance evaluation.
In addition, we regularly review talent development and succession plans for each of our functions and operating segments to
identify and develop a pipeline of talent to maintain business operations.
Our biennial employee engagement survey provides an opportunity for the Company to receive feedback from our global
workforce and gain insights related to engagement, retention and development. In our 2021 survey, we had very strong
participation with an 87% response rate. We remain encouraged by the results of this survey, which show an increase in overall
engagement and intent to stay at Cabot.
Some of our employees in the U.S. and abroad are covered by collective bargaining or similar agreements. We have generally
positive and productive employee relations with our employees, unions and works councils globally.
Total Rewards
We strive to provide a total rewards program that enables us to attract, retain and motivate the best talent to support our
businesses. Our compensation programs embrace a pay for performance philosophy and are designed to be competitive within the
markets in which we compete for talent. Our pay practices reward individual and Company performance and are equitably
differentiated based on role, experience, contributions, and performance. We regularly assess these practices to ensure we are
aligning roles with compensation levels based on job responsibilities, market competitiveness, geographical location, strategic
importance of roles and other relevant factors.
Cabot is committed to ensuring that employees are paid fairly relative to one another, without discrimination on the basis of
gender or race while taking into account job-related factors such as responsibilities, location, work experience, education and
contributions. We conduct reviews annually to monitor our pay practices and develop pay actions where appropriate. Our most
recent analysis (which did not include some of our employees who are covered by collective bargaining or similar agreements)
indicated that we have strong pay parity between females and males globally as well as with People of Color in the United States
across all pay components (annual base salary, short-term incentives, and long-term incentives) for those in the same job and
location and after assessing job-related factors such as experience, education and performance, with pay adjustments being needed
for 1% of the employees who were included in the assessment.
We also aim to provide competitive benefits programs in all the locations where we operate, including meeting or exceeding
local regulations and focusing on health and welfare, employee well-being, and retirement savings. Consistent with this practice,
during the COVID-19 pandemic we enhanced many of our offerings and provided the benefits described below, a number of which
we continue to provide in order to better support our employees and their families:
(cid:129)
(cid:129)
Expanding our Employee Assistance Program globally and offering seminars to assist employees with mental well-being
Distributing wellness kits containing supplies to combat the COVID-19 virus in most locations, comprised of items such as
face masks, thermometers and highlighting available resources for health, emotional and physical support
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(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
Offering a special recognition program, comprised of monetary and non-monetary elements, to all our employees globally
to recognize the additional efforts and contributions our colleagues made during the year in response to the pressures of
COVID-19
Introducing an emergency leave and pay policy providing for paid time off in the event of exposure to COVID-19
Fully covering the costs of COVID-19 testing and vaccines
Expanding flexible work arrangements
Providing more flexibility for participants in our 401(k) Plan for U.S.-based employees to take out loans and distributions
Offering additional back-up childcare, tutoring and elder care benefits for our U.S.-based employees
Employee Health & Safety
We are committed to providing a workplace that prioritizes the health and safety of our employees. As part of our Drive to
Zero initiative, we have set a long-term goal of achieving zero injuries at our facilities worldwide. We intend to achieve this
ambitious objective by training employees in hazard recognition, ensuring procedures are established to mitigate risks and
equipping supervisory personnel with the tools and skills required to execute our work safely. As part of this effort, members of our
leadership team participate in root cause determinations and the results are shared throughout our network of operating facilities.
Recognizing that it may take many years to achieve our Drive to Zero, we have established a continuous improvement goal for
personal safety to achieve a 50% reduction in our recordable and severe injury rate from our baseline measurement in 2019 by
2025. For fiscal year 2021, our Total Recordable Incident Rate (TRIR) based upon the number of injuries per 200,000 work hours for
both employees and contractors was 0.34 and our Lost Time Incident Rate (LTIR) was 0.24. For comparison, the US Bureau of Labor
Statistics reports for chemical manufacturing an average TRIR of 1.8 and LTIR 1.2 in calendar year 2020.
In response to the COVID-19 pandemic, we also implemented additional health and safety protocols at our sites to reduce
employee density, enhance cleaning and enact distancing requirements. Additional personal protective equipment (PPE) was
provided to employees, and work procedures were modified to reduce risk. We continue to refine these measures as new
information about the virus becomes available.
Through our global SH&E Policy, which is endorsed by our Executive Committee, we hold ourselves accountable to demonstrate
our company values and continuously improve the way we operate. The policy defines several important objectives for our
continuous improvement in safety, including:
Complying with all applicable regulations
Sharing complete information about the safe handling of our products
(cid:129)
(cid:129)
(cid:129) Maintaining the safety and security of our employees, contractors and neighbors
(cid:129) Managing our operations to minimize any impacts on our communities
(cid:129)
(cid:129)
(cid:129)
Exemplifying the Responsible Care® Guiding Principles
Partnering with customers to develop innovative and sustainable solutions
Improving efficiencies, reducing environmental impacts and ensuring that we are prepared for emergencies that could
occur
Safety, Health, Environment, and Sustainability
In recognition of the importance of safety, health, environment and sustainability matters to Cabot, our Board of Directors
has a Safety, Health, Environment, and Sustainability Committee. The Committee, which is comprised of independent directors,
meets regularly and oversees our safety, health, and environmental performance, process safety, security, product stewardship,
community engagement and governmental affairs. In particular, the Committee reviews metrics, audit results, emerging trends,
overall performance, risks and opportunity assessments and management processes related to our safety, health, environmental
and sustainability program.
Our ongoing operations are subject to extensive federal, state, local, and foreign laws, regulations, rules, and ordinances
relating to safety, health, and environmental matters (“SH&E Requirements”). The SH&E Requirements to which our operations are
subject include requirements to obtain and comply with various environmental-related permits for constructing any new facilities
and operating all of our existing facilities and for product registrations. We have expended and will continue to expend considerable
resources to construct, maintain, operate, and improve our facilities throughout the world for safety, health and environmental
protection and to comply with SH&E Requirements. We spent $83 million in environmental-related capital expenditures in fiscal
2021. We anticipate spending approximately $80 million for such matters in fiscal 2022, a significant portion of which will continue
to be for the installation of air pollution control equipment and wastewater infrastructure improvements at certain of our plants.
These costs include costs associated with our compliance with the Consent Decree we entered into in November 2013 with the U.S.
Environmental Protection Agency (“EPA”) and the Louisiana Department of Environmental Quality (“LDEQ”) regarding Cabot’s three
carbon black manufacturing facilities in the U.S. This settlement is related to the EPA’s national enforcement initiative focused on
the U.S. carbon black manufacturing sector alleging non-compliance with certain regulatory and permitting requirements under The
12
Clean Air Act, including the New Source Review (“NSR”) construction permitting requirements. Pursuant to this settlement, Cabot
has installed technology controls for sulfur dioxide and/or nitrogen oxide at its carbon black plants in Pampa, Texas and Canal,
Louisiana, and is in the process of installing such technology controls at its plant in Ville Platte, Louisiana. We expect that the total
capital costs to install these technology controls will be in the range of $225 million to $250 million and will be incurred through
calendar year 2023. As of September 30, 2021, we have incurred $125 million to install these controls in the U.S. We also expect our
operating costs will increase as these controls become operational. All carbon black manufacturers in the U.S. have settled with the
EPA and are installing similar controls.
Environmental agencies worldwide are increasingly implementing regulations and other requirements resulting in more
restrictive air emission limits globally, particularly as they relate to nitrogen oxide, sulfur dioxide and particulate matter emissions. In
addition, growing concerns about climate change and an increased focus on carbon neutrality have led to global efforts to reduce
greenhouse gas emissions, which will impact the carbon black and activated carbon industries and our businesses as carbon dioxide
is emitted from those manufacturing processes. Currently, in Europe, our four carbon black facilities and one activated carbon
facility are subject to the EU Emission Trading Scheme (“EU ETS”). The fourth phase of the EU ETS began in January 2021 with
updated product benchmarks for our carbon black facilities. In addition, our carbon black facility in The Netherlands is subject to The
Netherlands CO2 tax, which is a top-off tax to the EU ETS scheme, and in 2021 was assessed a CO2 tax. We do not expect to be
assessed a supplemental Netherlands CO2 tax as EUA pricing is expected to remain higher than the Netherlands CO2 tax threshold in
the next few years. In China national emissions trading program is currently only in place for the power sector and has not yet been
expanded beyond that sector. We continue to monitor that program’s further implementation and expect it to apply to the carbon
black industry in 2023 or 2024, with the existing pilots expected to continue to operate until the national program becomes
effective. In Canada, our carbon black manufacturing facility has been subject to the Canadian federal carbon tax program. The new
Ontario Emissions Performance Standard trading system will replace the Canadian federal Output-Based Pricing System for our
carbon black facility in Ontario, with specific transition requirements that were announced in October 2021 becoming effective on
January 1, 2022. In addition, under the Province of Ontario Ministry of Environment, Conservation and Parks regulations, we expect
we will be required within the next three to five years to install technology controls for sulfur dioxide at our manufacturing plant in
Sarnia, Ontario. In Mexico, our carbon black facility is participating in the pilot national ETS program, which is expected to continue
into fiscal 2022. A carbon tax has also recently been adopted in the Tamaulipas state, where our operations in Mexico are located,
that became effective on January 1, 2021. In other regions where we operate, some of our facilities are required to report their
greenhouse gas emissions but are not currently subject to programs requiring trading or emission controls but may be subject to
limited carbon tax programs affecting fuels we purchase. We generally expect to pay any incurred taxes or purchase emission credits
as needed to respond to any allocation shortfalls and pass these costs on to our customers. In addition, further air emission
regulations may be adopted in the future in regions and countries where we operate, which could have an impact on our operations.
Increasing regulatory programs associated with emissions and concerns regarding climate change are expected to increase our
capital and operational costs in the future.
Cabot has been named as a potentially responsible party under the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980 (the “Superfund law”) and comparable state statutes with respect to several sites primarily associated with
our divested businesses. (See “Legal Proceedings” in Item 3 below, and Note U in Item 8 below, under the heading “Contingencies”.)
During the next several years, as remediation of various environmental sites is carried out, we expect to spend against our
environmental reserve for costs associated with such remediation. As of September 30, 2021, our environmental reserve was
approximately $5 million. Adjustments are made to the reserve based on our continuing analysis of our share of costs likely to be
incurred at each site. Inherent uncertainties exist in these estimates due to unknown conditions at the various sites, changing
governmental regulations and legal standards regarding liability, and changing technologies for handling site investigation and
remediation. While the reserve represents our best estimate of the costs we expect to incur, the actual costs to investigate and
remediate these sites may exceed the amounts accrued in the environmental reserve. While it is always possible that an unusual
event may occur with respect to a given site and have a material adverse effect on our results of operations in a particular period,
we do not believe that the costs relating to these sites, in the aggregate, are likely to have a material adverse effect on our
consolidated financial position. Furthermore, it is possible that we may also incur future costs relating to environmental liabilities
not currently known to us or as to which it is currently not possible to make an estimate.
The International Agency for Research on Cancer (“IARC”) classifies carbon black as a Group 2B substance (known animal
carcinogen, possible human carcinogen). We have communicated IARC’s classification of carbon black to our customers and
employees and have included that information in our safety data sheets and elsewhere, as appropriate. We continue to believe that
the available evidence, taken as a whole, indicates that carbon black is not carcinogenic to humans, and does not present a health
hazard when handled in accordance with good housekeeping and safe workplace practices as described in our safety data sheets.
Our products are subject to the chemical control laws and regulatory requirements of the countries in which they are
manufactured or imported. These laws include the regulation of chemical substances and inventories under the Toxic Substances
Control Act (“TSCA”) in the U.S. and the Registration, Evaluation and Authorization of Chemicals (“REACh”) in the European Union.
13
Manufacturers or importers of these chemical substances are required to submit specified health, safety, environment, risk and use
information about these substances. Under the “Evaluation” portion of the REACh framework, the European Chemicals Agency
(ECHA) and European Union Member States assess the information submitted by companies within registration dossiers and testing
proposals to determine whether the associated substances are safe for use. The dossier of silica and multiwalled carbon nanotubes
have recently been reviewed and accepted by the competent authority. Carbon black is scheduled for review in 2022. Analogous
regimes exist in other parts of the world, including the UK, Turkey, Eurasia, China, South Korea, and Taiwan. Many of these chemical
control regulations are in the process of a multi-year implementation period for product/substance registrations or notifications.
Additional requirements for nanomaterials apply to many of our existing products including carbon black, fumed silica, inkjet
pigments, fumed alumina, and advanced carbons such as carbon nanostructures and carbon nanotubes. Country-specific
nanomaterial reporting programs have been implemented in some countries and are being developed by others. We intend to
continue to monitor and comply with these requirements.
A number of organizations and regulatory agencies have become increasingly focused on the issue of water scarcity and water
quality, particularly in certain geographic regions. We are engaged in various activities to promote water conservation and
wastewater recycling. The costs associated with these activities are not expected to have a material adverse effect on our
operations.
Various U.S. agencies and international bodies have adopted security requirements applicable to certain manufacturing and
industrial facilities and marine port locations. These security-related requirements involve the preparation of security assessments
and security plans in some cases, and in other cases the registration of certain facilities with specified governmental authorities. We
closely monitor all security-related regulatory developments and believe we are in compliance with all existing requirements.
Compliance with such requirements is not expected to have a material adverse effect on our operations.
Item 1A.
Risk Factors
In addition to factors described elsewhere in this report, the following are important factors that could adversely affect our
business. The risks described below are not the only risks we face. Additional risks not presently known to us or that we currently
deem immaterial may also impair our business operations and financial results.
COVID-19 Pandemic Risk
The COVID-19 pandemic has disrupted our operations and has had and could continue to have a material adverse effect on our
business and any future outbreak of a widespread health epidemic could materially and adversely impact our business in the
future.
Our global operations expose us to risks associated with public health crises and outbreaks of epidemics, pandemics, or
contagious diseases, such as the current outbreak of a novel strain of coronavirus (“COVID-19”). The COVID-19 pandemic and the
associated containment efforts have had a serious adverse impact on the economy and on our business, results of operations and
cash flows. Specifically, during fiscal 2020, the COVID-19 pandemic disrupted operations at our key customers within the automotive
and tire industries, which materially reduced demand for our products. The deterioration of earnings we experienced from the
COVID-19 pandemic was one of the factors that contributed to our recording of a valuation allowance on our U.S. deferred tax
assets in the fourth quarter of fiscal 2020, as described in Note R in Item 8 below under the heading “Income Taxes”. In response to
reduced demand for our products, and also to comply with government mandates, during portions of fiscal 2020 we temporarily
ceased operations or idled production lines at our facilities and we may be required to do this in the future. In addition, the current
pandemic, or any future global health crisis, could materially affect our ability to adequately staff and maintain our operations,
including in the event government authorities impose mandatory closures, work-from-home orders and social distancing protocols,
and seek voluntary facility closures and impose other restrictions to mitigate the further spread of disease. A global health crisis
could also disrupt our supply chain and materially and adversely impact our ability to secure supplies for our facilities and to provide
personal protective equipment for our employees, which could materially and adversely affect our operations. For example, the
COVID-19 pandemic is having a negative impact on the cost and availability of global transportation and on the availability of semi-
conductor chips for the automotive industry. It has also contributed to increased costs and decreased availability of labor and
materials for construction projects, and these factors have increased the costs of our capital improvement projects and delayed our
completion of such projects. There may also be long-term effects on our customers in, and the economies of, affected countries.
Even if a virus or other illness does not spread significantly, the perceived risk of infection or health risk may materially affect our
business. Any of the foregoing within the countries in which we or our customers and suppliers operate could severely disrupt our
operations and could have a material adverse effect on our business, results of operations, cash flows and financial condition. As we
cannot predict the duration or scope of COVID-19 or any pandemic, the negative financial impact to our results cannot be
reasonably estimated and could be material. Factors that will influence the impact on our business and operations include the
duration and extent of the pandemic, including the virulence and spread of different strains of a virus and the level and timing of
vaccine development and distribution across the world and their impact on economic recovery and growth, the extent of imposed or
14
recommended containment and mitigation measures and their impact on our operations and the operations of our customers, and
the general economic consequences of the pandemic.
In addition, a global health crisis that continues for an extended period of time with an adverse impact on our revenue and
overall profitability may lead to an increase in inventory reserves, allowances for doubtful accounts, and additional valuation
allowances on certain of our deferred tax assets, or a reduction in our borrowing availability under our credit agreements, or cause
us to recognize impairments for certain long-lived assets including goodwill, intangible assets or property, plant and equipment.
To the extent the COVID-19 pandemic or other widespread health epidemic adversely affected or affects our business and
financial results, it may also have the effect of heightening many of the other risks that could adversely affect our business described
below, such as risks associated with industry capacity utilization, volatility in the price and availability of raw materials, material
adverse changes in customer relationships including any failure of a customer to perform its obligations under agreements with us,
IT security systems risks, factors affecting our tax rate, and risks associated with worldwide or regional economic conditions.
Industry Risks
Industry capacity utilization and competition from other specialty chemical companies may adversely impact our business.
Our businesses are sensitive to industry capacity utilization, and pricing tends to fluctuate when capacity utilization changes
occur, which could affect our financial performance. Further, we operate in a highly competitive marketplace. Our ability to compete
successfully depends in part upon our ability to maintain a superior technological capability and to continue to identify, develop and
commercialize new and innovative, high value-added products for existing and future customers. Increased competition from
existing or newly developed products offered by our competitors or companies whose products offer a similar functionality as our
products, particularly those with an improved environmental footprint, and could be substituted for our products, may negatively
affect demand for our products. In addition, actions by our competitors could impair our ability to maintain or raise prices,
successfully enter new markets or maintain or grow our market position.
Environmental regulations and restrictions that affect the carbon black industry impose constraints on our operations, and could
threaten our competitive position and increase our operating costs, which may adversely impact our business and results of
operations.
Our ongoing carbon black operations are subject to extensive federal, state, local and foreign laws, regulations, rules and
ordinances relating to environmental matters, many of which provide for substantial monetary fines and criminal sanctions for
violations. These include requirements to obtain and comply with various environmental-related and other permits for constructing
any new facilities and operating all of our existing facilities. These environmental regulatory requirements and restrictions impose
constraints on our operations, and could threaten our competitive position. We have expended and will continue to expend
considerable amounts to construct, maintain, operate, and improve our facilities around the world for environmental protection.
Further, environmental agencies worldwide are increasingly implementing regulations and other requirements resulting in
more restrictive air emission limits globally, particularly as they relate to nitrogen oxides, sulfur dioxide and particulate matter
emissions. We expect complying with existing regulations and other regulatory and tax changes being proposed in regions where we
operate, if approved, will require us to incur significant additional costs for compliance, capital improvements or limit our current or
planned operations. We may not be able to offset the effects of these compliance costs through price increases. Our ability to
implement price increases is largely influenced by competitive and economic conditions and could vary significantly depending on
the segment served. Such increases may not be accepted by our customers, may not be sufficient to compensate for increased
regulatory costs or may decrease demand for our products and our volume of sales.
A description of these matters is included in the discussion under the heading “Safety, Health, Environment, and
Sustainability” in Item 1 above, and in Note T in Item 8 below under the heading “Contingencies”).
We may be exposed to certain regulatory and financial risks related to climate change developments and an increased focus on
carbon neutrality, which may adversely affect our business and results of operations, and increased pressures and adverse
publicity about potential impacts on climate change by us or other companies in our industry could harm our reputation.
Carbon dioxide, a greenhouse gas, is emitted in carbon black manufacturing processes. Concerns about the relationship
between greenhouse gases and global climate change, and an increased focus on carbon neutrality, may result in additional
regulations on both national and supranational levels, to monitor, regulate, control and tax emissions of carbon dioxide and other
greenhouse gases. Climate changes include extreme weather impacts, such as changes in rainfall and in storm patterns and
intensities, water shortages, significantly changing sea levels and increasing atmospheric and water temperatures. A number of
governmental bodies have introduced or are contemplating regulatory changes in response to climate change, including regulating
greenhouse gas emissions. Specifically, in certain geographic areas, our carbon black and activated carbon facilities are or may
become subject to greenhouse gas emission trading schemes or carbon tax programs under which we may be required to pay any
incurred taxes or purchase emission credits if our emission levels exceed our free allocation. The outcome of new legislation or
15
regulation in the U.S. and other jurisdictions in which we operate may result in new or additional requirements and fees or
restrictions on certain activities. Compliance with greenhouse gas and climate change initiatives may result in additional costs to us,
including, among other things, increased production costs, increased feedstock costs, additional taxes, reduced emission allowances
or additional restrictions on production or operations, particularly as they may relate to our carbon black business. We may not be
able to offset the effects of these new or more stringent laws and regulations and compliance costs through price increases, which
could adversely affect our business and negatively impact our growth. Our ability to implement price increases is largely influenced
by competitive and economic conditions and could vary significantly depending on the segment served. Such increases may not be
accepted by our customers, may not be sufficient to compensate for increased regulatory costs or may decrease demand for our
products and our volume of sales. Any adopted future climate change regulations could also negatively impact our ability to
compete with companies situated in areas not subject to such limitations.
Even without such regulation, increased public awareness and adverse publicity about potential impacts on climate change or
environmental harm from us or our industry could harm our reputation or otherwise impact the Company adversely. In recent years,
investors have also begun to show increased interest about sustainability and climate change as it relates to their investment
decisions. In addition, increasing weather-related impacts on our operations and plant sites may impact the cost or availability of
insurance. Furthermore, the potential impact of climate change and related regulation on our feedstock suppliers and customers is
highly uncertain and there can be no assurance that it will not have an adverse effect on the availability over time of our traditional
carbon black feedstocks, our customers’ businesses, and on our financial condition and results of operations.
Volatility in the price and availability of raw materials and energy could impact our margins and working capital.
Our manufacturing processes consume significant amounts of energy and raw materials, the costs of which are subject to
worldwide supply and demand as well as other factors beyond our control. Our carbon black businesses use a variety of feedstocks
as raw material including high sulfur fuel oils, low sulfur fuel oils, coal tar distillates, and ethylene cracker residue, the cost and
availability of which vary, based in part on geography. Significant movements or volatility in our carbon black feedstock costs could
have an adverse effect on our working capital and results of operations. In addition, regulatory changes may impact the prices of our
feedstocks. For example, the International Maritime Organization regulation known as MARPOL further restricted the sulfur
emissions for the shipping industry beginning January 1, 2020. This has impacted the prices and could impact the availability of
certain fuel oils we use as feedstock for our products.
Certain of our carbon black supply arrangements contain provisions that adjust prices to account for changes in relevant
feedstock and natural gas price indices. We also attempt to offset the effects of increases in raw material and energy costs through
selling price increases in our non-contract sales, productivity improvements and cost reduction efforts. Success in offsetting
increased raw material and energy costs with price increases is largely influenced by competitive and economic conditions and could
vary significantly depending on the segment served. Such increases may not be accepted by our customers, may not be sufficient to
compensate for increased raw material and energy costs or may decrease demand for our products and our volume of sales. If we
are not able to fully offset the effects of increased raw material or energy costs, it could have a significant impact on our financial
results. Rapid declines in energy and raw material costs can also negatively impact our financial results, as such changes can
negatively affect the returns we receive on our energy centers and yield improvement investments, and may negatively impact our
contract pricing adjustments. In addition, we use a variety of feedstock indices in our supply arrangements to adjust our prices for
changes in raw materials costs. Depending on feedstock markets and our choice of feedstocks, the indices we use in our supply
arrangements may not precisely track our actual costs. This could result in an incongruity between our pricing adjustments and
changes in our actual feedstock costs, which can affect our net working capital and our margins. Further, the timing of the
implementation of any of these pricing adjustments may not precisely track our actual costs as reflected in our financial statements.
In addition, we obtain certain of our raw materials from selected key suppliers. Although we typically maintain raw material
inventory, if any sole source supplier of raw materials ceases supplying raw materials to us, or if any of our key suppliers is unable to
meet its obligations under supply agreements with us on a timely basis or at an acceptable price, or at all, we may be forced to incur
higher costs to obtain the necessary raw materials elsewhere or, in certain limited cases, may not be able to obtain the required raw
materials.
16
A significant adverse change in a customer relationship or the failure of a customer to perform its obligations under agreements
with us could harm our business or cash flows.
Our success in strengthening relationships and growing business with our largest customers and retaining their business over
extended time periods is important to our future results. We have a group of key customers across our businesses that together
represent a significant portion of our total net sales and operating revenues. The loss of any of our important customers, or a
significant reduction in volumes sold to them, could adversely affect our results of operations until such business is replaced or any
temporary disruption ends. Further, in our Reinforcement Materials segment we enter into supply arrangements with a number of
key customers that typically have a duration of one year, which account for approximately half of our total rubber blacks volumes.
Our success in negotiating the price and volume terms under these arrangements could have a material effect on our results. In
addition, any deterioration in the financial condition of any of our customers that impairs our customers’ ability to make payments
to us also could increase our uncollectible receivables and could affect our future results and financial condition.
We are exposed to political or country risk inherent in doing business in some countries.
Sales outside of the U.S. constituted the majority of our revenues in fiscal 2021. We conduct business in several countries that
have less stable legal systems and financial markets, and potentially more corrupt business environments than the U.S. Our
operations in some countries are subject to the following risks: changes in the rate of economic growth; unsettled political or
economic conditions; non-renewal of operating permits or licenses; possible expropriation or other governmental actions;
corruption by government officials and other third parties; social unrest, war, terrorist activities or other armed conflict; confiscatory
taxation or other adverse tax policies; deprivation of contract rights; trade regulations affecting production, pricing and marketing of
products; reduced protection of intellectual property rights; restrictions or additional costs associated with repatriating cash;
exchange controls; inflation; currency fluctuations and devaluation; political tension that could result in sanctions being imposed
against our customers or suppliers in countries where sanctions have not been imposed in the past; the effect of global health,
safety and environmental matters on economic conditions and market opportunities; and changes in financial policy and availability
of credit.
The Chinese government has, from time to time, curtailed manufacturing operations, with little or no notice, in industrial
regions out of growing concern over air quality. The timing and length of these curtailments are difficult to predict and, at times, are
applied to manufacturing operations without regard to whether the operations being curtailed comply with environmental
regulations in the area. Accordingly, our manufacturing operations in China have been subject to these curtailments in the past and
will likely be subject to them in the future. In addition, the Chinese government has instituted energy intensity and energy
consumption targets in a number of provinces in its efforts to reduce energy consumption, resulting in energy quotas and shortages
in energy supply. We are unable to predict how any power outages related to these targets will impact our operations. These events
could negatively impact our results of operations and cash flows both during and after the period of any government-imposed
curtailment or power outages affecting our operations. Further, any such curtailments on the operations at our customers’ facilities
could reduce demand for our products and our volumes.
Operational Risks
As a chemical manufacturing company, our operations are subject to operational risks and have the potential to cause
environmental or other damage as well as personal injury, or disrupt our ability to supply our customers, any of which could
adversely affect our business, results of operations and cash flows.
The operation of a chemical manufacturing business as well as the sale and distribution of chemical products are subject to
operational as well as safety, health and environmental risks. For example, the production and/or processing of carbon black,
specialty compounds, fumed metal oxides, aerogel, activated carbon and other chemicals involve the handling, transportation,
manufacture or use of certain substances or components that may be considered toxic or hazardous. Our manufacturing processes
and the transportation of our chemical products and/or the raw materials used to manufacture our products are subject to risks
inherent in chemical manufacturing, including leaks, fires, explosions, toxic releases, mechanical failures or unscheduled downtime.
For example, in fiscal 2021, we experienced an unplanned plant outage at our plant in Canal, Louisiana that caused reduced volumes
and earnings during the period the plant was down and increased our fixed costs. In addition, the occurrence of material operating
problems at our facilities, particularly at a facility that is the sole source of a particular product we manufacture, or a disruption in
our supply chain or distribution operations may result in loss of production, which, in turn, may make it difficult for us to meet
customer needs. Accordingly, these events and their consequences could negatively impact our results of operations and cash flows,
both during and after the period of operational difficulties, and could harm our reputation.
17
An interruption in our operations as a result of fence-line arrangements could disrupt our manufacturing operations and
adversely affect our financial results.
At certain of our fumed metal oxides facilities and one of our carbon black facilities in China we have fence-line arrangements
with adjacent third party manufacturing operations (“fence-line partners”), who provide raw materials for our manufacturing
operations and/or take by-products generated from our operations. Accordingly, any disruptions or curtailments in a fence-line
partner’s production facilities that impacts their ability to supply us with raw materials or to take our manufacturing by-products
could disrupt our manufacturing operations or cause us to incur increased operating costs to mitigate such disruption. We have
experienced disruptions in the supply of raw materials from certain of our fence-line partners in recent years, which have caused us
to curtail our operations or incur higher operating costs. Significant events at neighboring industrial facilities, such as environmental
releases, could also disrupt our operations and result in negative publicity about us and harm our reputation.
Our products are subject to extensive safety, health and environmental requirements, which could impair our ability to
manufacture and sell certain products.
In order to secure and maintain the right to produce or sell our products, we must satisfy product related regulatory
requirements in different jurisdictions. Obtaining and maintaining these approvals requires a significant amount of product testing
and data, and there is no certainty these approvals will be obtained.
Certain national and international health organizations have classified carbon black as a possible or suspected human
carcinogen. To the extent that, in the future, (i) these organizations re-classify carbon black as a known or confirmed carcinogen, (ii)
other organizations or government authorities in other jurisdictions classify carbon black or any of our other finished products, raw
materials or intermediates as suspected or known carcinogens or otherwise hazardous, or (iii) there is discovery of adverse health
effects attributable to production or use of carbon black or any of our other finished products, raw materials or intermediates, we
could be required to incur significantly higher costs to comply with environmental, health and safety laws, or to comply with
restrictions on sales of our products, be subject to legal claims, and our reputation and business could be adversely affected. In
addition, chemicals that are currently classified as non-hazardous may be classified as hazardous in the future, and our products may
have characteristics that are not recognized today but may be found in the future to impair human health or to be carcinogenic.
Information technology systems failures, data security breaches, cybersecurity attacks or network disruptions could compromise
our information, disrupt our operations and expose us to liability, which may adversely impact our operations.
We rely on information technology, some of which is managed by third parties, to manage the day-to-day operations and
activities of our business, operate elements of our manufacturing facilities, manage our customer and vendor transactions, and
maintain our financial, accounting and business records. In addition, we collect and store certain data, including proprietary business
information, and may have access to confidential or personal information that is subject to privacy and security laws and
regulations.
The secure processing, maintenance and transmission of this data is critical to our operations and business strategy.
Information technology systems failures, including those associated with upgrading our systems or integrating information
technology and other systems in connection with the integration of businesses we acquire, or network disruptions could disrupt our
operations by impeding our processing of transactions and our financial reporting, and our operations, which could have a material
adverse effect on our business or results of operations.
In addition, our information technology systems could be compromised by outside parties intent on extracting information,
corrupting information or disrupting business processes. Despite our security design and controls, and those of our third-party
providers, we may be vulnerable to cyber-attacks, computer viruses, security breaches, inadvertent or intentional employee actions,
system failures and other risks that could potentially lead to the compromising of sensitive, confidential or personal data, improper
use of our, or our third-party provider systems, solutions or networks, unauthorized access, use, disclosure, modification or
destruction of information, or operational disruptions. We face increased information technology security and fraud risks due to our
increased reliance on working remotely during the COVID-19 pandemic and beyond, which may create additional information
security vulnerabilities and/or magnify the impact of any disruption in information technology systems. Additionally, we may be
exposed to unauthorized access to our information technology systems through undetected vulnerabilities in our service providers’
information systems or software. With the evolving nature of cybersecurity threats, the scope and impact of any information
security incident cannot be predicted. In addition, the global regulatory environment pertaining to information security and privacy
is increasingly demanding, with new and changing requirements, such as the European Union’s General Data Protection Regulation
(“GDPR”), the China Cybersecurity Law, and Brazil’s Lei Geral de Protecao de Dados (LGPD). Complying with these laws and
regulations may be more costly or take longer than we anticipate and could otherwise affect our business operations.
18
Breaches of our security measures, cyber incidents and disruptions, or the accidental loss, inadvertent disclosure, or
unapproved dissemination of proprietary information or sensitive or confidential information about the Company, our employees,
our vendors, or our customers, or failure to comply with laws and regulations related to information security or privacy, could result
in legal claims or proceedings against us by governmental entities or individuals, significant fines, penalties and judgments,
disruption of our operations, remediation requirements, changes to our business practices, and damage to our reputation, and could
otherwise harm our business and our results of operations.
Natural disasters and severe weather events could affect our operations and financial results.
We operate facilities in areas of the world that are exposed to natural hazards, such as floods, windstorms, hurricanes, and
earthquakes. In addition, extreme weather events and changing weather patterns present physical risks on existing infrastructure
that may become more frequent or more severe as a result of factors related to climate change. Such events could disrupt our
supply of raw materials or otherwise affect production, transportation and delivery of our products or affect demand for our
products.
We have experienced recent disruptions of the type described above. For example, the severe flooding that occurred in
Western Europe in July 2021 caused significant damage to our Specialty Compounds plant in Pepinster, Belgium. This disruption has
resulted in a near-term reduction in earnings from lower volumes and certain increases in our operating costs, not all of which we
expect to be able to recover from our insurance.
Technology Risks
We may not be successful achieving our growth expectations from new products, new applications and technology
developments, and money we spend on these efforts may not result in an increase in revenues or profits commensurate with our
investment.
We may not be successful achieving our growth expectations from developing new products or product applications.
Moreover, we cannot be certain that the costs we incur investing in new product and technology development will result in an
increase in revenues or profits commensurate with our investment. For example, our investments to further develop our E2C™
solutions and battery materials applications may not result in the earnings growth expectations on which these investments are
being made. In addition, the timely commercialization of products that we are developing may be disrupted or delayed by
manufacturing or other technical difficulties, market acceptance or insufficient market size to support a new product, competitors’
new products, and difficulties in moving from the experimental stage to the production stage. These disruptions or delays could
affect our future business results.
The continued protection of our patents, trade secrets and other proprietary intellectual property rights are important to our
success.
Our patents, trade secrets and other intellectual property rights are important to our success and competitive position. We
own various patents and other intellectual property rights in the U.S. and other countries covering many of our products, as well as
processes and product uses. Where we believe patent protection is not appropriate or obtainable, we rely on trade secret laws and
practices to protect our proprietary technology and processes, such as physical security, limited dissemination and access and
confidentiality agreements with our employees, customers, consultants, business partners, potential licensees and others to protect
our trade secrets and other proprietary information. However, trade secrets can be difficult to protect and the protective measures
we have put in place may not prevent disclosure or unauthorized use of our proprietary information or provide an adequate remedy
in the event of misappropriation or other violations of our proprietary rights. In addition, we are a licensee of various patents and
intellectual property rights belonging to others in the U.S. and other countries. Because the laws and enforcement mechanisms of
some countries may not allow us to protect our proprietary rights to the same extent as we are able to do in the U.S., the strength of
our intellectual property rights will vary from country to country.
Irrespective of our proprietary intellectual property rights, we may be subject to claims that our products, processes or
product uses infringe the intellectual property rights of others. These claims, even if they are without merit, could be expensive and
time consuming to defend and if we were to lose such claims, we could be enjoined from selling our products or using our processes
and/or be subject to damages, or be required to enter into licensing agreements requiring royalty payments and/or use restrictions.
Licensing agreements may not be available to us, or if available, may not be available on acceptable terms.
Portfolio Management, Capacity Expansion and Integration Risks
Any failure to realize benefits from acquisitions, alliances or joint ventures or to achieve our portfolio management objectives
could adversely affect future financial results.
In achieving our strategic plan objectives, we may pursue acquisitions, alliances or joint ventures intended to complement or
expand our existing businesses globally or add product technology, or both. The success of acquisitions of businesses, new
technologies and products, or arrangements with third parties is not always predictable and we may not be successful in realizing
19
our objectives as anticipated. We may not be able to integrate any acquired businesses successfully into our existing businesses,
make such businesses profitable, or realize anticipated cost savings or synergies, if any, from these acquisitions, which could
adversely affect our business results. In addition to strategic acquisitions we evaluate our portfolio in light of our objectives and
alignment with our growth strategy. In implementing this strategy we may not be successful in separating non-strategic assets. The
gains or losses on the divestiture of, or lost operating income from, such assets may affect our earnings. Moreover, we have in the
past, and may again in the future, incur asset impairment charges related to acquisitions or divestitures that reduce earnings. As
described in Item 9B, “Other Information”, below, we expect to record an asset impairment charge in the first quarter of fiscal 2022
in connection with the disposition of our Purification Solutions business.
Plant capacity expansions and site development projects may impact existing plant operations, be delayed and/or not achieve the
expected benefits.
Our ability to complete capacity expansions and site development projects, including capacity conversions from rubber carbon
black to specialty carbon black and other site development projects, as planned may be delayed or interrupted by the need to obtain
environmental and other regulatory approvals, unexpected cost increases, availability of labor and materials, unforeseen hazards
such as weather conditions, and other risks customarily associated with construction projects. These risks include the risk that
existing plant operations are disrupted, which could make it difficult for us to meet our customer needs. Moreover, in the case of
capacity expansions, the cost of these activities could have a negative impact on the financial performance of the relevant business
until capacity utilization at the particular facility is sufficient to absorb the incremental costs associated with an expansion. In
addition, our ability to expand capacity in emerging regions depends in part on economic and political conditions in these regions
and, in some cases, on our ability to establish operations, construct additional manufacturing capacity or form strategic business
alliances.
Financial Risks
Negative or uncertain worldwide or regional economic conditions or trade relations may adversely impact our business.
Our operations and performance are affected by worldwide and regional economic conditions. Uncertainty or a deterioration
in the economic conditions affecting the businesses to which, or geographic areas in which, we sell products could reduce demand
for our products. We may also experience pricing pressure on products and services, which could decrease our revenues and have
an adverse effect on our financial condition and cash flows. In addition, during periods of economic uncertainty, our customers may
temporarily pursue inventory reduction measures that exceed declines in the actual underlying demand.
In addition, changes in, or tensions relating to, U.S. trade relations with countries where we do business may adversely impact
our business. For example, tensions in the U.S.-China trade relationship have led to an increase in the risk of sanctions being
imposed against our suppliers and customers in China which, if imposed, could restrict our ability to do business with such
companies. In addition, further trade tensions between the countries could have further adverse implications on our businesses and
operating results in both the U.S. and China. For instance, we may encounter unexpected operating difficulties in China, more
restrictive investment opportunities in China, greater difficulty transferring funds, more restrictive travel in and out of China, or
negative currency impacts. Further, the cost of our capital projects may be higher than anticipated because of these trade tariffs.
Litigation or legal proceedings could expose us to significant liabilities and thus negatively affect our financial results.
As more fully described in Note T in Item 8 below under the heading “Contingencies”, we are a party to or the subject of
lawsuits, claims, and proceedings, including, but not limited to, those involving environmental, and health and safety matters as well
as product liability and personal injury claims relating to asbestosis, silicosis, and coal worker’s pneumoconiosis. We are also a
potentially responsible party in various environmental proceedings and remediation matters wherein substantial amounts are at
issue. Adverse rulings, judgments or settlements in pending or future litigation (including liabilities associated with respirator claims)
or in connection with environmental remediation activities could adversely affect our financial results or cause our results to differ
materially from those expressed or forecasted in any forward-looking statements.
Our tax rate is dependent upon a number of factors, a change in any of which could impact our future tax rates and net income.
Our future tax rates may be adversely affected by a number of factors, including: changes in the jurisdictions in which our
profits are determined to be earned and taxed; changes in the estimated realization of our net deferred tax assets; the repatriation
of non-U.S. earnings for which we have not previously provided for non-U.S. withholding taxes; adjustments to estimated taxes upon
finalization of various tax returns; increases in expenses that are not deductible for tax purposes; changes in available tax credits; the
resolution of issues arising from tax audits with various tax authorities; and changes in tax laws or the interpretation of such tax
laws. In addition, losses for which no tax benefits can be recorded could materially impact our tax rate and its volatility from one
quarter to another.
20
Fluctuations in foreign currency exchange and interest rates affect our financial results.
We earn revenues, pay expenses, own assets and incur liabilities in countries using currencies other than the U.S. dollar. In
fiscal 2021, we derived a majority of our revenues from sales outside the U.S. Because our consolidated financial statements are
presented in U.S. dollars, we must translate revenues and expenses, as well as assets and liabilities, into U.S. dollars at exchange
rates in effect during or at the end of each reporting period. Therefore, increases or decreases in the value of the U.S. dollar against
other currencies in countries where we operate will affect our results of operations and the value of balance sheet items
denominated in foreign currencies. Due to the geographic diversity of our operations, weaknesses in some currencies might be
offset by strengths in others over time. In addition, we are exposed to adverse changes in interest rates. We manage both these risks
through normal operating and financing activities and, when deemed appropriate, through the use of derivative instruments as well
as foreign currency debt. We cannot be certain, however, that we will be successful in reducing the risks inherent in exposures to
foreign currency and interest rate fluctuations.
Further, we have exposure to foreign currency movements because certain foreign currency transactions need to be
converted to a different currency for settlement. These conversions can have a direct impact on our cash flows.
We have entered into a number of derivative contracts with financial counterparties. The effectiveness of these contracts is
dependent on the ability of these financial counterparties to perform their obligations and their nonperformance could harm our
financial condition.
We have entered into forward foreign currency contracts and cross-currency swaps as part of our financial risk management
strategy. The effectiveness of our risk management program using these instruments is dependent, in part, upon the counterparties
to these contracts honoring their financial obligations. If any of our counterparties are unable to perform their obligations in the
future, we could be exposed to increased earnings and cash flow volatility due to an instrument’s failure to hedge or adequately
address a financial risk.
Item 1B.
Unresolved Staff Comments
None.
21
Item 2.
Properties
Cabot’s corporate headquarters are in leased office space in Boston, Massachusetts. We also own or lease office,
manufacturing, storage, distribution, marketing and research and development facilities in the U.S. and in foreign countries. The
locations of our principal manufacturing and/or administrative facilities are set forth in the table below. Unless otherwise indicated,
all the properties are owned.
Location by Region
Americas Region
Alpharetta, Georgia*(1)
Tuscola, Illinois
Carrollton, Kentucky
Canal, Louisiana
Ville Platte, Louisiana
Billerica, Massachusetts
Haverhill, Massachusetts
Midland, Michigan
Pryor, Oklahoma
Marshall, Texas
Pampa, Texas
Campana, Argentina
Maua, Brazil
Sao Paulo, Brazil*(1)
Saint-Jean-sur-Richelieu, Québec, Canada
Sarnia, Ontario, Canada
Cartagena, Colombia
Altamira, Mexico
Europe, Middle East and Africa Region
Loncin, Belgium
Pepinster, Belgium
Valasske Mezirici (Valmez), Czech Republic**
Port Jerome, France**
Frankfurt, Germany*
Rheinfelden, Germany
Ravenna, Italy (2 plants)
Riga, Latvia*(1)
Schaffhausen, Switzerland*
Botlek, Netherlands**
Amersfoort, Netherlands*
Klazienaveen, Netherlands
Zaandam, Netherlands
Dubai, United Arab Emirates*
Purton, United Kingdom (England)
Glasgow, United Kingdom (Scotland)
Barry, United Kingdom (Wales)**
Reinforcement
Materials
Performance
Chemicals
Purification
Solutions
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
22
Location by Region
Asia Pacific Region
Jiangsu Province, China**
Jiangxi Province, China**
Tianjin, China**
Shanghai, China*(1)
Shanghai, China** (plant)
Xingtai City, China**
Wuhai, China**
Shenzhen, China**
Zhuhai, China**
Mumbai, India*
Cilegon, Indonesia**
Jakarta, Indonesia*(1)
Chiba, Japan
Shimonoseki, Japan**
Tokyo, Japan*(1)
Port Dickson, Malaysia**
Reinforcement
Materials
Performance
Chemicals
Purification
Solutions
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
(1)
*
**
Business service center
Leased premises
Building(s) owned by Cabot on leased land
We conduct research and development for our various businesses primarily at facilities in Billerica, Massachusetts;
Amersfoort, Netherlands; Pampa, Texas; Pepinster, Belgium; Frankfurt, Germany; and Zhuhai and Shanghai, China.
With our existing manufacturing plants and planned expansions, we generally have sufficient production capacity to meet
current requirements and expected near-term growth. These plants are generally well maintained, in good operating condition and
suitable and adequate for their intended use. Our administrative offices and other facilities are suitable and adequate for their
intended purposes.
23
Item 3.
Legal Proceedings
Cabot is a party in various lawsuits and environmental proceedings wherein substantial amounts are claimed. Additional
information regarding legal proceedings involving Cabot is disclosed in Note T in Item 8 below, under the heading “Contingencies”,
which disclosure is incorporated herein by reference.
Item 4.
Mine Safety Disclosures
Not applicable.
Information about our Executive Officers
Set forth below is certain information about Cabot’s executive officers as of November 15, 2021.
Sean D. Keohane, age 54, is President and Chief Executive Officer and a member of Cabot’s Board of Directors, positions he has
held since March 2016. Mr. Keohane joined Cabot in 2002. From November 2014 until March 2016 he was Executive Vice President
and President of Reinforcement Materials. From March 2012 until November 2014, he was Senior Vice President and President of
Performance Chemicals, and from May 2008 until March 2012, he was General Manager of Performance Chemicals. He was
appointed Vice President in March 2005, Senior Vice President in March 2012 and Executive Vice President in November 2014. He
was a member of the Interim Office of the Chief Executive Officer, which was in place from December 2015 until March 2016.
Erica McLaughlin, age 45, is Senior Vice President and Chief Financial Officer. Ms. McLaughlin joined Cabot in 2002. She was
appointed Senior Vice President and Chief Financial Officer in May 2018, and in October 2018 she assumed responsibility for
Corporate Strategy and Development. From June 2016 until May 2018 she was Vice President of Business Operations for
Reinforcement Materials and General Manager of the tire business, and from July 2011 until June 2016, she was Vice President of
Investor Relations and Corporate Communications. Prior to July 2011, she held a variety of leadership positions in Finance and
Corporate Planning.
Karen A. Kalita, age 42, is Senior Vice President and General Counsel. Ms. Kalita joined Cabot in 2008. Prior to assuming her
current position in June 2019, she held several key positions in Cabot’s Law Department, including Chief Counsel to the Company’s
Reinforcement Materials segment from November 2015 to June 2019 and Purification Solutions segment from June 2013 to June
2019, and senior legal counsel to the Company’s previous Advanced Technologies segment. Prior to joining the Company, Ms. Kalita
was in private practice at WilmerHale LLP in Boston, MA.
Hobart C. Kalkstein, age 51, is Senior Vice President and President, Reinforcement Materials Segment and President, Americas
Region. Mr. Kalkstein joined Cabot in 2005. Prior to assuming his current role in April 2016, he was Vice President of Corporate
Strategy and Development from December 2015 to April 2016. From October 2013 to December 2015, he served as Vice President
of Global Business Operations for Purification Solutions and from November 2012 to December 2015 as General Manager of Global
Emission Control Solutions for Purification Solutions, and from January 2012 to November 2012 he served as Vice President of
Business Operations and Executive Director of Marketing and Business Strategy for Performance Chemicals. Prior to that, he served
as General Manager of the Aerogel business from October 2007 to February 2010.
Jeff Zhu, age 53, is Senior Vice President and President, Performance Additives business and President, Asia Pacific Region. Mr.
Zhu joined Cabot in 2012. Prior to assuming his current role in October 2019, he had served as President, Asia Pacific Region since
joining Cabot. Prior to joining Cabot, Mr. Zhu served in a variety of regional and global business leadership roles at Rhodia from 1994
until 2010, including Asia Pacific regional commercial director from 1994 to 2002, regional vice president and general manager of
Rhodia Novacare Asia Pacific from 2002 to 2008, and vice president and global director of Rhodia electronics and catalysis from 2008
to 2010. In addition, Mr. Zhu served as head of global pulp and paper sales at Asia Pacific Resources International Holdings Limited
from 2010 to 2012.
24
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Cabot’s common stock is listed for trading (symbol CBT) on the New York Stock Exchange. As of November 15, 2021, there
PART II
were 611 holders of record of Cabot’s common stock.
Issuer Purchases of Equity Securities
On July 13, 2018, Cabot publicly announced that the Board of Directors authorized the Company to repurchase up to an
additional ten million shares of its common stock on the open market or in privately negotiated transactions, increasing the amount
of shares available for repurchase at that time to approximately eleven million shares. The current authorization does not have a set
expiration date. As of September 30, 2021, there were 5,023,665 shares available for repurchase under this authorization.
Comparative Stock Performance
The graph compares the cumulative total stockholder return on Cabot common stock for the five-year period ended
September 30, 2021 with the S&P 500 Chemicals Index and the S&P Midcap 400 Index. The comparisons assume the investment of
$100 on October 1, 2016 in Cabot’s common stock and in each of the indices and the reinvestment of all dividends.
The stock price performance on the graph below is not necessarily indicative of future price performance.
The information included under the heading comparative stock performance in Item 5 shall not be deemed to be “soliciting
material” or subject to Regulation 14A, shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise be
subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of
1933, as amended, or the Exchange Act.
25
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies
Our consolidated financial statements have been prepared in conformity with U.S. GAAP. This 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. The policies that we believe are critical to the preparation of the consolidated financial statements
are presented below.
Revenue Recognition
We recognize revenue when our customers obtain control of promised goods or services. The revenue recognized is the
amount of consideration which we expect to receive in exchange for those goods or services. Our contracts with customers are
generally for products only and do not include other performance obligations. Generally, we consider purchase orders, which in
some cases are governed by master supply agreements, to be contracts with customers. The transaction price as specified on the
purchase order or sales contract is considered the standalone selling price for each distinct product. To determine the transaction
price at the time when revenue is recognized, we evaluate whether the price is subject to adjustments, such as for returns, discounts
or volume rebates, which are stated in the customer contract, to determine the net consideration to which we expect to be entitled.
Revenue from product sales is recognized based on a point in time model when control of the product is transferred to the
customer, which typically occurs upon shipment or delivery of the product to the customer and title, risk and rewards of ownership
have passed to the customer. We have an immaterial amount of revenue that is recognized over time. Payment terms typically
range from zero to ninety days.
Shipping and handling activities that occur after the transfer of control to the customer are billed to customers and are
recorded as sales revenue, as we consider these to be fulfillment costs. Shipping and handling costs are expensed in the period
incurred and included in Cost of sales within the Consolidated Statements of Operations. Taxes collected on sales to customers are
excluded from the transaction price.
We generally provide a warranty that our products will substantially conform to the identified specifications. Our liability
typically is limited to either a credit equal to the purchase price or replacement of the non-conforming product. Returns under
warranty have historically been immaterial.
We do not have contract assets or liabilities that are material.
When the period of time between the transfer of control of the goods and the time the customer pays for the goods is one
year or less, we do not consider there to be a significant financing component associated with the contract.
Inventory Valuation
Inventories are stated at the lower of cost or net realizable value. The cost of 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.
Goodwill Impairment
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 and is subject to impairment testing annually, or when events or
changes in the business environment indicate that the carrying value of the reporting unit may exceed its fair value.
26
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. Reinforcement Materials, and
the fumed metal oxides, specialty compounds, and specialty carbons product lines within Performance Chemicals, which are
considered separate reporting units, carried our goodwill balances as of September 30, 2021.
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 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. The fair value is also benchmarked against the value calculated from a market approach using the guideline
public companies method. Based on our most recent annual goodwill impairment test performed as of August 31, 2021, the fair
values of the Reinforcement Materials, fumed metal oxides, specialty compounds, and specialty carbons reporting units were
substantially in excess of their carrying values.
Long-lived Assets Impairment
Our long-lived assets primarily include property, plant and equipment, intangible assets, and long-term investments. 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, we generally use 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 does not have a readily determinable fair 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 we no longer intend to use the asset.
Contingencies
We accrue costs related to contingencies when it is probable that a liability has been incurred and the amount can be
reasonably estimated. Contingencies could arise from litigation, environmental remediation or contractual arrangements. When a
single liability amount cannot be reasonably estimated, but a range can be reasonably estimated, we accrue the amount that reflects
the best estimate within that range or the low end of the range if no estimate within the range would be considered more likely than
any other estimate. The amount accrued is determined through the evaluation of various information, which could include claims,
settlement offers, demands by government agencies, estimates performed by independent third parties, identification of other
responsible parties and an assessment of their ability to contribute, and our prior experience. We do not reduce the estimated
liability for possible recoveries from insurance carriers. Proceeds from insurance carriers are recorded when realized by either the
receipt of cash or a contractual agreement. Litigation is highly uncertain and there is always the possibility of an unusual result in any
particular case that may reduce our earnings and cash flows.
We have recorded a significant reserve for respirator liability claims. Our current estimate of the cost of our share of existing
and future respirator liability claims is based on facts and circumstances existing at this time, including the number and nature of the
remaining claims. Developments that could affect our 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, (viii) the financial viability of the parties that
contribute to the payment of respirator claims, (ix) exhaustion or changes in the recoverability of the insurance coverage maintained
by certain of the parties that contribute to the settlement of respirator claims, or a change in the availability of the indemnity
provided by a former owner of the business, (x) changes in the allocation of costs among the various parties paying legal and
settlement costs, and (xi) a determination that the assumptions that were used to estimate our share of liability are no longer
reasonable. We cannot determine the impact of these potential developments on our current estimate of our share of liability for
these existing and future claims. 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 impact of potential developments on our share of liability for
27
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 material. Refer to Note T of our Notes to the Consolidated Financial Statements (“Note T”) for details
on the respirator liabilities and settlements.
Income Taxes
Our business operations are global in nature, and we are subject to taxes in numerous jurisdictions. Tax laws and tax rates vary
substantially in these jurisdictions and are subject to change based on the political and economic climate in those countries. We file
our tax returns in accordance with our interpretations of each jurisdiction’s tax laws.
Significant judgment is required in determining our worldwide provision for income taxes and recording the related tax assets
and liabilities. In the ordinary course of our business, there are operational decisions, transactions, facts and circumstances, and
calculations which make the ultimate tax determination uncertain. Furthermore, our tax positions are periodically subject to
challenge by taxing authorities throughout the world. We have recorded reserves for taxes and associated interest and penalties
when it becomes more likely than not that an amount would be payable to tax authorities in future years. Any significant impact as a
result of changes in underlying facts, law, tax rates, tax audit, or review could lead to adjustments to our income tax expense, our
effective tax rate, and/or our cash flow.
We record benefits for uncertain tax positions based on an assessment of whether the position is more likely than not to be
sustained by the taxing authorities. If this threshold is not met, no tax benefit of the uncertain tax position is recognized. If the
threshold is met, the tax benefit that is recognized is the largest amount that is greater than 50% likely of being realized upon
ultimate settlement. This analysis presumes the taxing authorities’ full knowledge of the positions taken and all relevant facts, but
does not consider the time value of money. We also accrue for interest and penalties on these uncertain tax positions and include
such charges in the income tax provision in the Consolidated Statements of Operations.
Additionally, we have established valuation allowances against a variety of deferred tax assets, including net operating loss
carryforwards, foreign tax credits, and other income tax credits. Valuation allowances take into consideration our ability to use these
deferred tax assets and reduce the value of such items to the amount that is deemed more likely than not to be recoverable. Our
ability to utilize these deferred tax assets is determined in accordance with U.S. GAAP. In jurisdictions where we have a three-year
cumulative loss, we utilize recent historical results in order to assess the recoverability of deferred tax assets. Where we have a
three-year cumulative profit, we review our forecast of future taxable income in relation to actual results and expected future
trends. We perform this review on a quarterly basis. Failure to achieve our operating income targets, may change our assessment
regarding the recoverability of our net deferred tax assets and such change could result in an increase in the valuation allowance
being recorded against some or all of our net deferred tax assets. An increase in a valuation allowance would result in additional
income tax expense, while a release of valuation allowances in periods when these tax attributes become realizable would reduce
our income tax expense.
Significant Accounting Policies
We have other significant accounting policies that are discussed in Note A in Item 8 below. Certain of these policies include the
use of estimates, but do not meet the definition of critical because they generally do not require estimates or judgments that are as
difficult or subjective to measure. However, these policies are important to an understanding of the consolidated financial
statements.
Recently Issued Accounting Pronouncements
Refer to the discussion in Note B of our Notes to the Consolidated Financial Statements.
Results of Operations
Cabot is organized into three reportable business segments: Reinforcement Materials, Performance Chemicals, and
Purification Solutions. Cabot is also organized for operational purposes into three geographic regions: the Americas; Europe, Middle
East and Africa; and Asia Pacific. The discussions of our results of operations for the periods presented reflect these structures.
Our analysis of financial condition and operating results should be read with our consolidated financial statements and
accompanying notes. Unless a calendar year is specified, all references to years in this discussion are to our fiscal years ended
September 30.
This section discusses our fiscal 2021 and fiscal 2020 results of operations and year-to-year comparisons between fiscal 2021
and fiscal 2020. For the discussions of our fiscal 2019 results and year-to-year comparisons between fiscal 2020 and fiscal 2019, refer
to our discussions under the headings “Results of Operations” and “Cash Flows and Liquidity” in Item 7 of the Company’s Annual
Report on Form 10-K for the fiscal year ended September 30, 2020, which was filed with the United States Securities and Exchange
Commission on November 25, 2020.
28
Definition of Terms and Non-GAAP Financial Measures
When discussing our results of operations, we use several terms as described below.
The term “product mix” refers to the mix of types and grades of products sold or the mix of geographic regions where
products are sold, and the positive or negative impact this has on the revenue or profitability of the business and/or segment.
Our discussion under the heading “(Provision) Benefit 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” for the periods presented,
as well as management’s projection of our operating tax rate range for the next 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. The operating tax rate excludes income tax (expense) benefit on certain items and discrete tax items. The income tax
(expense) benefit on certain items is determined using the applicable rates in the taxing jurisdictions in which the certain items
occurred and includes both current and deferred income tax (expense) benefit based on the nature of the certain items. Discrete tax
items include, but are not limited to, changes in valuation allowance, uncertain tax positions, and other tax items, such as the tax
impact of legislative changes. 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 “Fiscal 2021 compared to Fiscal 2020—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 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. Total segment EBIT 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 U.S.
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 “Fiscal 2021 compared to Fiscal 2020—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 U.S. 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 from Total segment EBIT, as applicable, but that are included in
our U.S. GAAP Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies, as
applicable, are described below.
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
Global restructuring activities, which include costs or benefits associated with cost reduction initiatives or plant closures
and are primarily related to (i) employee termination costs, (ii) asset impairment charges associated with restructuring
actions, (iii) costs to close facilities, including environmental costs and contract termination penalties and (iv) gains
realized on the sale of land or equipment associated with restructured plants or locations.
Non-recurring gains (losses) on foreign exchange, which primarily relate to the impact of controlled currency
devaluations on our net monetary assets denominated in that currency.
Legal and environmental matters and reserves, which consist of costs or benefits for matters typically related to former
businesses or that are otherwise incurred outside of the ordinary course of business.
Executive transition costs, which include incremental charges, including stock compensation charges, associated with
the retirement or termination of employment of senior executives of the Company.
Asset impairment charges, which primarily include charges associated with an impairment of goodwill or other long-
lived assets.
29
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
Acquisition and integration-related charges, which include transaction costs, redundant costs incurred during the period
of integration, and costs associated with transitioning certain management and business processes to our processes.
Gains (losses) on sale of investments, which primarily relate to the sale of investments accounted for using the cost
method.
Inventory reserve adjustment, which result from an evaluation performed as part of an impairment analysis.
Indirect tax settlement credits, which includes favorable settlements resulting in the recoveries of indirect taxes.
Gains (losses) on sale of businesses.
Employee benefit plan settlements, which consist of either charges or benefits associated with the termination of a
pension plan or the transfer of a pension plan to a multi-employer plan.
Drivers of Demand and Key Factors Affecting Profitability
Drivers of demand and key factors affecting our profitability differ by segment. In Reinforcement Materials, longer term
demand is driven primarily by: i) the number of vehicle miles driven globally; ii) the number of original equipment and replacement
tires produced; and iii) the number of automotive builds. Over the past several years, operating results have been driven by a
number of factors, including: i) increases or decreases in our sales volumes driven by changes in production levels for tires or
industrial rubber products and the level at which we service that demand; ii) changes in raw material costs and our ability to adjust
the sales price for our products commensurate with changes in raw material costs; iii) changes in pricing and product mix, which
includes customer pricing as well as the mix of products sold or the region in which they are sold; iv) global and regional capacity
utilization for carbon black; v) fixed cost savings achieved through restructuring and other cost saving activities; vi) the growth of our
volumes and market position in emerging economies; vii) capacity management and technology investments, including the impact of
energy utilization and yield improvement technologies at our manufacturing facilities; and viii) royalties and technology payments
related to our patented elastomer composites technology that is used in tire applications.
In Performance Chemicals, longer term demand is driven primarily by the construction and infrastructure, automotive,
electronics and consumer products industries. In recent years, operating results in Performance Chemicals have been driven by: i)
increases or decreases in sales volumes to the industries previously noted; ii) changes in pricing and product mix, which includes
customer pricing as well as the mix of products sold or the region in which they are sold; iii) our ability to deliver differentiated
products that drive enhanced performance in customers’ applications; iv) our ability to obtain value pricing for this differentiation; v)
the cost of new capacity; vi) changes in selling prices relative to variations in the cost of raw materials; and vii) the adoption of new
products for use in our customers’ applications.
In Purification Solutions, longer term demand is driven primarily by the demand for activated carbon based solutions for
water, gas and air, pharmaceuticals, food and beverages, catalysts and other chemical applications. Operating results in Purification
Solutions have been influenced by: i) changes in our sales volumes in the various applications previously noted; ii) management of
our operations, including inventory levels, and the commensurate costs; iii) changes in price and product mix; iv) industry capacity
utilization; and v) implementation of cost savings initiatives as part of a transformation plan.
Overview of Results for Fiscal 2021
Our business saw a strong rebound in results of operations in fiscal 2021 compared to fiscal 2020 which was adversely affected
by the COVID-19 pandemic and its impact on our customers and our operations. In fiscal 2021, we saw a recovery in demand from
the COVID-19 pandemic driven declines we experienced in fiscal 2020, as volumes in our Performance Chemicals segment returned
to pre-COVID-19 levels, and volumes in our Reinforcement Materials segment returned to just slightly below pre-COVID-19 levels.
Despite this improvement in demand for our products, the duration and scope of the COVID-19 pandemic continues to be
uncertain as infection rates remain high in many parts of the world. In addition, the COVID-19 pandemic and other factors are having
a negative impact on the cost and availability of global transportation and the availability of semi-conductor chips for the
automotive industry. While we expect these global supply chain disruptions and the semi-conductor chip shortage to impact our
Performance Chemicals segment in the short-term, if they persist or intensify, they could further negatively impact our results.
Further, the COVID-19 pandemic has also contributed to increased costs and decreased availability of labor and materials for
construction projects, and these factors have increased the costs of our capital improvement projects and may delay our completion
of such projects.
If there is a resurgence in the COVID-19 pandemic impacting our business, it could cause us to recognize write-downs or
impairments for certain assets or result in a reduction in our borrowing availability under our credit agreements. These factors could
also result in an adverse impact on our revenue as well as our overall profitability.
30
Fiscal 2021 compared to Fiscal 2020—Consolidated
Net Sales and Other Operating Revenues and Gross Profit
Net sales and other operating revenues
Gross profit
Years Ended September 30
2020
2021
$
$
(In millions)
3,409 $
799 $
2,614
500
Net sales increased by $795 million in fiscal 2021 when compared to fiscal 2020. The increase in net sales was primarily driven
by favorable price and product mix (combined $333 million), higher volumes ($324 million), and the favorable impact from foreign
currency translation ($86 million). The favorable price and product mix in the Reinforcement Materials segment was due to
improved product mix in all regions and higher prices from higher feedstock costs that are generally passed through to our
customers. The favorable price and product mix in the Performance Chemicals segment was driven by higher sales into automotive
applications and targeted growth applications and price increases to recover rising raw material and other costs. The higher volumes
in fiscal 2021 were driven by stronger demand across all regions due to the recovery from demand declines in fiscal 2020 related to
the COVID-19 pandemic.
Gross profit increased by $299 million in fiscal 2021 when compared to fiscal 2020. The gross profit increase was primarily due
to higher volumes across all regions, higher unit margins in the Reinforcement Materials segment due to stronger pricing in Asia and
higher unit margins in the Performance Chemicals segment due to higher demand in automotive applications and in targeted growth
applications.
Selling and Administrative Expenses
Selling and administrative expenses
Years Ended September 30
2020
2021
$
(In millions)
289 $
292
Selling and administrative expenses decreased by $3 million in fiscal 2021 when compared to fiscal 2020. The decrease was
due primarily to reduced legal expenses, partially offset by an increase in incentive compensation.
Research and Technical Expenses
Research and technical expenses
Years Ended September 30
2020
2021
$
(In millions)
56 $
57
Research and technical expenses decreased by $1 million in fiscal 2021 when compared to fiscal 2020.
Impairment Charges and Loss on Sale
Specialty Fluids loss on sale and asset impairment charge
Marshall Mine loss on sale and asset impairment charge
$
$
Years Ended September 30
2020
2021
(In millions)
— $
— $
1
129
The loss on sale and asset impairment charges recorded during fiscal 2020 are described in Note D of our Notes to the
Consolidated Financial Statements (“Note D”).
Interest and Dividend Income
Interest and dividend income
Years Ended September 30
2020
2021
$
(In millions)
8 $
8
Interest and dividend income in fiscal 2021 remained flat when compared to fiscal 2020.
31
Interest Expense
Interest expense
Years Ended September 30
2020
2021
$
(In millions)
49 $
53
Interest expense decreased by $4 million in fiscal 2021 as compared to fiscal 2020. The decrease was primarily due to lower
average interest rates, partially offset by higher average balances.
Other Income (Expense)
Other income (expense)
Years Ended September 30
2020
2021
$
(In millions)
(7) $
(9)
Other expense decreased during fiscal 2021 by $2 million as compared to fiscal 2020. The change was primarily due to
termination of the U.S. pension plan in fiscal 2020.
Provision (Benefit) for Income Taxes and Reconciliation of Effective Tax Rate to Operating Tax Rate
(Dollars in millions)
Effective tax rate(1)
Less: Non-GAAP tax adjustments(2)
Operating tax rate
Years Ended September 30
2021
(Provision) /
Benefit for
Income Taxes
Rate
2020
(Provision) /
Benefit for
Income Taxes
Rate
$
$
(123)
(4)
(119)
30% $
27% $
(191)
(139)
(52)
-587%
28%
(1)
(2)
Refer to the reconciliation of computed tax expense at the federal statutory rate to the Provision (benefit) for income taxes in
Note R.
Non-GAAP tax adjustments made to arrive at the operating tax provision include the income tax (expense) benefit on certain
items and discrete tax items, as further described above under the heading “Definition of Terms and Non-GAAP Financial
Measures”.
For the year ended September 30, 2021, the (Provision) benefit for income taxes was a $123 million expense compared to a
$191 million expense for the fiscal year 2020. Included in the non-GAAP tax adjustment for fiscal 2020 is the tax impact for a
valuation allowance charge recorded against U.S. deferred tax assets, as described in Note R to our financial statements. Our income
taxes are affected by the mix of earnings in the tax jurisdictions in which we operate, and the presence of valuation allowances in
certain tax jurisdictions.
For fiscal year 2022, the Operating tax rate is expected to be in the range of 27% to 29%. We are not providing a forward-looking
reconciliation of the operating tax rate range with an effective tax rate range because, without unreasonable effort, we are unable
to predict with reasonable certainty the matters we would allocate to “certain items,” including unusual gains and losses, costs
associated with future restructurings, acquisition-related expenses and litigation outcomes. These items are uncertain, depend on
various factors, and could have a material impact on the effective tax rate in future periods.
Equity in Earnings of Affiliated Companies and Net Income (Loss) Attributable to Noncontrolling Interest, Net of Tax
Equity in earnings of affiliated companies, net of tax
Net income (loss) attributable to noncontrolling interests,
net of tax
Years Ended September 30
2020
2021
(In millions)
3 $
36 $
3
17
$
$
Equity in earnings of affiliated companies, net of tax, was flat in fiscal 2021 compared to fiscal 2020.
Net income (loss) attributable to noncontrolling interests, net of tax, increased by $19 million in fiscal 2021 compared to fiscal
2020 primarily due to the higher profitability of our joint ventures in China and the Czech Republic.
32
Net Income (Loss) Attributable to Cabot Corporation
In fiscal 2021, we reported net income attributable to Cabot Corporation of $250 million ($4.34 earnings per diluted common
share). In fiscal 2020, we reported a net loss attributable to Cabot Corporation of $238 million ($4.21 loss per diluted common
share). The increase in fiscal 2021 is primarily due to higher Segment EBIT, a $228 million expense related to the tax valuation
allowance in fiscal 2020 that did not recur in fiscal 2021 as discussed in Note R, and a $129 million loss on sale and asset impairment
charge in fiscal 2020 related to our manufacturing facility and our former lignite mine in Marshall, TX that did not recur in fiscal 2021
as discussed in Note D.
Fiscal 2021 compared to Fiscal 2020—By Business Segment
Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies, certain items,
pre-tax, other unallocated items and Total segment EBIT for fiscal 2021 and 2020 are set forth in the table below. The details of
certain items and other unallocated items are shown below and in Note U of our Notes to the Consolidated Financial Statements.
Income (loss) from continuing operations before income
taxes and equity in earnings of affiliated companies
Less: Certain items, pre-tax
Less: Other unallocated items
Total segment EBIT
Years Ended September 30
2020
2021
(In millions)
$
$
406 $
(34)
(110)
550 $
(33)
(218)
(98)
283
In fiscal 2021, Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies
increased by $439 million and Total Segment EBIT increased by $267 million. The increase in Income (loss) before income taxes and
equity earnings of affiliated companies was driven by increased Total Segment EBIT and a $129 million charge for the loss on sale
and asset impairment charge during fiscal 2020 related to our manufacturing facility and our former lignite mine in Marshall, TX that
did not recur. The increase in Total segment EBIT was driven by higher volumes and unit margins, partially offset by higher fixed
costs in our Reinforcement Materials and Performance Chemicals segments. Higher volumes in the Reinforcement Materials ($106
million) and Performance Chemicals ($59 million) segments were driven by stronger demand across all regions and key end markets
due to continued market recovery from the declines in demand during fiscal 2020 driven by the COVID-19 pandemic. Higher unit
margins in the Reinforcement Materials segment ($96 million) were primarily driven by improved pricing in Asia. Higher unit margins
in the Performance Chemicals segment ($54 million) were largely due to favorable product mix in our specialty carbons, specialty
compounds and fumed metal oxides product lines as a result of higher demand in automotive applications and targeted growth
applications.
Certain Items:
Details of the certain items for fiscal 2021 and 2020 are as follows:
Indirect tax settlement credits
Legal and environmental matters and reserves (Note T)
Global restructuring activities (Note O)
Acquisition and integration-related charges (Note C)
Employee benefit plan settlements and other charges (Note M)
Marshall Mine loss on sale and asset impairment charge (Note D)
Inventory reserve adjustment
Specialty Fluids loss on sale and asset impairment charge (Note D)
Other certain items
Total certain items, pre-tax
Non-GAAP tax adjustments
Total certain items, net of tax
Years Ended September 30
2020
2021
(In millions)
12 $
(25)
(11)
(5)
(4)
—
—
—
(1)
(34)
(4)
(38) $
3
(54)
(19)
(5)
(10)
(129)
(2)
(1)
(1)
(218)
(139)
(357)
$
$
An explanation of these items of expense and income is included in our discussion under the heading “Definition of Terms and
Non-GAAP Financial Measures”.
33
Other Unallocated Items:
Interest expense
Unallocated corporate costs
General unallocated income (expense)
Less: Equity in earnings of affiliated companies, net of tax
Total other unallocated items
Years Ended September 30
2020
2021
(In millions)
(49) $
(58)
—
3
(110) $
(53)
(41)
(1)
3
(98)
$
$
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, interest income, dividend income, 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.
In fiscal 2021, Total other unallocated items increased by $12 million when compared to fiscal 2020 due to the increase in
Unallocated corporate costs for corporate projects and higher incentive compensation partially offset by the reduction in Interest
income (expense).
Reinforcement Materials
Sales and EBIT for Reinforcement Materials for fiscal 2021 and 2020 are as follows:
Reinforcement Materials Sales
Reinforcement Materials EBIT
Years Ended September 30
2020
2021
$
$
(In millions)
1,781 $
329 $
1,256
162
In fiscal 2021, sales in Reinforcement Materials increased by $525 million when compared to fiscal 2020. The increase was
primarily due to higher volumes ($242 million), a favorable price and product mix (combined $248 million), and a favorable impact
from foreign currency translation ($35 million). The higher volumes in fiscal 2021 were driven by stronger demand across all regions
as compared to fiscal 2020 due to demand declines resulting from the COVID-19 pandemic. The favorable price and product mix was
primarily due to higher prices from higher feedstock costs that are generally passed through to our customers.
In fiscal 2021, Reinforcement Materials EBIT increased by $167 million when compared to fiscal 2020. The increase was driven
by higher volumes ($106 million), higher unit margins ($96 million), and a favorable impact from foreign currency translation ($4
million). These factors were partially offset by higher fixed costs ($39 million). The higher volumes in fiscal 2021 were driven by
stronger demand across all regions as compared to fiscal 2020 due to demand declines resulting from the COVID-19 pandemic. The
higher unit margins were driven by stronger pricing in Asia. The higher fixed costs were primarily due to higher maintenance costs
after deferrals in the prior year.
In fiscal 2022, we expect to benefit from higher pricing in our 2022 calendar year customer agreements as we believe
customers are placing a premium on supply security, and higher volumes driven by robust levels of tire production.
Performance Chemicals
Sales and EBIT for Performance Chemicals for fiscal 2021 and 2020 are as follows:
Performance Additives Sales
Formulated Solutions Sales
Performance Chemicals Sales
Performance Chemicals EBIT
Years Ended September 30
2020
2021
(In millions)
796 $
352
1,148 $
211 $
645
288
933
118
$
$
$
In fiscal 2021, sales in Performance Chemicals increased by $215 million when compared to fiscal 2020. The increase was
primarily due to higher volumes ($98 million), favorable price and product mix (combined $75 million), and the favorable impact
34
from foreign currency translation ($42 million). The higher volumes were primarily due to stronger demand across our key product
lines and inventory replenishment by our customers. The favorable product mix was primarily due to higher demand in automotive
applications.
In fiscal 2021, EBIT in Performance Chemicals increased by $93 million compared to fiscal 2020 primarily due to increased
volumes ($59 million), higher unit margins ($54 million), and a favorable impact from foreign currency translation ($7 million),
partially offset by higher fixed costs ($29 million). Higher volumes across all product lines resulted from continuing strength in
demand and inventory replenishment by our customers. Favorable unit margins were driven by higher demand in automotive
applications and in targeted growth applications. Increased fixed costs were driven by increased production activity, higher
depreciation from the startup of our new fumed metal oxides plant, and higher maintenance costs after deferrals in the prior year.
In fiscal 2022, we anticipate continued demand growth across the segment driven by lessening pandemic impacts and supply
chain stabilization as we move through the fiscal year, as well as strong fundamentals in key end use industries, augmented by the
high-growth areas of battery materials and inkjet in commercial and packaging printing applications. While external challenges, such
as rising input costs, global supply chain disruptions and the semi-conductor chip shortage, are likely to remain in the short-term, we
expect the impact to moderate as we move through the fiscal year and expect to recover rising input costs through price increases.
Purification Solutions
Sales and EBIT for Purification Solutions for fiscal 2021 and 2020 are as follows:
Purification Solutions Sales
Purification Solutions EBIT
Years Ended September 30
2020
2021
$
$
(In millions)
257 $
10 $
253
3
Sales in Purification Solutions increased by $4 million in fiscal 2021 when compared to fiscal 2020 due to improved pricing and
a more favorable product mix (combined $11 million) and the favorable impact from foreign currency translation ($9 million),
partially offset by lower volumes ($16 million). The favorable price and product mix was driven by a shift towards our specialty
applications. The lower volumes were primarily due to lower sales in mercury removal products.
EBIT in Purification Solutions increased by $7 million in fiscal 2021 when compared to fiscal 2020 due to a reduction in fixed
costs ($14 million), partially offset by lower volumes ($8 million). The reduction in fixed costs was driven by the sale of our mine in
Marshall, TX and the related long-term activated carbon supply agreement. The lower volumes were primarily due to a decrease in
sales of mercury removal products.
On November 25, 2021, we entered into a Share Purchase Agreement with an affiliate of funds advised by One Equity Partners
(“OEP”) for the sale of our Purification Solutions business, subject to the satisfaction or waiver of the conditions set forth in the
agreement. We expect to close the transaction in the second quarter of fiscal 2022.
Liquidity and Capital Resources
Overview
Our liquidity position, as measured by cash and cash equivalents plus borrowing availability, decreased by $128 million during
fiscal 2021, which was largely attributable to the termination of our $100 million unsecured revolving credit agreement with TD
Bank, NA, as Lender which had a maturity date of September 2021 (the “Canadian Credit Agreement”) in the second quarter of fiscal
2021, higher net working capital, and capital expenditures, partially offset by improved earnings from operations. The Canadian
Credit Agreement provided liquidity for working capital and general corporate purposes for certain of our Canadian subsidiaries. We
had no borrowings under this agreement during either fiscal 2021 or 2020.
As of September 30, 2021, we had cash and cash equivalents of $168 million and borrowing availability under our revolving
credit agreements of $1.1 billion.
We have access to borrowings under the following two credit agreements:
(cid:129)
$1 billion unsecured revolving credit agreement (the “U.S. Credit Agreement”) with JPMorgan Chase Bank, N.A., as
Administrative Agent, Citibank, N.A., as Syndication Agent, and the other lenders party thereto, which matures in
August 2026, subject to two one-year options to extend the maturity, exercisable on or prior to August 6, 2022 and
August 6, 2023. The U.S. Credit Agreement supports our issuance of commercial paper, and borrowings under it may
be used for working capital, letters of credit and other general corporate purposes.
35
(cid:129)
€300 million unsecured revolving credit agreement (the “Euro Credit Agreement”, and together with the U.S. Credit
Agreement, the “Credit Agreements”), with Wells Fargo Bank, National Association, as Administrative Agent, and the
other lenders party thereto, which matures in May 2024 or earlier upon maturity of the U.S. Credit Agreement.
Borrowings under the Euro Credit Agreement may be used for the repatriation of earnings of our foreign subsidiaries
to the United States, the repayment of indebtedness of our foreign subsidiaries owing to us or any of our subsidiaries
and for working capital and general corporate purposes.
As of September 30, 2021, we were in compliance with the debt covenants under the Credit Agreements, which, with limited
exceptions, generally require us to comply on a quarterly basis with a leverage test. The U.S. Credit Agreement requires a leverage
ratio of net debt, with the ability to offset such debt by the lesser of (i) unrestricted cash and cash equivalents and (ii) $150 million,
to consolidated EBITDA not to exceed 3.50 to 1.00. The Euro Credit Agreement required a leverage ratio of total debt to
consolidated EBITDA not to exceed 3.50 to 1.00. Effective October 19, 2021, we amended the Euro Credit Agreement to include a
leverage test using net debt, consistent with the U.S. Credit Agreement.
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 held by foreign
subsidiaries is generally used to finance the subsidiaries’ operational activities and future investments. We are currently using a
combination of commercial paper and borrowings from the U.S. Credit Agreement to meet our U.S. cash needs. We generally reduce
our commercial paper balance 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. If additional funds are needed in the
U.S., we expect to be able to repatriate funds or to access additional debt under the Credit Agreements. As of September 30, 2021,
we had $71 million of commercial paper outstanding and our borrowings under the Euro Credit Agreement totaled $134 million.
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 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.
The following discussion of the changes in our cash balance refers to the various sections of our Consolidated Statements of
Cash Flows.
Cash Flows from Operating Activities
Cash provided by operating activities, which consists of net income adjusted for the various non-cash items included in
income, changes in working capital and changes in certain other balance sheet accounts, totaled $257 million in fiscal 2021.
Operating activities provided $377 million of cash in fiscal 2020.
Cash provided by operating activities in fiscal 2021 was driven by business earnings excluding the non-cash impacts of
depreciation and amortization of $160 million, which was partially offset by an increase in net working capital of $222 million. The
increase in net working capital was driven by an increase in accounts receivable due to higher sales and an increase in inventory
driven by a higher cost of raw materials, partially offset by an increase in accounts payable. Additionally, we made a cash payment of
$33 million in the first quarter of fiscal 2021 related to the settlement of a large group of respirator claims in fiscal 2020 as discussed
in Note T.
Cash provided by operating activities in fiscal 2020 was driven by business earnings excluding the non-cash impacts of
depreciation and amortization of $158 million, the loss on sale and asset impairment of $129 million related to our manufacturing
facility and our former lignite mine in Marshall, TX, and a deferred tax provision of $130 million which was primarily driven by a
change in our tax valuation allowance. In addition, cash provided by operating activities benefited from lower net working capital
balances, including a decrease in Accounts and notes receivable of $126 million, and a decrease in our Inventories of $114 million,
partially offset by a decrease in Accounts payable and accrued liabilities of $55 million.
In addition to the factors noted above, the following other elements of operations have a bearing on operating cash flows:
Restructurings — As of September 30, 2021, we had $9 million of total restructuring costs in accrued expenses in the
Consolidated Balance Sheets related to our global restructuring activities. We made cash payments of $9 million during fiscal 2021.
We expect to make additional cash payments of approximately $11 million in fiscal 2022 and $4 million thereafter.
36
Litigation Matters — As of September 30, 2021, we had a $44 million reserve for existing and future respirator claims that we
expect to pay over multiple years. During fiscal 2020, we settled a large group of respirator claims for $65 million. We paid half of
this settlement during fiscal 2020, and the remainder in the first quarter of fiscal 2021. We also have other lawsuits, claims and
contingent liabilities arising in the ordinary course of business.
Cash Flows from Investing Activities
Investing activities consumed $186 million of cash in fiscal 2021 compared to $288 million in fiscal 2020. In fiscal 2021, the use
of cash by investing activities primarily consisted of $195 million of capital expenditures for sustaining and compliance capital
projects at our operating facilities as well as growth-related capital, including a capacity expansion project in Performance
Chemicals.
In fiscal 2020, the use of cash by investing activities primarily consisted of $200 million of capital expenditures for sustaining
and compliance capital projects at our operating facilities as well as capacity expansion capital expenditures in Reinforcement
Materials and Performance Chemicals, an $84 million payment, net of cash acquired, for the SUSN acquisition in April 2020 and an
$8 million payment for the plant that we acquired from NSCC in September 2018.
Capital expenditures for fiscal 2022 are expected to be between $225 million and $250 million. Our planned capital spending
program for fiscal 2022 is primarily for sustaining, compliance and improvement capital projects at our operating facilities as well as
capacity expansion capital expenditures in Performance Chemicals.
Cash Flows from Financing Activities
Financing activities consumed $60 million of cash in fiscal 2021 compared to $132 million in fiscal 2020. The use of cash by
financing activities in fiscal 2021 primarily consisted of dividend payments to stockholders of $80 million, dividend payments to
noncontrolling interests of $19 million, and net repayments of long-term debt of $22 million, which consisted of proceeds of $200
million less repayments of $222 million, partially offset by net proceeds from the issuance of commercial paper of $58 million.
The use of cash by financing activities in fiscal 2020 primarily consisted of dividend payments to stockholders of $80 million,
share repurchases of $44 million, dividend payments to noncontrolling interests of $26 million, the repayment of $16 million of long-
term debt and the net repayment of $19 million of commercial paper, partially offset by the net proceeds from borrowings under
our revolvers of $50 million, which includes proceeds of $444 million less repayments of $394 million.
At September 30, 2021, we had $1.1 billion of availability under our Credit Agreements. Although we typically have an
outstanding commercial paper balance during the quarter, we generally reduce the balance at quarter-end through cash receipts
from collections, settlement of intercompany balances and short-term intercompany loans. There was $71 million and $14 million of
commercial paper outstanding at September 30, 2021 and 2020, respectively.
Our long-term total debt, of which $373 million is current, matures at various times as presented in Note I of our Notes to the
Consolidated Financial Statements. Our current plan is to refinance the $350 million in registered notes with a coupon of 3.7% that
mature in July of 2022 during the first half of calendar 2022. The weighted-average interest rate on our fixed rate long-term debt
was 3.84% as of September 30, 2021.
Share Repurchases
In fiscal 2018, our Board of Directors authorized us to repurchase up to 10 million shares of common stock. We did not
repurchase any shares during fiscal 2021. We repurchased 0.9 million shares of our common stock on the open market for $39
million during fiscal 2020. Additionally, during both fiscal 2021 and fiscal 2020 we repurchased 0.1 million shares of our common
stock associated with employee tax obligations on stock-based compensation awards for $3 million and $5 million, respectively. As
of September 30, 2021, we had approximately 5 million shares available for repurchase under the Board of Directors’ share
repurchase authorization.
Dividend Payments
In both fiscal 2021 and fiscal 2020, we paid cash dividends on our common stock of $1.40 per share, respectively. These cash
dividend payments totaled $80 million in both fiscal 2021 and fiscal 2020.
Employee Benefit Plans
As of September 30, 2021, we had a consolidated pension obligation, net of the fair value of plan assets, of $51 million,
comprised of $7 million for pension benefit plan liabilities and $44 million for postretirement benefit plan liabilities.
37
The $7 million of unfunded pension benefit plan liabilities is derived as follows:
Fair value of plan assets
Benefit obligation
Funded (unfunded) status
U.S.
Foreign
(In millions)
Total
$
$
— $
3
(3) $
217 $
221
(4) $
217
224
(7)
In fiscal 2021, we made cash contributions totaling $5 million to our pension benefit plans. In fiscal 2022, we expect to make
cash contributions of $3 million to our pension plans.
The $44 million of unfunded postretirement benefit plan liabilities is comprised of $25 million for our U.S. and $19 million for
our foreign postretirement benefit plans. These postretirement benefit plans provide certain health care and life insurance benefits
for retired employees. Typical of such plans, our postretirement plans are unfunded and, therefore, have no plan assets. We fund
these plans as claims or insurance premiums come due. In fiscal 2021, we paid postretirement benefits of $3 million. For fiscal 2022,
our benefit payments for our postretirement plans are expected to be $3 million.
In fiscal 2019, our Board of Directors approved a resolution to terminate the U.S. pension plan. We commenced the U.S. plan
termination process during the third quarter of fiscal 2019 and completed the transfer of the U.S. plan’s assets to participants during
fiscal 2021. The pension liability was settled through a combination of lump-sum payments and purchased annuities, neither of
which required an additional cash contribution. In fiscal 2020, we recognized a settlement loss of $3 million related to lump-sum
payments made to participants who elected this option, which was recorded in Other income (expense) in the Consolidated
Statements of Operations. In fiscal 2021, we recognized an additional $4 million settlement loss in Other income (expense) related
to the final asset transfers through purchased annuities.
Contractual Obligations
The following table sets forth our long-term contractual obligations.
2022
2023
2024
Payments Due by Fiscal Year
2025
(In millions)
2026
Thereafter
Total
Purchase commitments
Long-term debt
Fixed interest on long-term debt
Variable interest on long-term debt
Finance leases(1)
Operating leases(1)
Total
$
$
260 $
369
36
2
5
16
688 $
186 $
—
21
2
5
14
228 $
186 $
134
21
1
5
11
358 $
185 $
—
21
—
4
10
$
220
187 $
250
21
—
4
9
471 $
1,786 $
308
37
—
18
57
2,206 $
2,790
1,061
157
5
41
117
4,171
(1)
Lease liabilities include interest.
Purchase Commitments
We have entered into long-term, volume-based purchase agreements primarily for the purchase of raw materials and natural
gas with various key suppliers for all of our business segments. Under certain of these agreements the quantity of material being
purchased is fixed, but the price we pay changes as market prices change. For purposes of the table above, current purchase prices
have been used to quantify total commitments. We have also entered into long-term purchase agreements primarily for services
related to information technology, which are not included in the table above, that total $7 million as of September 30, 2021, the
majority of which is expected to be paid within the next 5 years.
Leases
We have entered into various leases as the lessee, primarily related to certain transportation vehicles, warehouse facilities,
office space, and machinery and equipment. These leases have remaining lease terms between one and eighteen years, some of
which may include options to extend the leases for up to fifteen years or options to terminate the leases. Our land leases have
remaining lease terms up to sixty-nine years.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to changes in interest rates and foreign currency exchange rates because we finance certain operations
through long- and short-term borrowings and denominate our transactions in a variety of foreign currencies. Changes in these rates
may have an impact on future cash flows and earnings. We manage these risks through normal operating and financing activities
and, when deemed appropriate, through the use of derivative financial instruments.
38
We have policies governing our use of derivative instruments, and we do not enter into financial instruments for trading or
speculative purposes.
By using derivative instruments, we are subject to credit and market risk. The derivative instruments are booked in our
balance sheet at fair value and reflect the asset or liability position as of September 30, 2021. If a counterparty fails to fulfill its
performance obligations under a derivative contract, our exposure will equal the fair value of the derivative. Generally, when the fair
value of a derivative contract is positive, the counterparty owes Cabot, thus creating a payment risk for Cabot. We minimize
counterparty credit or repayment risk by entering into these transactions with major financial institutions of investment grade credit
rating. Our exposure to market risk is not hedged in a manner that completely eliminates the effects of changing market conditions
on earnings or cash flow.
Foreign Currency Risk
Our international operations are subject to certain risks, including currency exchange rate fluctuations and government
actions. We have cross-currency swaps designated as hedges of our net investments in certain Euro denominated subsidiaries. The
following table summarizes the principal terms of our cross-currency swaps, including the aggregate notional amount of the swaps,
the interest rate payment we receive from and pay to our swap counterparties, the term and fair value at September 30, 2021 and
September 30, 2020.
Description
Cross Currency Swaps
Interest
Rate
Received
Interest
Rate Paid
Fiscal Year
Entered Into
Maturity
Year
Fair Value
at
September
30, 2021
Fair Value
at
September
30, 2020
3.40% 1.94%
2016
2026
$3
million
$(1)
million
Notional
Amount
USD 250
million
swapped
to EUR 223
million
We also have foreign currency exposures 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, we use short-term forward contracts to minimize the exposure to
foreign currency risk. At September 30, 2021, we had $48 million in notional foreign currency contracts, which were denominated in
Indonesian rupiah and Czech koruna. These forwards had a fair value of less than $1 million as of September 30, 2021. At September
30, 2020, we had $54 million in notional foreign currency contracts, which were denominated in Canadian dollar, Indonesian rupiah
and Czech koruna. These forwards had a fair value of less than $1 million as of September 30, 2020.
In certain situations where we have forecasted purchases under a long-term commitment or forecasted sales denominated in
a foreign currency we may enter into appropriate financial instruments in accordance with our risk management policy to hedge
future cash flow exposures.
The primary currencies for which we have exchange rate exposure are the Euro, Chinese Yuan, Columbian Peso and Argentine
Peso. In fiscal 2021, foreign currency translations in the aggregate increased our business segment EBIT by $10 million, the majority
of which affected the results of the Performance Chemicals segment. In fiscal 2020, foreign currency translations in the aggregate
did not have a material impact on our business segment EBIT. We recognized a net foreign exchange loss of $6 million in Other
income (expense) in fiscal 2021 from the revaluation of monetary assets and liabilities from transactional currencies to functional
currency, largely attributable to changes in the value of the Argentine Peso and to a lesser extent Czech Koruna and Mexican Peso.
In fiscal 2020, we recognized a net foreign exchange loss of $6 million in Other income (expense) from the revaluation of monetary
assets and liabilities from transactional currencies to functional currency, largely attributable to changes in the value of the
Argentine Peso, Brazilian Real, Czech Koruna and Indonesian Rupiah, partially offset by favorable movements in the Colombian Peso
during fiscal 2020.
39
(cid:896)(cid:100)(cid:44)(cid:47)(cid:94)(cid:3)(cid:87)(cid:4)(cid:39)(cid:28)(cid:3)(cid:47)(cid:69)(cid:100)(cid:28)(cid:69)(cid:100)(cid:47)(cid:75)(cid:69)(cid:4)(cid:62)(cid:62)(cid:122)(cid:3)(cid:62)(cid:28)(cid:38)(cid:100)(cid:3)(cid:17)(cid:62)(cid:4)(cid:69)(cid:60)(cid:897)
40
Item 8.
Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Description
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Consolidated Statements of Operations ............................................................................................................................
Consolidated Statements of Comprehensive Income ........................................................................................................
Consolidated Balance Sheets .............................................................................................................................................
Consolidated Statements of Cash Flows ............................................................................................................................
Consolidated Statements of Changes in Stockholders’ Equity ...........................................................................................
Notes to the Consolidated Financial Statements ...............................................................................................................
Reports of Independent Registered Public Accounting Firm .............................................................................................
Page
42
43
44
46
47
48
86
41
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Net sales and other operating revenues
Cost of sales
Gross profit
Selling and administrative expenses
Research and technical expenses
Specialty Fluids loss on sale and asset impairment charge (Note D)
Marshall Mine loss on sale and asset impairment charge (Note D)
Income (loss) from operations
Interest and dividend income
Interest expense
Other income (expense)
Income (loss) from continuing operations before income taxes and
equity in earnings of affiliated companies
(Provision) benefit for income taxes
Equity in earnings of affiliated companies, net of tax
Net income (loss)
Net income (loss) attributable to noncontrolling interests, net of tax
of $10, $4 and $6
Net income (loss) attributable to Cabot Corporation
Weighted-average common shares outstanding:
Basic
Diluted
Earnings (loss) per common share:
Basic
Diluted
2021
$
2019
Years Ended September 30
2020
(In millions, except per share amounts)
3,409 $
2,610
799
289
56
—
—
454
8
(49)
(7)
2,614 $
2,114
500
292
57
1
129
21
8
(53)
(9)
406
(123)
3
286
(33)
(191)
3
(221)
$
36
250 $
17
(238) $
56.7
56.8
56.6
56.6
$
$
4.35 $
4.34 $
(4.21) $
(4.21) $
3,337
2,652
685
290
60
29
—
306
9
(59)
(1)
255
(70)
1
186
29
157
58.7
58.8
2.64
2.63
The accompanying notes are an integral part of these consolidated financial statements.
42
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
2021
Years Ended September 30
2020
(In millions)
2019
$
286
$
(221)
$
Net income (loss)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment, net of tax
Derivatives: net investment hedges
(Gains) losses reclassified to interest expense, net of tax
(Gains) losses excluded from effectiveness testing and amortized to
interest expense, net of tax
Pension and other postretirement benefit liability adjustments,
net of tax
Specialty Fluids divestiture
Other comprehensive income (loss), net of tax of $8, $1 and $2
Comprehensive income (loss)
Net income (loss) attributable to noncontrolling interests, net of tax
Foreign currency translation adjustment attributable to noncontrolling
interests, net of tax
Comprehensive income (loss) attributable to noncontrolling interests
Comprehensive income (loss) attributable to Cabot Corporation
$
52
(5)
2
20
—
69
355
36
7
43
312
$
42
(5)
2
9
—
48
(173)
17
5
22
(195)
$
186
(69)
(4)
1
(5)
(3)
(80)
106
29
(6)
23
83
The accompanying notes are an integral part of these consolidated financial statements.
43
CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
Current assets:
Cash and cash equivalents
Accounts and notes receivable, net of reserve for doubtful accounts of $4 and $2
Inventories
Prepaid expenses and other current assets
$
Total current assets
Property, plant and equipment
Accumulated depreciation
Net property, plant and equipment
Goodwill
Equity affiliates
Intangible assets, net
Deferred income taxes
Other assets
Total assets
$
September 30
2021
2020
(In millions, except
share and per share amounts)
168
645
523
89
1,425
3,885
(2,509)
1,376
140
40
100
53
172
3,306
$
$
151
418
359
50
978
3,686
(2,372)
1,314
134
39
103
53
160
2,781
The accompanying notes are an integral part of these consolidated financial statements.
44
CABOT CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
$
September 30
2021
2020
(In millions, except
share and per share amounts)
$
72
667
35
373
1,147
717
73
279
14
488
20
7
529
1,094
58
286
Current liabilities:
Short-term borrowings
Accounts payable and accrued liabilities
Income taxes payable
Current portion of long-term debt
Total current liabilities
Long-term debt
Deferred income taxes
Other liabilities
Commitments and contingencies (Note T)
Stockholders’ equity:
Preferred stock:
Authorized: 2,000,000 shares of $1 par value, Issued and Outstanding: None and
none
—
—
Common stock:
Authorized: 200,000,000 shares of $1 par value, Issued: 56,870,237 and
56,616,030 shares, Outstanding: 56,726,818 and 56,466,638 shares
Less cost of 143,419 and 149,392 shares of common treasury stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Total Cabot Corporation stockholders’ equity
Noncontrolling interests
Total stockholders’ equity
Total liabilities and stockholders’ equity
57
(4)
24
1,159
(289)
947
143
1,090
3,306
$
57
(4)
—
989
(351)
691
123
814
2,781
$
The accompanying notes are an integral part of these consolidated financial statements.
45
CABOT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash Flows from Operating Activities:
Net income (loss)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
2021
Years Ended September 30
2020
(In millions)
2019
$
286
$
(221)
$
Depreciation and amortization
Marshall Mine loss on sale and asset impairment charge
Specialty Fluids loss on sale and asset impairment charge
Impairment of investment in equity affiliate
Deferred tax provision (benefit)
Employee benefit plan settlement
Equity in net income of affiliated companies
Non-cash compensation
Other non-cash (income) expense
Cash dividends received from equity affiliates
Changes in assets and liabilities:
Accounts and notes receivable
Inventories
Prepaid expenses and other current assets
Accounts payable and accrued liabilities
Income taxes payable
Other liabilities
Cash provided by operating activities
Cash Flows from Investing Activities:
Additions to property, plant and equipment
Proceeds from sale of business
Cash paid for acquisition of business, net of cash acquired of $—, $1 and $—
Other
Cash used in investing activities
Cash Flows from Financing Activities:
Borrowings under financing arrangements
Repayments under financing arrangements
Proceeds from (repayments of) issuance of commercial paper, net
Proceeds from long-term debt, net of issuance costs
Repayments of long-term debt
Repayments of redeemable preferred stock
Purchases of common stock
Proceeds from sales of common stock
Cash dividends paid to noncontrolling interests
Cash dividends paid to common stockholders
Cash used in financing activities
Effects of exchange rate changes on cash
Increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
$
The following table presents the Company’s cash, cash equivalents and restricted cash by category
within the Consolidated Balance Sheets:
Cash and cash equivalents
Restricted cash classified within Prepaid expenses and other current assets
Cash, cash equivalents and restricted cash
$
$
Non-cash investing activities and supplemental cash flow information:
Additions to property, plant and equipment included in Accounts payable and accrued
liabilities
Income taxes paid
Interest paid
$
$
$
160
—
—
—
9
5
(3)
21
21
2
(215)
(174)
(37)
167
14
1
257
(195)
—
—
9
(186)
—
—
58
200
(222)
—
(3)
6
(19)
(80)
(60)
8
19
151
170
$
168
2
170
$
$
41
93
41
$
$
$
158
129
—
—
130
4
(3)
9
8
1
126
114
(7)
(55)
(5)
(11)
377
(200)
—
(92)
4
(288)
—
—
(19)
444
(410)
—
(44)
3
(26)
(80)
(132)
25
(18)
169
151
151
—
151
29
71
48
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
46
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148
—
29
11
(27)
7
(1)
11
(3)
2
73
27
18
(75)
(6)
(37)
363
(224)
135
(3)
(2)
(94)
29
(29)
(216)
352
(75)
(25)
(173)
4
(23)
(80)
(236)
(39)
(6)
175
169
169
—
169
23
99
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Notes to the Consolidated Financial Statements
Note A. Significant Accounting Policies
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the
United States (“U.S. GAAP”). The significant accounting policies of Cabot Corporation (“Cabot” or “the Company”) are described
below.
Unless otherwise indicated, all disclosures and amounts in the Notes to the Consolidated Financial Statements relate to the
Company’s continuing operations.
Principles of Consolidation
The consolidated financial statements include the accounts of Cabot and its 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, of which there were none in the periods presented. Intercompany transactions have been
eliminated in consolidation.
Cash and Cash Equivalents
Cash equivalents include all highly liquid investments with a maturity of three months or less at date of acquisition. Cabot
continually assesses the liquidity of cash equivalents and, as of September 30, 2021, has determined that they are readily
convertible to cash.
Inventories
Inventories are stated at the lower of cost or net realizable value. The cost of inventories is determined using the first-in, first-
out 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.
Investments
The Company has investments in equity affiliates and marketable securities. As circumstances warrant, all investments are
subject to periodic impairment reviews. Unless consolidation is required, investments in equity affiliates, where Cabot generally
owns between 20% and 50% of the affiliate, are accounted for using the equity method. Cabot records its share of the equity
affiliate’s results of operations based on its percentage of ownership of the affiliate. Dividends declared from equity affiliates are a
return on investment and are recorded as a reduction to the equity investment value. In fiscal 2019, the Company recorded an
impairment charge of $11 million related to its Venezuelan equity investment, which is included in Other income (expense) within
the Consolidated Statements of Operations. At September 30, 2021 and 2020, Cabot had equity affiliate investments of $40 million
and $39 million, respectively. Dividends declared and received from these investments were $5 million, $3 million and $4 million in
fiscal 2021, 2020 and 2019, respectively.
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 and useful lives 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.
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 and is subject to impairment testing annually, or when events or
changes in the business environment indicate that the carrying value of the reporting unit may exceed its fair value.
48
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. Reinforcement Materials, and
the fumed metal oxides, specialty compounds, and specialty carbons product lines within Performance Chemicals, which are
considered separate reporting units, carry the Company’s goodwill balances as of September 30, 2021.
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 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. The fair value is also benchmarked against the value calculated from a
market approach using the guideline public company method. Based on the Company’s most recent annual goodwill impairment
test performed as of August 31, 2021, the fair values of the Reinforcement Materials, fumed metal oxides, specialty compounds, and
specialty carbons reporting units were substantially in excess of their carrying values.
Long-lived Assets Impairment
The Company’s long-lived assets primarily include property, plant and equipment, intangible assets, and long-term
investments. 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 does 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
separate 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 of the related assets. The depreciable lives for buildings, machinery and
equipment, and other fixed assets are generally 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.
Cabot capitalizes interest costs when they are part of the cost of acquiring and constructing certain assets that require a
period of time to prepare for their intended use. During fiscal 2021, 2020 and 2019, Cabot capitalized $1 million, $2 million and $4
million of interest costs, respectively. These amounts are amortized over the lives of the related assets when they are placed in
service.
Asset Retirement Obligations
Cabot estimates incremental costs for special handling, removal and disposal of materials that may or will give rise to
conditional asset retirement obligations (“ARO”) and then discounts the expected costs back to the current year using a credit
adjusted risk free rate. Cabot recognizes ARO liabilities and costs when the timing and/or settlement can be reasonably estimated. In
certain instances, Cabot has not recorded a reserve for AROs because the timing of disposal of the underlying asset is unknown. The
ARO reserves were $19 million and $18 million at September 30, 2021 and 2020, respectively, and are included in Accounts payable
and accrued liabilities and Other liabilities on the Consolidated Balance Sheets.
49
Foreign Currency Translation
The functional currency of the majority of Cabot’s foreign subsidiaries is the local currency in which the subsidiary operates.
Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at the balance sheet dates.
Income and expense items are translated at average monthly exchange rates during the year. The functional currency of Cabot’s
foreign subsidiaries that operate in a highly inflationary economy is the U.S. dollar. Cabot’s operations in highly inflationary
economies are not material.
Unrealized currency translation adjustments (“CTA”) are included as a separate component of Accumulated other
comprehensive income (loss) (“AOCI”) within stockholders’ equity. Realized and unrealized foreign currency gains and losses arising
from transactions denominated in currencies other than the subsidiary’s functional currency are reflected in earnings with the
exception of (i) intercompany transactions considered to be of a long-term investment nature; (ii) income taxes upon future
repatriation of unremitted earnings from non-U.S. subsidiaries that are not indefinitely reinvested; and (iii) foreign currency
borrowings designated as net investment hedges. Gains or losses arising from these transactions are included within the CTA
component of Other comprehensive income (loss). In both fiscal 2021 and 2020, net foreign currency transaction loss of $6 million is
included in Other income (expense) in the Consolidated Statements of Operations, and in fiscal 2019, net foreign currency gain of
less than $1 million is included in Other income (expense) in the Consolidated Statements of Operations.
Share Repurchases
Periodically, Cabot repurchases shares of the Company’s common stock in the open market or in privately negotiated
transactions under the authorization approved by the Board of Directors as discussed in Item 5 under the heading “Issuer Purchases
of Equity Securities”. The Company retires the repurchased shares and records the excess of the purchase price over par value to
additional paid-in capital (“APIC”) until such amount is reduced to zero and then charges the remainder against retained earnings.
Financial Instruments
Cabot’s financial instruments consist primarily of cash and cash equivalents, accounts and notes receivable, investments,
accounts payable and accrued liabilities, short-term and long-term debt, and derivative instruments. The carrying values of Cabot’s
financial instruments approximate fair value with the exception of fixed rate long-term debt, which is recorded at amortized cost.
The fair values of the Company’s financial instruments are based on quoted market prices, if such prices are available. In situations
where quoted market prices are not available, the Company relies on valuation models to derive fair value. Such valuation takes into
account the ability of the financial counterparty to perform and the Company’s own credit risk.
Cabot uses derivative financial instruments primarily for purposes of hedging the exposures to fluctuations in foreign currency
exchange rates, which exist as part of its on-going business operations. Cabot does not enter into derivative contracts for speculative
purposes, nor does it hold or issue any derivative contracts for trading purposes. All derivatives are recognized on the Consolidated
Balance Sheets at fair value. Where Cabot has a legal right to offset derivative settlements under a master netting agreement with a
counterparty, derivatives with that counterparty are presented on a net basis. The changes in the fair value of derivatives are
recorded in either earnings or AOCI, depending on whether or not the instrument is designated as part of a hedge transaction and, if
designated as part of a hedge transaction, the type of hedge transaction. 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 hedged item. The ineffective portion
of all hedges is recognized in earnings during the period in which the ineffectiveness occurs.
In accordance with Cabot’s risk management strategy, the Company may enter into certain derivative instruments that may
not be designated as hedges for hedge accounting purposes. Although these derivatives are not designated as hedges, the Company
believes that such instruments are closely correlated with the underlying exposure, thus managing the associated risk. The Company
records in earnings the gains or losses from changes in the fair value of derivative instruments that are not designated as hedges.
Cash movements associated with these instruments are presented in the Consolidated Statements of Cash Flows as Cash Flows from
Operating Activities because the derivatives are designed to mitigate risk to the Company’s cash flow from operations.
Revenue Recognition
Cabot recognizes revenue when its customers obtain control of promised goods or services. The revenue recognized is the
amount of consideration which the Company expects to receive in exchange for those goods or services. The Company’s contracts
with customers are generally for products only and do not include other performance obligations. Generally, Cabot considers
purchase orders, which in some cases are governed by master supply agreements, to be contracts with customers. The transaction
price as specified on the purchase order or sales contract is considered the standalone selling price for each distinct product. To
determine the transaction price at the time when revenue is recognized, the Company evaluates whether the price is subject to
adjustments, such as for returns, discounts or volume rebates, which are stated in the customer contract, to determine the net
consideration to which the Company expects to be entitled. Revenue from product sales is recognized based on a point in time
model when control of the product is transferred to the customer, which typically occurs upon shipment or delivery of the product
50
to the customer and title, risk and rewards of ownership have passed to the customer. The Company has an immaterial amount of
revenue that is recognized over time. Payment terms typically range from zero to ninety days.
Shipping and handling activities that occur after the transfer of control to the customer are billed to customers and are
recorded as sales revenue, as the Company considers these to be fulfillment costs. Shipping and handling costs are expensed in the
period incurred and included in Cost of sales within the Consolidated Statement of Operations. Taxes collected on sales to customers
are excluded from the transaction price.
The Company generally provides a warranty that its products will substantially conform to the identified specifications. The
Company’s liability typically is limited to either a credit equal to the purchase price or replacement of the non-conforming product.
Returns under warranty have historically been immaterial.
The Company does not have contract assets or liabilities that are material.
When the period of time between the transfer of control of the goods and the time the customer pays for the goods is one
year or less, the Company does not consider there to be a significant financing component associated with the contract.
Cost of Sales
Cost of sales consists of the cost of raw and packaging materials, direct manufacturing costs, depreciation, internal transfer
costs, inspection costs, inbound and outbound freight and shipping and handling costs, plant purchasing and receiving costs and
other overhead expenses necessary to manufacture the products.
Accounts and Notes Receivable
Trade receivables are recorded at the invoiced amount and generally do not bear interest. Trade receivables in China may at
certain times be settled with the receipt of bank issued non-interest bearing notes. These notes totaled 32 million Chinese Renminbi
(“RMB”) ($5 million) and 34 million RMB ($5 million) as of September 30, 2021 and 2020, respectively, and are included in Accounts
and notes receivable on the Company’s Consolidated Balance Sheets. Cabot periodically sells a portion of these bank notes and
other customer receivables at a discount and such sales are accounted for as asset sales. The Company does not have any continuing
involvement with these notes or other customer receivables after the sale. The difference between the proceeds from the sale and
the carrying value of these assets is recognized as a loss on the sale of receivables and is included in Other income (expense) in the
accompanying Consolidated Statements of Operations. During both fiscal 2021 and 2020, the Company recorded charges of $2
million for the sale of these assets. During fiscal 2019, the Company recorded a charge of $3 million for the sale of these assets.
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 years presented. There is no material off-balance sheet credit exposure related to customer
receivable balances.
Stock-based Compensation
Cabot recognizes compensation expense for stock-based awards granted to employees using the fair value method. Under the
fair value recognition provisions, stock-based compensation cost is measured at the grant date based on the fair value of the award,
and is recognized as expense over the service period, which generally represents the vesting period, and includes an estimate of
what level of performance the Company will achieve for Cabot’s performance-based stock awards. Cabot calculates the fair value of
its stock options using the Black-Scholes option pricing model. The fair value of restricted stock units is determined using the closing
price of Cabot stock on the day of the grant. The Company recognizes forfeitures as they occur.
Selling and Administrative Expenses
Selling and administrative expenses consist of salaries and fringe benefits of sales and office personnel, general office
expenses and other expenses not directly related to manufacturing operations.
Research and Technical Expenses
Research and technical expenses include salaries, equipment and material expenditures, and contractor fees and are expensed
as incurred.
51
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. Pension and post-
retirement benefit costs other than service cost are included in Other income (expense) in the Consolidated Statement of
Operations. Service cost is included with other employee compensation costs within Cost of sales, Selling and administrative
expenses, or Research and technical expenses. The Company is required to recognize as a component of Other comprehensive
income (loss), net of tax, the actuarial gains and losses and prior service costs and 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)
AOCI, which is included as a component of stockholders’ equity, includes unrealized gains or losses on derivative instruments,
currency translation adjustments in foreign subsidiaries and pension and post-retirement related adjustments.
Income Taxes
Deferred income taxes are determined based on the estimated future tax effects of differences between financial statement
carrying amounts and the tax bases of existing assets and liabilities. Deferred tax assets are recognized to the extent that realization
of those assets is considered to be more likely than not. A valuation allowance is established for deferred taxes when it is more likely
than not that all or a portion of the deferred tax assets will not be realized. Provisions are made for the U.S. income tax liability and
additional non-U.S. taxes on the undistributed earnings of non-U.S. subsidiaries, except for amounts Cabot has designated to be
indefinitely reinvested.
Cabot records benefits for uncertain tax positions based on an assessment of whether the position is more likely than not to
be sustained by the taxing authorities. If this threshold is not met, no tax benefit of the uncertain tax position is recognized. If the
threshold is met, the tax benefit that is recognized is the largest amount that is greater than 50% likely of being realized upon
ultimate settlement. This analysis presumes the taxing authorities’ full knowledge of the positions taken and all relevant facts, but
does not consider the time value of money. The Company also accrues for interest and penalties on its uncertain tax positions and
includes such charges in its income tax provision in the Consolidated Statements of Operations.
Contingencies
Cabot accrues costs related to contingencies when it is probable that a liability has been incurred and the amount can be
reasonably estimated. Contingencies could arise from litigation, environmental remediation or contractual arrangements. When a
single liability amount cannot be reasonably estimated, but a range can be reasonably estimated, Cabot accrues the amount that
reflects the best estimate within that range or the low end of the range if no estimate within the range would be considered more
likely than any other estimate. The amount accrued is determined through the evaluation of various information, which could
include claims, settlement offers, demands by government agencies, estimates performed by independent third parties,
identification of other responsible parties and an assessment of their ability to contribute, and our prior experience. Cabot does not
reduce its estimated liability for possible recoveries from insurance carriers. Proceeds from insurance carriers are recorded when
realized by either the receipt of cash or a contractual agreement.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make certain
estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
Note B. Recent Accounting Pronouncements
Recently Adopted Accounting Standards
In June 2016, the FASB issued a new standard on measurement of credit losses. The standard introduces a new "expected
loss" impairment model that applies to most financial assets measured at amortized cost and certain other instruments, including
trade and other receivables and other financial assets. Entities are required to estimate expected credit losses over the life of
financial assets and record an allowance against the assets’ amortized cost basis to present them at the amount expected to be
collected. The new standard is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. The
Company adopted this standard on October 1, 2020. The adoption of this standard did not materially impact the Company’s
consolidated financial statements.
52
In December 2019, the FASB issued a new standard Simplifying the Accounting for Income Taxes. The new guidance simplifies
the accounting for income taxes by removing several exceptions in the current standard and adding guidance to reduce complexity
in certain areas. The new standard is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted.
The Company adopted this standard on October 1, 2021. The adoption of this standard did not materially impact the Company’s
consolidated financial statements.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued a new standard on Reference Rate Reform, which provides temporary optional expedients
and exceptions to the existing guidance on contract modifications and hedge accounting to ease the financial reporting burdens
related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to
alternative reference rates. The standard was effective upon issuance and may generally be applied through December 31, 2022 to
any new or amended contracts, hedging relationships, and other transactions that reference LIBOR. The Company is currently
evaluating the timing of adoption and the impact of the adoption of this standard on its consolidated financial statements.
Note C. Acquisitions
Shenzhen Sanshun Nano New Materials Co., Ltd
On April 1, 2020, the Company purchased Shenzhen Sanshun Nano New Materials Co., Ltd (“SUSN”), a leading carbon
nanotube producer, for a purchase price of $100 million, consisting of: (i) cash consideration of $84 million, net of $1 million
acquired (ii) contingent consideration of $3 million to be paid over the two-year period ending March 31, 2022 upon the satisfaction
of certain milestones, and (iii) the assumed debt of $13 million. The debt the Company assumed in the transaction was repaid in
June 2020. The operating results of SUSN were included in the results of the Company's Performance Chemicals segment beginning
in the third quarter of fiscal 2020, and revenue totaled $12 million in the second half of fiscal 2020.
The final allocation of the purchase price set forth below was based on estimates of the fair value of assets acquired and
liabilities assumed as of April 1, 2020.
(In millions)
$
Assets
Cash
Accounts Receivable
Inventories
Prepaid expenses and other current assets
Property, plant and equipment
Intangible assets
Goodwill
Deferred tax asset
Other assets
Total assets acquired
Liabilities
Accounts payable and accrued liabilities
Long-term debt
Other liabilities
Total liabilities assumed
Cash consideration paid
$
1
8
4
2
38
15
45
1
2
116
(12)
(13)
(6)
(31)
85
As part of the purchase price allocation, the Company determined the separately identifiable intangible assets are comprised
of developed technologies of $9 million, which are amortized over ten years, customer relationships of $4 million, which are
amortized over twenty years, and trademarks of $2 million, which are amortized over ten years. The excess of the purchase price
over the fair value of the tangible net assets and intangible assets acquired was recorded as goodwill. The goodwill recognized is
attributable to the growth and operating synergies that the Company expects to realize from this acquisition. Goodwill generated
from the acquisition is not deductible for tax purposes.
53
Note D. Divestitures
Sale of Specialty Fluids Business
In June 2019, the Company completed the sale of its Specialty Fluids business, an operating segment of the Company, to
Sinomine (Hong Kong) Rare Metals Resources Co. Limited, a wholly owned subsidiary of Sinomine Resource Group Co., Ltd. for total
proceeds of $133 million. The Company recognized a pre-tax loss on the sale of the Specialty Fluids business of $9 million in fiscal
2019 and a $20 million impairment charge during the second quarter of fiscal 2019. The sale was subject to customary post-closing
adjustments, which were finalized during the second quarter of fiscal 2020 and resulted in an additional pre-tax loss on sale of
$1 million. The sale of the Specialty Fluids business did not meet the criteria to be reported as a discontinued operation as it did not
constitute a significant strategic business shift for the Company, and had no major effect on operations.
Sale of Marshall Mine
On September 30, 2020, the Company entered into an agreement to sell its lignite mine located in Marshall, Texas to ADA
Carbon Solutions, LLC (“ADACS”) for a nominal amount. As part of the transaction, the Company agreed to fund a portion of the
costs ADACS expects to incur to close the mine and included $9 million for these costs in Accounts payable and accrued liabilities
and Other liabilities on the Consolidated Balance Sheets. The majority of these costs are to be paid within the next four years or at
the time of a change of control of the business. At the same time, Cabot idled its activation kilns at its manufacturing facility in
Marshall, Texas. The Company continues certain operational activities including washing of activated carbon, as well as packaging
and warehousing operations at its Marshall facility. In fiscal 2020, the Company recognized a pre-tax loss on the sale of the mine of
$67 million and an impairment charge to certain idled fixed assets of $62 million.
In conjunction with the sale, the Company entered into a long-term supply agreement with ADACS, a producer of lignite-based
activated carbon. Under the terms of this agreement, ADACS manufactures and supplies the Purification Solutions business’s
proprietary portfolio of lignite-based activated carbon products exclusively to the Company.
Note E. Inventories
Inventories, net of obsolete, unmarketable and slow moving reserves, are as follows:
Raw materials
Finished goods
Other(1)
Total
September 30
2021
2020
(In millions)
168 $
300
55
523 $
82
225
52
359
$
$
(1) Other inventory is comprised of certain spare parts and supplies.
At September 30, 2021 and 2020, total inventory reserves were $20 million and $28 million, respectively.
Note F. Property, Plant and Equipment
Property, plant and equipment consists of the following:
Land and land improvements
Buildings
Machinery and equipment
Other
Construction in progress
Total property, plant and equipment
Less: Accumulated depreciation
Net property, plant and equipment
September 30
2021
2020
(In millions)
114 $
575
2,765
241
190
3,885
(2,509)
1,376 $
111
552
2,589
244
190
3,686
(2,372)
1,314
$
$
Depreciation expense for fiscal 2021, 2020, and 2019 was $152 million, $151 million and $142 million, respectively.
54
Note G. 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 period ended September 30, 2021 are as follows:
Balance at September 30, 2020
Foreign currency impact
Balance at September 30, 2021
Reinforcement
Materials
Performance
Chemicals
(In millions)
Total (1)
$
$
46 $
2
48 $
88
4
92 $
134
6
140
(1)
The balance as of September 30, 2020 and September 30, 2021 includes $444 million of accumulated impairment losses
associated with the goodwill of Purification Solutions segment. There were no accumulated impairment losses associated with
the goodwill of the Reinforcement Materials or Performance Chemicals segments.
The following table provides information regarding the Company’s intangible assets with finite lives:
September 30, 2021
September 30, 2020
Gross
Carrying
Value
Accumulated
Amortization
Net
Intangible
Assets
Gross
Carrying
Value
Accumulated
Amortization
Net
Intangible
Assets
Developed technologies
Trademarks
Customer relationships
Total intangible assets
$
$
62
11
60
133
$
$
(12)
(1)
(20)
(33)
$
$
$
(In millions)
50
10
40
100
$
60
11
56
127
$
$
(8)
(1)
(15)
(24)
$
$
52
10
41
103
Intangible assets are amortized over their estimated useful lives, which range between ten and twenty-five years, with a
weighted average amortization period of 17 years. Amortization expense for fiscal 2021, 2020 and 2019 was $8 million, $7 million
and $6 million, respectively, and is included in Cost of sales, Selling and administrative expenses, and Research and technical
expenses in the Consolidated Statements of Operations. Total amortization expense is estimated to be approximately $8 million
each year for the next five fiscal years.
Note H. Accounts Payable, Accrued Liabilities and Other Liabilities
Accounts payable and accrued liabilities included in current liabilities consist of the following:
Accounts payable
Accrued employee compensation
Accrued legal expenses
Other accrued liabilities
Total
Other long-term liabilities consist of the following:
Employee benefit plan liabilities
Operating lease liabilities
Other accrued liabilities
Total
September 30
2021
2020
(In millions)
480 $
75
12
100
667 $
September 30
2021
2020
(In millions)
80 $
84
115
279 $
316
46
38
88
488
92
89
105
286
$
$
$
$
55
Note I. Debt and Other Obligations
Long-term Obligations
The Company’s long-term obligations, the fiscal year in which they mature and their respective interest rates are summarized
below:
September 30
2021
2020
(In millions)
Variable Rate Debt:
Revolving Credit Facility, expires fiscal 2026
Revolving Credit Facility - Euro, expires fiscal 2024
$
Total variable rate debt
Fixed Rate Debt:
3.7% Notes due fiscal 2022
3.4% Notes due fiscal 2026
4.0% Notes due fiscal 2029
Medium Term Notes:
Notes due fiscal 2022, 8.34% — 8.47%
Notes due fiscal 2028, 6.57% — 7.28%
Total Medium Term Notes
Chinese Renminbi Debt, due fiscal 2022, 4.35%
Total fixed rate debt
Finance lease obligations (Note S)
Unamortized debt issuance costs and debt discount
Total debt
Less current portion of long-term debt
Total long-term debt
— $
134
134
350
250
300
15
8
23
4
927
33
(4)
—
148
148
350
250
300
15
8
23
4
927
31
(5)
1,101
(7)
1,094
1,090
(373)
717 $
$
Revolving Credit Facility, expiring fiscal 2026— In August 2021, the Company entered into a revolving credit agreement (the
“U.S. Credit Agreement”) with a loan commitment not to exceed $1 billion. The amount available for borrowing under the U.S.
Credit Agreement was $929 million as of September 30, 2021, and the weighted average interest rate on the outstanding balance
during the year was 1.24%. The U.S. Credit Agreement, which matures on August 6, 2026, subject to two one-year options to extend
the maturity, exercisable on or prior to August 6, 2022 and August 6, 2023, supports the Company’s commercial paper program.
Borrowings may be used for working capital, letters of credit and other general corporate purposes. The U.S. Credit Agreement
contains affirmative and negative covenants, the financial debt covenants described below, and annual sustainability performance
targets related to the Company’s reduction in its nitrogen oxide and sulfur dioxide emissions intensity, the achievement of which
may adjust pricing under the U.S. Credit Agreement.
Revolving Credit Facility-Euro, expiring fiscal 2024—In May 2019, several subsidiaries entered into a revolving credit
agreement with a loan commitment not to exceed 300 million Euros. The amount available for borrowing under this revolving credit
agreement was $216 million as of September 30, 2021, and the weighted average interest rate on the outstanding balance during
the year was 1.20%. The revolving credit agreement, which matures on the earlier of (i) May 22, 2024 and (ii) the date of maturity,
termination or expiration of the corporate revolving credit facility, may be used for repatriation of earnings of Cabot’s foreign
subsidiaries to the U.S., the repayment of indebtedness of the Company’s foreign subsidiaries owing to the Company or any of its
subsidiaries, and for working capital and general corporate purposes. The obligations of the subsidiaries under the revolving credit
agreement are guaranteed by the Company. The Company paid debt issuance costs of $1 million upon entering the agreement,
which are being amortized over the life of the revolver.
Effective October 19, 2021, the same subsidiaries amended and restated the 2019 revolving credit agreement (the “Euro
Credit Agreement”) to align with the customary LIBOR replacement language and the financial leverage test covenant recently
adopted in the U.S. Credit Agreement. The amount of the loan commitment, maturity date, acceptable use of funds, and guarantee
by the Company are unchanged from the prior agreement.
Revolving Credit Facility-Canada, expiring fiscal 2021— During the second quarter of fiscal 2021, the Company’s Canadian
subsidiary terminated its $100 million unsecured revolving credit agreement, which had a maturity date of September 24, 2021. The
Canadian Credit Agreement provided liquidity for working capital and general corporate purposes for certain of Cabot’s Canadian
subsidiaries. The Company had no borrowings under this agreement during either fiscal 2021 or 2020.
56
Debt Covenants— As of September 30, 2021, Cabot was in compliance with the financial debt covenants under the Credit
Agreements, which, with limited exceptions, generally require the Company to comply on a quarterly basis with a leverage test. The
U.S. Credit Agreement requires a leverage ratio of net debt, with the ability to offset such debt by the lesser of (i) unrestricted cash
and cash equivalents and (ii) $150 million, to consolidated EBITDA not to exceed 3.50 to 1.00. The Euro Credit Agreement Facility
required a leverage ratio of total debt to consolidated EBITDA not to exceed 3.50 to 1.00. Effective October 19, 2021, the Company
amended the agreement to reflect a leverage test using net debt, consistent with the U.S. Credit Agreement.
Chinese Renminbi Debt—The Company’s consolidated Chinese subsidiaries had $4 million of unsecured long-term debt
outstanding with a noncontrolling shareholder of a consolidated subsidiary as of both September 30, 2021 and 2020.
3.7% Notes due fiscal 2022—In July 2012, Cabot issued $350 million in registered notes with a coupon of 3.7% that mature on
July 15, 2022. These notes are unsecured and pay interest on January 15 and July 15. The net proceeds of this offering were $347
million after deducting discounts and issuance costs. The discount of less than $1 million was recorded at issuance and is being
amortized over the life of the notes. The Company plans to refinance the notes during the first half of calendar 2022.
3.4% Notes due fiscal 2026—In September 2016, Cabot issued $250 million in registered notes with a coupon of 3.4% that
mature on September 15, 2026. These notes are unsecured and pay interest on March 15 and September 15. The net proceeds of
this offering were $248 million after deducting discounts and issuance costs. The discount of less than $1 million was recorded at
issuance and is being amortized over the life of the notes.
4.0% Notes due fiscal 2029—In June 2019, Cabot issued $300 million in registered, unsecured, notes with a coupon of 4.0%
that mature on July 1, 2029. Interest is payable under the notes semi-annually on January 1 and July 1 commencing in January 2020.
The net proceeds of this offering were $296 million after deducting discounts and issuance costs of $1 million and $3 million,
respectively, which were paid at issuance and are being amortized over the life of the notes.
Medium Term Notes—At both September 30, 2021 and 2020, there were $23 million, of unsecured medium term notes
outstanding issued to numerous lenders with various fixed interest rates and maturity dates. The weighted average maturity of the
total outstanding medium term notes is 3 years with a weighted average interest rate of 7.96%.
Finance Lease obligations—See Note S for a discussion of the Company’s leases.
Future Years Payment Schedule
The aggregate principal amounts of long-term debt, excluding finance lease liabilities presented separately in Note S, due in
each of the five years from fiscal 2022 through 2026 and thereafter are as follows:
Years Ending September 30
2022
2023
2024
2025
2026
Thereafter
Total
Principal Payments
on Long-Term
Debt
(In millions)
$
$
369
—
134
—
250
308
1,061
Standby letters of credit—At September 30, 2021, the Company had provided standby letters of credit that were outstanding
and not drawn totaling $5 million, which expire through fiscal 2022.
Short-term Borrowings
Commercial Paper—The Company has a commercial paper program and the maximum aggregate balance of commercial
paper notes outstanding and the amounts borrowed under the revolving credit facility may not exceed the borrowing capacity of $1
billion under the revolving credit facility. The proceeds from the issuance of the commercial paper have been used for general
corporate purposes, which may include working capital, refinancing existing indebtedness, capital expenditures, share repurchases,
and acquisitions. The revolving credit facility is available to repay the outstanding commercial paper, if necessary.
There was an outstanding balance of commercial paper of $71 million as of September 30, 2021 with a weighted average
interest rate of 0.15% and an outstanding balance of $14 million as of September 30, 2020 with a weighted average interest rate of
0.28%.
57
Note J. 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 fiscal 2021 or 2020.
At both September 30, 2021 and 2020, Cabot had derivatives relating to foreign currency risks carried at fair value. At
September 30, 2021, the fair value of these derivatives was a net asset of $3 million 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,
2020, the fair value of these derivatives was a net liability of $1 million and was included in Prepaid expenses and other current
assets and Other liabilities 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 September 30, 2021 and 2020, the fair value of Guaranteed investment contracts, included in Other assets on the
Consolidated Balance Sheets, was $10 million and $11 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 both September 30, 2021 and 2020, 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. The carrying value and fair value of the long-term fixed rate debt were $1.06 billion and
$1.13 billion, respectively, as of September 30, 2021 and $1.08 billion and $1.18 billion, respectively, as of September 30, 2020. 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 finance 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.
Note K. Derivatives
Risk Management
Cabot’s business operations are exposed to changes in interest rates, foreign currency exchange rates and commodity prices
because Cabot finances certain operations through long and short-term borrowings, denominates transactions in a variety of foreign
currencies and purchases certain commoditized raw materials. Changes in these rates and prices may have an impact on future cash
flows and earnings. The Company manages these risks through normal operating and financing activities and, when deemed
appropriate, through the use of derivative financial instruments.
The Company has policies governing the use of derivative instruments and does not enter into financial instruments for
trading or speculative purposes.
By using derivative instruments, Cabot is subject to credit and market risk. If a counterparty fails to fulfill its performance
obligations under a derivative contract, Cabot’s credit risk will equal the fair value of the derivative. Generally, when the fair value of
a derivative contract is positive, the counterparty owes Cabot, thus creating a payment risk for Cabot. The Company minimizes
counterparty credit (or repayment) risk by entering into transactions with major financial institutions of investment grade credit
rating. Cabot’s exposure to market risk is not hedged in a manner that completely eliminates the effects of changing market
conditions on earnings or cash flow. No significant concentration of credit risk existed at September 30, 2021 and 2020.
Interest Rate Risk Management
Cabot’s objective is to maintain a certain fixed-to-variable interest rate mix on the Company’s debt obligations. Cabot may
enter into interest rate swaps as a hedge of the underlying debt instruments to effectively change the characteristics of the interest
rate without changing the debt instrument. As of both September 30, 2021 and 2020, there were no derivatives held to manage
interest rate risk.
58
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 September 30, 2021 and 2020 to manage foreign currency
risk.
Description
Borrowing
Cross Currency Swaps
3.4% Notes
Forward Foreign Currency Contracts(1)
N/A
Notional Amount
September 30, 2021
USD 250 million
swapped to EUR 223
million
USD 48 million
September 30, 2020
USD 250 million
swapped to EUR 223
million
USD 54 million
Hedge
Designation
Net investment
No designation
(1)
As of September 30, 2021, Cabot’s forward foreign exchange contracts were denominated in Indonesian rupiah and Czech
koruna. As of September 30, 2020, Cabot’s forward foreign exchange contracts were denominated in Canadian dollar,
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
CTA 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.
59
The Company has cross-currency swaps with a notional amount of $250 million, which are designated as hedges of its net
investments in certain Euro denominated subsidiaries. Cash settlements occur semi-annually on March 15th and September 15th for
fixed rate interest payments and a cash exchange of the notional currency amount will occur at the end of the term in 2026. During
both fiscal 2021 and fiscal 2020, the Company received net cash interest of $3 million and $4 million, respectively. As of September
30, 2021, the fair value of these swaps was an asset of $3 million and was included in Prepaid expenses and other current assets and
Other assets, and the cumulative gain of $6 million was included in AOCI on the Consolidated Balance Sheets. As of September 30,
2020, the fair value of these swaps was a net liability of $1 million and was included in Prepaid expenses and other current assets
and Other liabilities, and the cumulative gain of $2 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:
2021
2020
2019
2021
2020
2019
Years Ended September 30
Description
Gain/(Loss) Recognized in AOCI
(Gain)/Loss Reclassified from AOCI into
Interest Expense in the Consolidated
Statements of Operations
(In millions)
2021
2019
2020
(Gain)/Loss Recognized in Interest
Expense in the Consolidated
Statements of Operations (Amount
Excluded from Effectiveness Testing)
Cross-currency swaps
$
7 $
1 $
23 $
(5) $
(5) $
(5)
$
2 $
2 $
1
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 September 30, 2021 and 2020, the fair value of derivative instruments not designated as hedges were immaterial. At
September 30, 2021, these instruments were presented in Prepaid expenses and other current assets and Accounts payable and
accrued liabilities on the Consolidated Balance Sheets. At September 30, 2020, these instruments were presented in Prepaid
expenses and other current assets on the Consolidated Balance Sheets.
Note L. 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 is temporarily halted and is not expected to resume until the second quarter of
fiscal 2022.
As a result of the flooding, the Company recorded expenses of $17 million for clean-up costs and inventory and fixed asset
impairments, and simultaneously recognized a fully offsetting loss recovery from expected insurance proceeds, as the Company
expects insurance proceeds in excess of the incurred costs and policy deductibles. Accordingly, there is no net current period
earnings impact related to these costs recognized in the Consolidated Statements of Operations for fiscal 2021. The flood-related
expenses and loss recovery are both included within Cost of sales in the Consolidated Statements of Operations in fiscal 2021.
The Company currently estimates additional charges and repair expenditures for the damages will be in a range of $5 million
to $10 million, which is expected to be offset by insurance recoveries.
As of September 30, 2021, Cabot has received insurance proceeds of $8 million, of which $6 million is included in Cash
provided by operating activities and $2 million is included in Cash provided by investing activities in the Consolidated Statements of
Cash Flows for fiscal 2021.
60
Note M. Employee Benefit Plans
The information below provides detail concerning the Company’s benefit obligations under the defined benefit and
postretirement benefit plans it sponsors.
Defined benefit plans provide pre-determined benefits to employees that are distributed upon retirement. Cabot is making all
sponsor required contributions to these plans. The accumulated benefit obligation was $3 million for the U.S. defined benefit plan
and $209 million for the foreign plans as of September 30, 2021 and $99 million for the U.S. defined benefit plans and $215 million
for the foreign plans as of September 30, 2020. As of September 30, 2021, the remaining U.S. defined benefit plan is the frozen
Supplemental Cash Balance Plan.
The following provides information about projected benefit obligations, plan assets, the funded status and weighted-average
assumptions of the defined benefit pension and postretirement benefit plans:
Years Ended September 30
2021
2020
U.S.
Pension Benefits
U.S.
Foreign
2021
2020
Postretirement Benefits
Foreign
U.S.
Foreign
U.S.
Foreign
(In millions)
Change in Benefit Obligations:
Benefit obligation at beginning of
year
Service cost
Interest cost
Plan participants’ contribution
Foreign currency exchange rate
changes
(Gain) loss from changes in actuarial
assumptions and plan experience
Benefits paid
Settlements or curtailments
Other
Benefit obligation at end of year
Change in Plan Assets:
Fair value of plan assets at beginning
of year
Actual return on plan assets
Employer contribution
Plan participants’ contribution
Foreign currency exchange rate
changes
Benefits paid
Settlements or curtailments
Expenses paid from assets
Other
Fair value of plan assets at end
of year
Funded status
Recognized asset (liability)
$
$
$
99 $
—
—
—
231 $
6
3
1
157 $
1
4
—
220 $
5
3
1
27 $
—
—
—
20 $
—
1
—
28 $
—
1
—
—
6
—
7
—
1
—
(1)
(3)
(92)
—
3 $
(11)
(8)
(8)
1
221 $
2
(7)
(57)
(1)
99 $
5
(8)
(2)
—
231 $
—
(2)
—
—
25 $
(2)
(1)
—
—
19 $
1
(3)
—
—
27 $
20
—
—
—
—
—
—
—
—
20
Years Ended September 30
2021
2020
U.S.
Pension Benefits
U.S.
Foreign
2021
2020
Postretirement Benefits
Foreign
U.S.
Foreign
U.S.
Foreign
(In millions)
96 $
1
—
—
204 $
14
7
1
151 $
9
1
—
195 $ — $ —
—
—
1
2
—
—
7
6
1
$ — $ —
—
—
—
—
3
—
—
(3)
(92)
—
(2)
7
(8)
(8)
—
—
$ — $
(3) $
$
(3) $
$
217 $
(4) $
(4) $
61
—
(7)
(57)
(1)
—
96 $
(3) $
(3) $
5
(8)
(2)
—
—
—
(2)
—
—
—
—
(1)
—
—
—
—
(3)
—
—
—
—
—
—
204 $ — $ — $ — $ —
(20)
(27) $
(20)
(27) $
(27) $
(27) $
(25) $
(25) $
(19) $
(19) $
Pension Assumptions and Strategy
The following assumptions were used to determine the pension benefit obligations and periodic benefit costs as of and for the
years ended September 30:
Actuarial assumptions as of the year-end
measurement date:
Discount rate
Rate of increase in compensation
Cash balance interest credit rate
Actuarial assumptions used to determine net
periodic benefit cost during the year:
Discount rate - benefit obligation
Discount rate - service cost
Discount rate - interest cost
Expected long-term rate of return on
plan assets
Rate of increase in compensation
Cash balance interest credit rate
Postretirement Assumptions and Strategy
2021
2020
Pension Benefits
2019
U.S.
Foreign
U.S.
Foreign
U.S.
Foreign
2.2%
N/A
2.0%
2.5%
N/A
1.4%
N/A
N/A
2.1%
2.1%
2.9%
1.7%
1.7%
1.7%
1.4%
4.6%
3.0%
1.7%
3.1%
N/A
0.9%
2.6%
N/A
2.6%
2.5%
N/A
0.9%
1.7%
3.0%
1.7%
1.8%
1.8%
1.6%
5.2%
3.0%
1.9%
2.6%
N/A
0.9%
4.2%
N/A
3.9%
6.3%
N/A
3.3%
1.8%
3.0%
1.9%
2.4%
2.5%
2.1%
4.9%
2.7%
2.0%
The following assumptions were used to determine the postretirement benefit obligations and net costs as of and for the
years ended September 30:
Actuarial assumptions as of the year-end
measurement date:
Discount rate
Initial health care cost trend rate
Actuarial assumptions used to determine
net cost during the year:
Discount rate - benefit obligation
Discount rate - service cost
Discount rate - interest cost
Initial health care cost trend rate
2021
U.S.
Foreign
2020
Postretirement Benefits
Foreign
U.S.
2019
U.S.
Foreign
2.4%
5.5%
2.8%
6.9%
2.1%
6.0%
2.4%
6.9%
2.9%
6.5%
2.1%
1.5%
1.4%
6.0%
2.4%
3.0%
2.1%
6.9%
2.9%
2.6%
2.5%
6.5%
2.4%
2.9%
2.3%
6.9%
4.1%
4.0%
3.7%
7.0%
2.4%
6.9%
3.2%
3.5%
3.1%
7.0%
62
Cabot uses discount rates as of September 30, the plans’ measurement date, to determine future benefit obligations under its
U.S. and foreign defined benefit plans. The discount rates for the defined benefit plans in Canada, the Eurozone, Japan, Switzerland,
the United Arab Emirates, the United Kingdom and the U.S. are derived from yield curves that reflect high quality corporate bond
yield or swap rate information in each region and reflect the characteristics of Cabot’s employee benefit plans. The discount rates
for the defined benefit plans in Mexico, the Czech Republic and Indonesia are based on government bond indices that best reflect
the durations of the plans, adjusted for credit spreads presented in selected AA corporate bond indices. The rates utilized are
selected because they represent long-term, high quality, fixed income benchmarks that approximate the long-term nature of Cabot’s
pension obligations and related payouts.
Amounts recognized in the Consolidated Balance Sheets at September 30, 2021 and 2020 related to the Company's defined
benefit pension and postretirement benefit plans were as follows:
2021
2020
U.S.
Pension Benefits
U.S.
Foreign
2021
2020
Postretirement Benefits
Foreign
U.S.
Foreign
U.S.
Foreign
September 30
Other assets
Accounts payable and accrued liabilities
Other liabilities
$ —
(1)
$
(2)
$
$
$
$
35
(1)
(38)
$ —
$ —
(3)
$
$
$
$
(In millions)
21
(2)
(46)
$ —
(3)
$
(22)
$
$ —
(1)
$
(18)
$
$ —
(3)
$
(24)
$
$ —
(1)
$
(19)
$
Amounts recognized in AOCI at September 30, 2021 and 2020 related to the Company's defined benefit pension and
postretirement benefit plans were as follows:
September 30
2021
2020
U.S.
Pension Benefits
U.S.
Foreign
2021
2020
Postretirement Benefits
Foreign
U.S.
Foreign
U.S.
Foreign
$
$
1
—
$
20
—
$
6
—
(In millions)
40
—
$
$
(4)
—
$
2
—
$
(4)
—
4
—
$
1
$
20
$
6
$
40
$
(4)
$
2
$
(4)
$
4
Net actuarial (gain) loss
Net prior service credit
Balance in accumulated other
comprehensive income (loss), pretax
Estimated Future Benefit Payments
The Company expects that the following benefit payments will be made to plan participants in the years from 2022 to 2030:
Years Ending September 30
U.S.
Foreign
Pension Benefits
Postretirement Benefits
Foreign
U.S.
2022
2023
2024
2025
2026
2027 - 2030
$
$
$
$
$
$
— $
— $
— $
— $
— $
1 $
(In millions)
10 $
11 $
12 $
11 $
11 $
59 $
2 $
2 $
2 $
2 $
2 $
8 $
1
1
1
1
1
4
Postretirement medical benefits are unfunded and impact Cabot’s cash flows as benefits become due, which is expected to be
$3 million in fiscal 2022. The Company expects to contribute $3 million to its pension plans in fiscal 2022.
63
Net periodic defined benefit pension and other postretirement benefit costs include the following components:
2021
2020
Pension Benefits
Years Ended September 30
2021
2019
2020
Postretirement Benefits
2019
U.S.
Foreign U.S.
Foreign U.S.
Foreign U.S.
Foreign U.S.
Foreign U.S.
Foreign
(In millions)
Service cost
Interest cost
Expected return on plan
assets
Amortization of prior
service cost
Amortization of net losses
Settlements or
curtailments cost
Other
Net periodic (benefit) cost
$ — $
—
6 $
3
1 $
4
5 $
3
1 $
5
7 $ — $ — $ — $ — $ — $ —
5 —
1
—
1
1
1
—
(10)
(3)
(9)
(9)
(10) — —
—
—
— —
— — — — —
3 —
—
3 —
2 — —
2 — —
—
(1)
4
—
4 $
$
3
(7) — —
1
2 — — — — — —
(3) $
5 $
(1) $ — $
—
—
1 $ — $
1 —
5 $
3 $
—
1
—
—
1 $
(2) —
(1) —
— —
— —
1
(2) $
Other changes in plan assets and benefit obligations recognized in Other comprehensive income (loss) are as follows:
2021
2020
Pension Benefits
Years Ended September 30
2021
2019
2020
Postretirement Benefits
2019
U.S.
Foreign U.S.
Foreign U.S.
Foreign U.S.
Foreign U.S.
Foreign U.S.
Foreign
Net (gains) losses
Prior service (credit) cost
Amortization of prior
service credit
Amortization of prior
unrecognized loss
Loss on divestiture
Settlements or
curtailments cost
Net changes recognized in
Total other comprehensive
(income) loss (1)
$
(2) $
—
(15) $
14 $
(1) — — —
(4) $
8 $
(In millions)
(16) $ — $
(2) $
3 — —
1 $
—
(1) $ — $
—
2
— —
— — — — —
(2) — —
—
—
2 —
—
(3) —
— — — — —
(3) —
(2) — —
(2) — —
1
—
(1)
—
1 —
— —
(4)
(1)
(3)
(1) —
7 — —
—
—
— —
$
(6) $
(20) $
(7) $
4 $
14 $
(12) $ — $
(2) $
2 $
(2) $
3 $
2
(1)
The tax impact on pension and other postretirement benefit liability adjustments arising during the period was a tax benefit of
$8 million, a tax provision of less than $1 million, and a tax benefit of $5 million for fiscal 2021, 2020, and 2019, respectively.
In fiscal 2019, the Company adjusted the assumptions in its U.K. plan to calculate accrued benefits for a portion of the plan’s
participants. As a result of this change, a prior service cost of $2 million was recorded in Other income (expense) in the Consolidated
Statements of Operations.
Settlements of Employee Benefit Plans
In fiscal 2019, the Company’s Board of Directors approved a resolution to terminate the U.S. pension plan. The Company
commenced the U.S. plan termination process during the third quarter of 2019 and completed the transfer of the U.S. plan’s assets
in the first quarter of fiscal 2021. The pension liability was settled through a combination of lump-sum payments and purchased
annuities, neither of which required an additional cash contribution. In the fourth quarter of fiscal 2020, the Company recognized a
settlement loss of $3 million related to lump-sum payments made to participants who elected this option, which was recorded in
Other income (expense) in the Consolidated Statements of Operations. In fiscal 2021, the company recognized an additional $4
million settlement loss in Other income (expense) related to the final asset transfers through purchased annuities.
In fiscal 2019, the Company transferred the majority of the defined benefit obligations and pension plan assets in one of its
foreign defined benefit plans to a multi-employer plan. This action moved the administrative, asset custodial, asset investment,
actuarial, communication and benefit payment obligations to the multi-employer fund administrator. As a result of the transfer, a
pre-tax gain of $7 million was recorded in fiscal 2019, which is included in Other income (expense) in the Consolidated Statements of
Operations. In addition, as part of the transfer, the Company recorded a $3 million charge in fiscal 2019 reflecting the Company’s
agreement to fund the actuarial loss gap between the terminated plan and the multi-employer plan. This charge is included Other
income (expense) in the Consolidated Statements of Operations.
In fiscal 2021 and 2020, Cabot’s pension benefit obligations decreased by $106 million and $47 million, respectively, which was
driven by the U.S. pension plan termination and settlement discussed above.
64
Plan Assets
The Company’s defined benefit pension plans weighted-average asset allocations at September 30, 2021 and 2020 by asset
category, are as follows:
Equity securities
Debt securities
Real estate
Cash and other securities
Total
2021
September 30
Pension Assets
2020
U.S.
Foreign
U.S.
Foreign
—%
—%
—%
—%
—%
21%
73%
2%
4%
100%
—%
95%
—%
5%
100%
39%
50%
6%
5%
100%
To develop the expected long-term rate of return on plan assets assumption, the Company used a capital asset pricing model.
The model considers the current level of expected returns on risk-free investments comprised of government bonds, the historical
level of the risk premium associated with the other asset classes in which the portfolio is invested, and the expectations for future
returns for each asset class. The expected return for each asset class was then weighted based on the target asset allocation to
develop the expected long-term rate of return for each plan.
Cabot’s investment strategy for each of its foreign defined benefit plans is generally based on a set of investment objectives
and policies that cover time horizons and risk tolerance levels consistent with plan liabilities. Periodic studies are performed to
determine the asset mix that will meet pension obligations at a reasonable cost to the Company. The assets of the defined benefit
plans are comprised principally of investments in equity and high-quality fixed income securities, which are broadly diversified
across the capitalization and style spectrum and are managed using both active and passive strategies. The weighted average target
asset allocation for the foreign plans is 21% in equity, 73% in fixed income, 2% in real estate, and 4% in cash and other securities.
For pension plan assets classified as Level 1 measurements (measured using quoted prices in active markets), total fair value is
either the price of the most recent trade at the time of the market close or the official close price, as defined by the exchange on
which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without
consideration of transaction costs.
For pension plan assets classified as Level 2 measurements, where the security is frequently traded in less active markets, fair
value is based on the closing price at the end of the period; where the security is less frequently traded, fair value is based on the
price a dealer would pay for the security or similar securities, adjusted for any terms specific to that asset or liability. Market inputs
are obtained from well-established and recognized vendors of market data and subjected to tolerance/quality checks.
65
The fair value of the Company’s pension plan assets at September 30, 2021 and 2020 by asset category is as follows:
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
2021
Significant
Observable
Inputs
(Level 2)
September 30
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
2020
Significant
Observable
Inputs
(Level 2)
Total
Total
$
— $
— $
(In millions)
— $
4 $
— $
4
—
—
4
2
3
—
1
10
—
—
—
1
1
—
—
—
11 $
—
—
—
—
—
1
—
1
42
155
3
—
200
5
—
5
206 $
—
—
4
2
3
1
1
11
42
155
3
1
201
5
—
5
217 $
12
84
4
2
3
—
1
106
—
—
—
1
1
—
—
—
111 $
—
—
—
—
—
1
—
1
76
95
12
—
183
5
—
5
189 $
12
84
4
2
3
1
1
107
76
95
12
1
184
5
—
5
300
Cash
Direct investments:
U.S government bonds
U.S. corporate bonds
Non-U.S. equities
Non-U.S. government bonds
Non-U.S. corporate bonds
Mortgage backed securities
Other fixed income
Total direct investments
Investment funds:
Equity funds(1)
Fixed income funds(2)
Real estate funds(3)
Cash equivalent funds
Total investment funds
Alternative investments:
Insurance contracts(4)
Other alternative investments
Total alternative investments
Total pension plan assets
$
(1)
(2)
(3)
(4)
The equity funds asset class includes funds that invest in U.S. equities as well as equity securities issued by companies
incorporated, listed or domiciled in countries in developed and/or emerging markets. These companies may be in the small-,
mid- or large-cap categories.
The fixed income funds asset class includes investments in high quality funds. High quality fixed income funds primarily invest
in low risk U.S. and non-U.S. government securities, investment-grade corporate bonds, mortgages and asset-backed
securities. A significant portion of the fixed income funds include investment in long-term bond funds.
The real estate funds asset class includes funds that primarily invest in entities which are principally engaged in the ownership,
acquisition, development, financing, sale and/or management of income-producing real estate properties, both commercial
and residential. These funds typically seek long-term growth of capital and current income that is above average relative to
public equity funds.
Insurance contracts held by the Company’s non-U.S. plans are issued by well-known, highly rated insurance companies.
Defined Contribution Plans
In addition to benefits provided under the defined benefit and postretirement benefit plans, the Company provides benefits
under defined contribution plans. Cabot recognized expenses related to these plans of $18 million in fiscal 2021, $19 million in fiscal
2020, and $20 million in fiscal 2019.
Note N. Stock-Based Compensation
The Cabot Corporation Amended and Restated 2017 Long-Term Incentive Plan (the “Amended Plan”) was established by the
Company to provide stock-based compensation to eligible employees. The Amended Plan was approved by Cabot’s stockholders on
March 11, 2021 and authorizes the issuance of up to 8,625,000 shares of common stock. It is the only equity incentive plan under
which the Company may grant equity awards to employees.
66
The terms of awards made under Cabot’s equity compensation plans are generally determined by the Compensation
Committee of Cabot’s Board of Directors. The awards made in fiscal 2021, 2020 and 2019 consist of grants of stock options, time-
based restricted stock units, and performance-based restricted stock units. The options were issued with an exercise price equal to
100% of the market price of Cabot’s common stock on the date of grant, generally vest over a three year period (30% on each of the
first and second anniversaries of the date of grant and 40% on the third anniversary of the date of grant) and have a ten-year term.
The restricted stock units generally vest three years from the date of the grant. The number of shares issuable, if any, when a
performance-based restricted stock unit award vests will depend on the degree of achievement of the corporate performance
metrics for each year within the three-year performance period of the award. Accordingly, future compensation costs associated
with outstanding awards of performance-based restricted stock units may increase or decrease based on the probability of the
Company achieving the performance metrics.
Stock-based employee compensation expense was $20 million, $9 million and $8 million, after tax, for fiscal 2021, 2020 and
2019, respectively.
The following table presents stock-based compensation expenses included in the Company’s Consolidated Statements of
Operations:
Cost of sales
Selling and administrative expenses
Research and technical expenses
Stock-based compensation expense
Income tax benefit
Net stock-based compensation expense
2021
Years Ended September 30
2020
(In millions)
2019
$
$
2 $
17
2
21
(1)
20 $
1 $
7
1
9
—
9 $
1
9
1
11
(3)
8
As of September 30, 2021, Cabot had $21 million and $2 million of total unrecognized compensation cost related to restricted
stock units and options, respectively, granted under the Company’s equity incentive plans. These costs are expected to be
recognized over a weighted-average period of approximately one year for restricted stock units and options.
Equity Incentive Plan Activity
The following table summarizes the total stock option and restricted stock unit activity in the equity incentive plans for fiscal
2021:
Outstanding at September 30, 2020
Granted
Performance-based adjustment(2)
Exercised / Vested
Cancelled / Forfeited
Outstanding at September 30, 2021(3)
Exercisable at September 30, 2021
Stock Options
Restricted Stock Units
Total
Options (4)
Weighted
Average
Exercise
Price
Restricted
Stock
Units(1)
Weighted
Average
Grant Date
Fair Value
(Shares in thousands)
1,273 $
394 $
— $
(121) $
(70) $
1,476 $
731 $
50.45
40.97
—
44.60
50.96
48.36
51.55
604 $
369 $
88 $
(184) $
(18) $
859 $
52.87
41.92
44.56
60.11
49.98
45.82
(1)
(2)
(3)
(4)
The number granted represents the number of shares issuable upon vesting of time-based restricted stock units and
performance-based restricted stock units, assuming the Company performs at the target performance level in each year of the
three-year performance period.
Represents the net incremental number of shares issuable upon vesting of performance-based restricted stock units based on
the Company’s actual financial performance metrics for fiscal 2021.
Stock options outstanding include options vested and expected to vest in the future and have a weighted average remaining
contractual life of 7.12 years.
Unvested stock options were approximately 745,000 and 609,000 at September 30, 2021 and 2020 and their weighted
average grant date fair values were $45.24 and $51.38, respectively.
67
Stock Options
As of September 30, 2021, the aggregate intrinsic value for all options outstanding and options exercisable was $5 million. The
intrinsic value of options exercised during fiscal 2021, 2020 and 2019 was $2 million, nominal and $1 million, respectively, and the
Company received cash of $5 million, $1 million and $2 million, respectively, from these exercises. The Company recognized
immaterial tax benefits in fiscal 2021, 2020, and 2019 from the exercise of stock options which were included in (Provision) benefit
for income taxes within the Consolidated Statements of Operations.
The Company uses the Black-Scholes option-pricing model to estimate the fair value of the options at the grant date. The
weighted average grant date fair values of options granted during fiscal 2021, 2020 and 2019 was $9.69, $10.68, and $10.85 per
option, respectively. The fair values on the grant date were calculated using the following weighted-average assumptions:
Expected stock price volatility
Risk free interest rate
Expected life of options (years)
Expected annual dividends per year
Years Ended September 30
2020
2019
2021
36%
0.6%
6
1.40
$
28%
1.9%
6
1.40
$
27%
3.1%
6
1.32
$
The expected stock price volatility assumption was determined using the historical volatility of the Company’s common stock
over the expected life of the option. The expected term reflects the anticipated time period between the measurement date and the
exercise date or post-vesting cancellation date.
Restricted Stock Units
The value of restricted stock unit awards is the closing stock price at the date of the grant. The weighted average grant date
fair values of restricted stock unit awards granted during fiscal 2021, 2020 and 2019 was $41.92, $49.36, and $49.44, respectively.
The intrinsic value of restricted stock units (meaning the fair value of the units on the date of vesting) that vested during fiscal 2021,
2020 and 2019 was $8 million, $13 million and $18 million, respectively.
Supplemental 401(k) Plan
Cabot’s Deferred Compensation and Supplemental Retirement Plan (“SERP 401(k)”) provides benefits to highly compensated
employees when the retirement plan limits established under the Internal Revenue Code prevent them from receiving all of the
Company matching and retirement contributions that would otherwise be provided under the qualified 401(k) plan. The SERP 401(k)
is non-qualified and unfunded. Contributions under the SERP 401(k) are treated as if invested in Cabot common stock. The majority
of the distributions made under the SERP 401(k) are required to be paid with shares of Cabot common stock. The remaining
distributions, which relate to certain grandfathered accounts, will be paid in cash based on the market price of Cabot common stock
at the time of distribution. The aggregate value of the accounts that will be paid out in stock, which is equivalent to approximately
77,000 and 76,000 shares of Cabot common stock as of September 30, 2021 and 2020, respectively, is reflected at historic cost in
stockholders’ equity, and the aggregate value of the accounts that will be paid in cash, which was immaterial as of September 30,
2021 and 2020, was included in Other liabilities and marked-to-market quarterly.
Note O. Restructuring
Cabot’s restructuring activities were recorded in the Consolidated Statements of Operations as follows:
Cost of sales
Selling and administrative expenses
Research and technical expenses
Total
2021
Years Ended September 30
2020
(In millions)
2019
$
$
7 $
3
1
11 $
6 $
13
—
19 $
9
7
—
16
68
Details of all restructuring activities and the related reserves for fiscal 2019, 2020, and 2021 were as follows:
Reserve at September 30, 2018
Charges (gain)
Costs charged against assets
Cash (paid) received
Reserve at September 30, 2019
Charges (gain)
Costs charged against liabilities
Cash paid
Reserve at September 30, 2020
Charges (gain)
Costs charged against assets
Cash (paid) received
Reserve at September 30, 2021
Severance
and
Employee
Benefits
Environmental
Remediation and
Decommissioning
Activities
Non-Cash
Asset
Impairment
and
Accelerated
Depreciation
(In millions)
$
$
1 $
11
—
(9)
3
14
—
(12)
5
5
—
(5)
5 $
4 $
—
—
—
4
—
—
—
4
1
—
(1)
4 $
— $
2
(2)
—
—
1
(1)
—
—
2
(2)
—
— $
Other
Total
— $
3
—
(3)
—
4
—
(4)
—
3
—
(3)
— $
5
16
(2)
(12)
7
19
(1)
(16)
9
11
(2)
(9)
9
Cabot’s severance and employee benefit reserves and other closure related reserves are reflected in Accounts payable and
accrued liabilities on the Company’s Consolidated Balance Sheets. Cabot’s environmental remediation reserves related to
restructuring activities are reflected in Other liabilities on the Company’s Consolidated Balance Sheets.
Reorganization Actions
Beginning in fiscal 2020, the Company has undertaken various actions that it believes will enable the Company to perform
certain activities more effectively. These actions have primarily consisted of the reorganization of Cabot’s leadership structure, the
creation of a Global Business Services function and other operational efficiency initiatives. As of September 30, 2021, the Company
had recorded total charges of $22 million, of which $17 million was recorded in fiscal 2020, primarily related to severance costs, and
also had $4 million of accrued severance charges in the Consolidated Balance Sheets related to these actions. The Company expects
to record additional restructuring charges of approximately $3 million in fiscal 2022 and $2 million thereafter, primarily related to
severance and site demolition costs associated with the reorganization. As of September 30, 2021, the Company had paid a total of
$18 million in cash, of which $13 million was paid in fiscal 2020, and expects to have future cash outlays of approximately $7 million
in fiscal 2022 and $2 million thereafter related to the reorganization.
Purification Solutions Transformation Plan
In December 2018, the Company initiated a transformation plan to improve the long-term performance of the Purification
Solutions segment. The purpose of the plan was to focus the business’s product portfolio, optimize its manufacturing assets, and
streamline its organizational structure to support the new focus. As of September 30, 2021, the Company had recorded total charges
of $15 million for this plan, of which $11 million was recorded in prior fiscal years, primarily related to severance costs, and also had
$1 million of accrued severance and other charges in the Consolidated Balance Sheets related to this plan. The Company expects to
record additional restructuring charges $2 million in fiscal 2022 and thereafter primarily related to decommissioning costs associated
with the business’s manufacturing facility in Marshall, Texas. As of September 30, 2021, the Company had paid a total of $12 million
in cash for this plan, of which $10 million was paid in prior fiscal years, and expects to have future cash outlays of approximately $2
million in fiscal 2022 and $1 million thereafter.
69
Note P. Accumulated Other Comprehensive Income (Loss)
Changes in each component of AOCI, net of tax, are as follows for fiscal 2020 and 2021:
Balance at September 30, 2019 attributable to
Cabot Corporation
Other comprehensive income (loss) before reclassifications
Amounts reclassified from AOCI
Adoption of accounting standards
Less: Other comprehensive income (loss) attributable to
noncontrolling interests
Balance at September 30, 2020 attributable to
Cabot Corporation
Other comprehensive income (loss) before reclassifications
Amounts reclassified from AOCI
Less: Other comprehensive income (loss) attributable to
noncontrolling interests
Balance at September 30, 2021 attributable to
Cabot Corporation
Currency
Translation
Adjustment
Unrealized
Gains on
Investment
Pension and Other
Postretirement
Benefit Liability
Adjustment
Total
(In millions)
$
(338) $
42
(3)
(3)
5
(307)
52
(3)
7
1 $
—
—
(1)
—
—
—
—
—
(54) $
3
6
1
—
(44)
20
—
—
(391)
45
3
(3)
5
(351)
72
(3)
7
$
(265) $
— $
(24) $
(289)
The amounts reclassified out of AOCI and into the Consolidated Statements of Operations for fiscal 2021, 2020 and 2019 are as
follows:
Derivatives: net investment hedges
(Gains) losses reclassified to interest
expense
(Gains) losses excluded from effectiveness
testing and amortized to interest expense
Pension and other postretirement benefit
liability adjustment
Amortization of actuarial losses and prior service
cost (credit)
Settlement and curtailment loss (gain)
Specialty Fluids divestiture
Total before tax
Affected Line Item in the Consolidated
Statements of Operations
2021
Years Ended September 30
2020
(In Millions)
2019
Interest expense
$
(5) $
(5) $
Interest expense
2
2
(5)
1
1
(7)
3
5
3
4
—
5 $
—
4 $
(3)
(13)
Net Periodic Benefit Cost - see
Note M for details
Net Periodic Benefit Cost - see
Note M for details
Specialty Fluids loss on sale and
asset impairment - see Note D
for details
$
70
Note Q. Earnings Per Share
The following tables summarize the components of the basic and diluted earnings per common share (“EPS”) computations:
2021
Years Ended September 30
2020
(In millions, except per share amounts)
2019
Basic EPS:
Net income (loss) attributable to Cabot Corporation
Less: Dividends and dividend equivalents to participating
securities
Less: Undistributed earnings allocated to participating
securities(1)
Earnings (loss) allocated to common shareholders
(numerator)
$
250 $
(238) $
157
1
2
—
—
1
1
$
247 $
(238) $
155
Weighted average common shares and participating
securities outstanding
Less: Participating securities(1)
Adjusted weighted average common shares
(denominator)
57.5
0.8
57.3
0.7
59.5
0.8
56.7
56.6
58.7
Per share amounts—basic:
Net income (loss) attributable to Cabot Corporation
$
4.35 $
(4.21) $
2.64
Diluted EPS:
Earnings (loss) allocated to common shareholders
Plus: Earnings allocated to participating securities
Less: Adjusted earnings allocated to participating
securities(2)
Earnings (loss) available to common shares (numerator)
$
$
247 $
3
3
247 $
(238) $
—
—
(238) $
155
2
2
155
Adjusted weighted average common shares outstanding
Effect of dilutive securities:
Common shares issuable(3)
Adjusted weighted average common shares
(denominator)
56.7
56.6
58.7
0.1
—
0.1
56.8
56.6
58.8
Per share amounts—diluted:
Net income (loss) attributable to Cabot Corporation
$
4.34 $
(4.21) $
2.63
(1)
Participating securities consist of shares underlying all outstanding and achieved performance-based restricted stock units
and all unvested time-based restricted stock units. The holders of these units are entitled to receive dividend equivalents
payable in cash to the extent dividends are paid on the Company’s outstanding common stock and equal in value to the
dividends that would have been paid in respect of the shares underlying such units.
71
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:
Calculation of undistributed earnings:
Net income (loss) attributable to Cabot Corporation
Less: Dividends declared on common stock
Less: Dividends and dividend equivalents to participating
securities
Undistributed earnings (loss)
Allocation of undistributed earnings:
Undistributed earnings (loss) allocated to common
shareholders
Undistributed earnings allocated to participating
securities
Undistributed earnings (loss)
$
$
$
$
2021
Years Ended September 30
2020
(In millions)
2019
250 $
80
1
169 $
(238) $
80
—
(318) $
167 $
(318) $
2
169 $
—
(318) $
157
80
1
76
75
1
76
(2)
(3)
Undistributed earnings (loss) are adjusted for the assumed distribution of dividends to the dilutive securities, which are
described in (3) below, and then reallocated to participating securities.
Represents incremental shares of common stock from the (i) assumed exercise of stock options issued under Cabot’s equity
incentive plans; and (ii) assumed issuance of shares to employees pursuant to the Company’s Deferred Compensation and
Supplemental Retirement Plan. For fiscal 2021, 2020, and 2019, respectively, 525,131, 1,821,018, and 942,060 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.
Note R. Income Taxes
Income from continuing operations before income taxes and equity in net earnings of affiliated companies was as follows:
Domestic
Foreign
Income from continuing operations before income taxes and
equity in earnings of affiliated companies
$
$
Tax provision (benefit) for income taxes consisted of the following:
U.S. federal and state:
Current
Deferred
Total
Foreign:
Current
Deferred
Total
$
Provision (benefit) for income taxes
$
2021
Years Ended September 30
2020
(In millions)
2019
(73) $
479
(274) $
241
(66)
321
406 $
(33) $
255
2021
Years Ended September 30
2020
(In millions)
2019
11
$
(1)
10
103
10
113
$
123
(1) $
139
138
62
(9)
53
$
191
2
(30)
(28)
95
3
98
70
72
The provision (benefit) for income taxes differed from the provision for income taxes as calculated using the U.S. statutory
rate as follows:
53
17
10
—
—
(2)
(8)
1
(1)
70
2021
Years Ended September 30
2020
(In millions)
2019
$
85
$
(7) $
Computed tax expense at the federal statutory rate
Foreign impact of taxation at different rates, repatriation,
valuation allowance, and other
Global Intangible Low Taxed Income (GILTI)
Impact of the Coronavirus Aid, Relief, and Economic
Security ("CARES") Act of 2020
Impact of increase (decrease) in valuation allowance on
U.S. deferred taxes
U.S. and state benefits from research and experimentation
activities
Provision (settlement) of unrecognized tax benefits
Permanent differences, net
State taxes, net of federal effect
Provision (benefit) for income taxes
$
Significant components of deferred income taxes were as follows:
Deferred tax assets:
Deferred expenses
Intangible assets
Inventory
Operating lease liability
Other
Pension and other benefits
Net operating loss carryforwards
Foreign tax credit carryforwards
R&D credit carryforwards
Other business credit carryforwards
Subtotal
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Property, plant and equipment
Right of use asset
Unremitted earnings of non-U.S. subsidiaries
Total deferred tax liabilities
8
18
10
4
(4)
(10)
(1)
228
(2)
1
7
(3)
$
123
(2)
(7)
—
(11)
$
191
September 30
2021
2020
(In millions)
$
$
$
$
$
14
38
13
21
42
32
257
48
46
24
535
(470)
$
65
September 30
2021
2020
(In millions)
(47) $
(20)
(18)
(85) $
19
37
13
20
51
35
254
58
44
23
554
(481)
73
(40)
(20)
(18)
(78)
Subsequent to the filing of the Company’s financial statements as of and for the year ended September 30, 2020, the Company
identified a misstatement related to the disclosure of the previously reported net operating loss carryforwards, other deferred tax
assets and the offsetting valuation allowance associated with certain non-U.S. subsidiaries for the year ended, September 30, 2020.
As a result, the Company included an additional $145 million in net operating loss carryforwards, $19 million of other deferred tax
assets, and $164 million of valuation allowance for the year ended September 30, 2020, in the Deferred tax assets table above to
reflect the correct presentation. The Company had previously reported net operating loss carryforwards of $109 million, other
deferred tax assets of $32 million, and a valuation allowance of $317 million at September 30,2020, prior to this correction. This
73
adjustment had no effect on the Company’s previously reported consolidated financial statements including the balance sheet,
statement of operations, or cash flows as of and for the year ended September 30, 2020.
The Company assesses the available positive and negative evidence to estimate whether sufficient future taxable income will
be generated to permit utilization of the existing deferred tax assets. When performing this assessment, the Company looks to the
potential future reversal of existing taxable temporary differences, taxable income in carryback years and the feasibility of tax
planning strategies and estimated future taxable income. Failure to achieve operating income targets resulting in a cumulative loss
may change the Company’s assessment regarding the realization of Cabot’s deferred tax assets, resulting in valuation allowance
being recorded against some or all of the Company’s deferred tax assets. The need for a valuation allowance can also be affected by
changes to tax laws, changes to statutory tax rates and changes to future taxable income estimates. A valuation allowance
represents management’s best estimate of the non-realizable portion of the deferred tax assets. Any adjustments in a valuation
allowance would result in an adjustment to income tax expense.
In determining the recoverability of its U.S. deferred tax assets, the Company considered its cumulative loss incurred over the
three-year period ended September 30, 2020. Such objective negative evidence limits the Company’s ability to consider other
subjective evidence, such as its projections for future growth. Given the weight of objectively verifiable historical losses from the
Company's U.S. operations, the Company recorded a valuation allowance on all of its U.S. deferred tax assets resulting in a charge of
$228 million during the fourth quarter of fiscal 2020. The Company has maintained a valuation allowance on all of its US deferred tax
assets at September 30, 2021. The Company expects to continue to record a valuation allowance against these assets until sufficient
positive evidence exists to support its reversal.
The valuation allowance decreased by $11 million in fiscal 2021 compared to fiscal 2020, primarily due to the expiration of
NOLs. The valuation allowance increased in fiscal 2020 compared to fiscal 2019 primarily due to the recording of a valuation
allowance charge against all of the Company’s U.S. net deferred tax assets of $228 million as of September 30, 2020.
After the valuation allowance, approximately $26 million of foreign NOLs and less than $1 million of other tax credit
carryforwards remained at September 30, 2021. The benefits of these carryforwards are dependent upon taxable income during the
carryforward period in the jurisdictions in which they arose.
The following table provides detail surrounding the expiration dates of NOLs and other tax credit carryforwards before
valuation allowances:
Years Ending September 30
NOLs
Credits
2022 - 2028
2029 and thereafter
Indefinite carryforwards
Total
$
$
(In millions)
229 $
218
818
1,265
$
28
88
2
118
As of September 30, 2021, provisions have not been made for non-U.S. withholding taxes or other applicable taxes on $1,934
million of undistributed earnings of non-U.S. subsidiaries, as these earnings are considered indefinitely reinvested. It is not
practicable to calculate the unrecognized deferred tax liability on undistributed earnings. Cabot continually reviews the financial
position and forecasted cash flows of its U.S. consolidated group and foreign subsidiaries in order to reaffirm the Company’s intent
and ability to continue to indefinitely reinvest earnings of its foreign subsidiaries or whether such earnings will need to be
repatriated in the foreseeable future. Such review encompasses operational needs and future capital investments. From time to
time, however, the Company’s intentions relative to specific indefinitely reinvested amounts change because of certain unique
circumstances. These earnings could become subject to non-U.S. withholding taxes and other applicable taxes if they were remitted
to the U.S.
Cabot has filed its tax returns in accordance with the tax laws in each jurisdiction and recognizes tax benefits for uncertain tax
positions when the position would more likely than not be sustained based on its technical merits and recognizes measurement
adjustments when needed. As of September 30, 2021, the total amount of unrecognized tax benefits was $21 million, of which $6
million was recorded in Other liabilities in the Consolidated Balance Sheet and $15 million was offset against deferred tax assets. In
addition, accruals of $4 million have been recorded for penalties and interest, as of September 30, 2021. Total penalties and interest
recorded in the tax provision in the Consolidated Statements of Operations was $1 million in both fiscal 2021 and 2020, and $2
million in 2019. If the unrecognized tax benefits were recognized as of September 30, 2021, there would be $21 million favorable
impact on the Company’s tax provision before consideration of the impact of the potential need for valuation allowances.
74
A reconciliation of the beginning and ending amount of unrecognized tax benefits for fiscal 2021, 2020 and 2019 is as follows:
2021
Years Ended September 30
2020
(In millions)
2019
Balance at beginning of the year
$
23 $
27 $
Additions based on tax provisions related to the current
year
Additions for tax positions of prior years
Reductions of tax provisions of prior years
Reductions related to settlements
Reductions from lapse of statute of limitations
Balance at end of the year
$
1
—
(2)
—
(1)
$
21
2
2
(1)
(5)
(2)
$
23
37
—
—
(1)
(5)
(4)
27
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 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 2018
through 2020 tax years generally remain subject to examination by the IRS and various tax years from 2005 through 2020 remain
subject to examination by the respective state tax authorities. In significant non-U.S. jurisdictions, various tax years from 2005
through 2020 remain subject to examination by their respective tax authorities. As of September 30, 2021, Cabot’s significant non-
U.S. jurisdictions include Canada, China, France, Germany, Italy, Japan, and the Netherlands.
Note S. Leases
The Company determines if an arrangement is a lease at inception. The Company considers a contract to be or to contain a
lease if the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period
of time in exchange for consideration.
A lease liability is recorded at commencement for the net present value of future lease payments over the lease term. The
discount rate used is generally the Company’s estimated incremental borrowing rate based on credit-adjusted and term-specific
discount rates, using a third-party yield curve. An ROU asset is recorded and recognized at commencement at the lease liability
amount, including initial direct costs incurred, and is reduced for lease incentives received. The Company’s lease terms may include
options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
In the normal course of its business, the Company enters into various leases as the lessee, primarily related to certain
transportation vehicles, warehouse facilities, office space, and machinery and equipment. These leases have remaining lease terms
between one and eighteen years, some of which may include options to extend the leases for up to fifteen years or options to
terminate the leases. The Company’s land leases have remaining lease terms up to sixty-nine years.
Some lease arrangements require variable payments that are dependent on usage, output, or index-based adjustments. The
Company does not have material variable lease payments.
The Company has elected not to recognize short-term leases on the balance sheet for all underlying asset classes. Short-term
leases are leases that, at the commencement date, have a lease term of twelve months or less and do not include a purchase option
that the Company is reasonably certain to exercise. Short-term leases are expensed on a straight-line basis over the lease term.
The components of the Company’s lease costs were as follows:
Operating lease cost
Finance lease cost
Total lease cost
Years Ended September 30
2021
2020
(In millions)
25 $
7
32 $
32
6
38
$
$
Included within operating lease costs are short-term lease costs, which were $5 million and $6 million in fiscal 2021 and 2020,
respectively, and variable lease costs, which were $1 million in both fiscal 2021 and 2020.
75
Supplemental cash flow information related to the Company’s leases was as follows:
Years Ended September 30
2021
2020
(In millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for new operating lease liabilities
Right-of-use assets obtained in exchange for new finance lease liabilities
$
$
$
20 $
2
3
6 $
4 $
Supplemental balance sheet information related to the Company’s leases was as follows:
Description
Balance Sheet Classification
September 30, 2021
September 30, 2020
Lease ROU assets:
Operating
Finance
Total lease ROU assets
Lease liabilities:
Current:
Operating
Finance
Long-term:
Operating
Finance
Total lease liabilities
Other assets
Net property, plant and equipment
$
$
Accounts payable and accrued liabilities
Current portion of long-term debt
$
Other liabilities
Long-term debt
$
(In millions)
90 $
44
134 $
14 $
4
84
29
131 $
25
2
3
14
24
98
44
142
15
3
89
28
135
The following table presents the weighted-average remaining lease term and discount rates for the Company’s leases:
Description
September 30, 2021
September 30, 2020
Weighted-average remaining lease term (years):
Operating leases
Finance leases
Weighted-average discount rate:
Operating leases
Finance leases
17
11
2.41%
5.76%
17
12
2.19%
4.42%
Future minimum lease payments under non-cancelable operating and finance leases as of September 30, 2021 were as
follows:
Years Ended September 30
Operating leases
Finance leases
2022
2023
2024
2025
2026
2027 and thereafter
Total lease payments
Less: imputed interest
Total
$
$
76
$
(In millions)
16
14
11
10
9
57
117
19
98
$
5
5
5
4
4
18
41
8
33
Note T. Commitments and Contingencies
Other Long-Term Commitments
Cabot has entered into long-term purchase agreements primarily for the purchase of raw materials. Under certain of these
agreements, the quantity of material being purchased is fixed, but the price paid changes as market prices change. Raw materials
purchased under these agreements were $405 million, $258 million and $466 million during fiscal 2021, 2020 and 2019, respectively.
Included in those raw materials purchased are purchases from noncontrolling shareholders of consolidated subsidiaries of $135
million, $81 million and $156 million during fiscal 2021, 2020 and 2019, respectively. Accounts payable and accrued liabilities owed
to noncontrolling shareholders as of September 30, 2021 and 2020, were $14 million and $12 million, respectively.
For these purchase commitments, the amounts included in the table below are based on market prices as of September 30,
2021 which may differ from actual market prices at the time of purchase.
2022
2023
2024
Payments Due by Fiscal Year
2025
(In millions)
2026
Thereafter
Total
Reinforcement Materials
Performance Chemicals
Purification Solutions
Total
$
$
205 $
53
2
260 $
156 $
30
—
186 $
155 $
31
—
186 $
155 $
30
—
185 $
155 $
32
—
187 $
1,550 $
236 $
—
1,786 $
2,376
412
2
2,790
The Company has also entered into long-term purchase agreements primarily for services related to information technology,
which are not included in the table above, that total $7 million as of September 30, 2021, the majority of which is expected to be
paid within the next 5 years.
Guarantee Agreements
Cabot has provided certain indemnities pursuant to which it may be required to make payments to an indemnified party in
connection with certain transactions and agreements. In connection with certain acquisitions and divestitures, Cabot has provided
routine indemnities with respect to such matters as environmental, tax, insurance, product and employee liabilities. In connection
with various other agreements, including service and supply agreements with customers, Cabot has provided indemnities for certain
contingencies and routine warranties. Cabot is unable to estimate the maximum potential liability for these types of indemnities as a
maximum obligation is not explicitly stated in most cases and the amounts, if any, are dependent upon the outcome of future
contingent events, the nature and likelihood of which cannot be reasonably estimated. The duration of the indemnities vary, and in
many cases are indefinite. Cabot has not recorded any liability for these indemnities in the consolidated financial statements, except
as otherwise disclosed.
Self-Insurance and Retention for Certain Contingencies
The Company is partially self-insured for certain third-party liabilities globally, as well as workers’ compensation and employee
medical benefits in the United States. The third-party and workers’ compensation liabilities are managed through a wholly-owned
insurance captive and the related liabilities are included in the consolidated financial statements. The employee medical obligations
are managed by a third-party provider and the related liabilities are included in the consolidated financial statements. To limit
Cabot’s potential liabilities for these risks, however, the Company purchases insurance from third-parties that provides stop-loss
protection. The self-insured liability in fiscal 2021 for third-party liabilities was $500,000 per accident for auto, $2 million per
occurrence for all other, $1 million per accident for U.S. workers’ compensation, and the retention for medical costs in the United
States is at most $250,000 per person per annum.
Contingencies
Cabot is a defendant, or potentially responsible party, in various lawsuits and environmental proceedings wherein substantial
amounts are claimed or at issue.
Environmental Matters
As of September 30, 2021 and 2020, Cabot had $5 million and $7 million, respectively, reserved for environmental matters.
These environmental matters mainly relate to former operations. The Company’s reserves for environmental matters 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. In fiscal 2021 and 2020, there was $1 million and
$3 million, respectively, in Accounts payable and accrued liabilities in the Consolidated Balance Sheets for environmental matters. In
both fiscal 2021 and 2020, there was $4 million in Other liabilities in the Consolidated Balance Sheets for environmental matters.
Cabot reviews the adequacy of the reserves as circumstances change at individual sites and adjusts the reserves as appropriate.
77
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.
Charges for environmental expense were less than $1 million in fiscal 2021 and $1 million in both fiscal 2020 and fiscal 2019
and are included in Cost of sales in the Consolidated Statements of Operations. Cash payments related to these environmental
matters were $2 million in fiscal 2021, $7 million in fiscal 2020 and $2 million in fiscal 2019. The Company anticipates that
expenditures related to these environmental matters will be made over a number of years.
The operation and maintenance component of the $5 million reserve for environmental matters was $4 million at
September 30, 2021. As of September 30, 2020, the operation and maintenance component of the $7 million reserve for
environmental matters was $4 million.
In November 2013, Cabot entered into a Consent Decree with the EPA and the Louisiana Department of Environmental Quality
(“LDEQ”) regarding Cabot’s three carbon black manufacturing facilities in the U.S. This settlement is related to EPA’s national
enforcement initiative focused on the U.S. carbon black manufacturing sector alleging non-compliance with certain regulatory and
permitting requirements under The Clean Air Act, including the New Source Review (“NSR”) construction permitting requirements.
Pursuant to this settlement, Cabot is in the process of installing technology controls for the reduction of sulfur dioxide and nitrogen
oxide emissions at these plants.
Respirator Liabilities
Cabot has exposure in connection with a safety respiratory products business that a subsidiary acquired from American Optical
Corporation (“AO”) in an April 1990 asset purchase transaction. The subsidiary manufactured respirators under the AO brand and
disposed of that business in July 1995. In connection with its acquisition of the business, the subsidiary agreed, in certain
circumstances, to assume a portion of AO’s liabilities, including costs of legal fees together with amounts paid in settlements and
judgments, allocable to AO respiratory products used prior to the 1990 purchase by the Cabot subsidiary. In exchange for the
subsidiary’s assumption of certain of AO’s respirator liabilities, AO agreed to provide to the subsidiary the benefits of: (i) AO’s
insurance coverage for the period prior to the 1990 acquisition and (ii) a former owner’s indemnity of AO holding it harmless from
any liability allocable to AO respiratory products used prior to May 1982.
Generally, these respirator liabilities involve claims for personal injury, including asbestosis, silicosis and coal worker’s
pneumoconiosis (“CWP”), allegedly resulting from the use of respirators that are alleged to have been negligently designed and/or
labeled. At no time did this respiratory product line represent a significant portion of the respirator market.
The subsidiary transferred the business to Aearo Corporation (“Aearo”) in July 1995. Cabot agreed to have the subsidiary
retain certain liabilities associated with exposure to asbestos and silica while using respirators prior to the 1995 transaction so long
as Aearo paid, and continues to pay, Cabot an annual fee of $400,000. Aearo can discontinue payment of the fee at any time, in
which case it will assume the responsibility for and indemnify Cabot against those liabilities which Cabot’s subsidiary had agreed to
retain. The Company anticipates that it will continue to receive payment of the $400,000 fee from Aearo and thereby retain these
liabilities for the foreseeable future. Cabot has no liability in connection with any products manufactured by Aearo after 1995.
In addition to Cabot’s subsidiary and as described above, other parties are responsible for significant portions of the costs of
respirator liabilities, leaving Cabot’s subsidiary with a portion of the liability in only some of the pending cases. These parties include
Aearo, AO, AO’s insurers, another former owner and its insurers and a third-party manufacturer of respirators formerly sold under
the AO brand and its insurers (collectively, with the Company’s subsidiary, the “Payor Group”).
Cabot has contributed to the Payor Group’s defense and settlement costs with respect to a percentage of pending claims
depending on several factors, including the period of alleged product use. In order to quantify Cabot’s estimated share of liability for
pending and future respirator liability claims, Cabot has engaged, through counsel, the assistance of Gnarus Advisors, LLC
(“Gnarus”), a consulting firm in the field of tort liability valuation. The methodology used to estimate the liability addresses the
complexities surrounding Cabot’s potential liability by making assumptions about Cabot’s likely exposure based on various factors,
including the Payor Group’s historical experience with these claims, the number of future claims and the cost to resolve pending and
future claims. Using those and other assumptions, the Company estimates the costs that would be incurred in defending and
resolving both currently pending and future claims.
In fiscal 2021, the Company recorded a charge of $25 million related to the respirator liability which was included in Selling
and administrative expense in the Consolidated Statements of Operations. The charge is primarily due to an increase in the number
of CWP claims filed in 2021. As of September 30, 2021 and 2020, the Company had $44 million and $24 million, respectively,
78
reserved for its estimated share of liability for pending and future respirator claims, the majority of which the Company expects to
incur over the next ten years. The reserve is included in Other liabilities and Accounts payable and accrued liabilities on the
Consolidated Balance Sheets.
In fiscal 2020 and fiscal 2019, the Company recorded charges of $53 million and $20 million, respectively related to the
respirator liability which was included in Selling and administrative expenses in the Consolidated Statements of Operations.
Approximately $50 million of the fiscal 2020 charge related to a February 2020 settlement agreement in which Cabot, with certain
members of the Payor Group, resolved a large group of claims, including claims alleging serious injury, brought by coal workers in
Kentucky and West Virginia represented by common legal counsel. The Company’s share of the liability for this settlement was $65.2
million.
The Company made payments related to its respirator liability of $37 million in both fiscal 2021 and fiscal 2020 and $10 million
in fiscal 2019. The majority of the payments in fiscal 2021 and fiscal 2020 relate to the settlement noted above.
The Company’s current estimate of the cost of its share of existing and future respirator liability claims is based on facts and
circumstances existing at this 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, (viii) the financial viability of the parties that contribute to the payment of respirator
claims, (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 the indemnity provided by a former owner of AO, (x) changes in the allocation of costs
among the various parties paying legal and settlement costs, and (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. 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 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 material.
Value-added Tax (“VAT”) Matter
The Company has received assessments from a non-U.S. taxing authority for VAT related to certain sales made and services
provided by certain of the Company’s subsidiaries from 2014 through 2019. The Company believes these transactions are exempt
from VAT and has filed legal actions challenging the taxing authority’s application of VAT to them. Hearings on these matters are
ongoing and it could potentially be a number of years before they are resolved. The Company believes its interpretation of these
VAT rules is appropriate, and that it will be successful in its challenge against the taxing authority’s assessments. Accordingly, the
Company does not believe it is probable that it will incur a loss related to these matters. However, the interpretation and application
of these VAT rules is an unsettled issue, and the resolution of tax and regulatory matters is unpredictable. If it is determined in these
proceedings that VAT applies to some or all of these various transactions, the Company could incur a charge that ranges between nil
and $37 million for these matters, with the amount impacted by any interest and penalties associated with these matters and the
amount, if any, of VAT the Company might subsequently recover from its customers.
Brazil Indirect Tax Settlements
The Company previously filed claims with the Brazilian tax authorities challenging the calculation of certain indirect taxes
related to local social contributions for the years 2012 through 2019. During the third quarter of fiscal 2021, the Brazilian Federal
Supreme Court rendered a final unappealable decision that clarified the methodology companies should use in the calculation. As a
result of this decision, the Company is entitled to recover credits and associated interest related to the historical periods for
overpayment of these indirect taxes to be used to offset future Brazilian tax liabilities. As such, the Company recorded a $12 million
benefit during fiscal 2021 of which $9 million, related to the credit recovery was included in Net sales and other operating revenues
and $3 million, related to interest income was included in Other income (expense) in the Consolidated Statement of Operations.
Other Matters
The Company has various other lawsuits, claims and contingent liabilities arising in the ordinary course of its business and with
respect to its divested businesses. The Company does not believe that any of these matters will have a material adverse effect on its
financial position; however, litigation is inherently unpredictable. Cabot could incur judgments, enter into settlements or revise its
expectations regarding the outcome of certain matters, and such developments could have a material impact on its results of
operations in the period in which the amounts are accrued or its cash flows in the period in which the amounts are paid.
79
Note U. Financial Information by Segment & Geographic Area
Segment Information
The Company identifies a business as an operating segment if: i) it engages in business activities from which it may earn
revenues and incur expenses; 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) 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) nature of products and services; ii) nature of production processes; iii) type or class of customer for
their products and services; iv) methods used to distribute the products or provide services; and v) if applicable, the nature of the
regulatory environment.
The Company has three reportable segments: Reinforcement Materials, Performance Chemicals and Purification Solutions.
The Company’s former Specialty Fluids business was a separate reporting segment prior to divestiture in the third quarter of fiscal
2019. On November 25, 2021, the Company entered into an agreement to sell the Purification Solutions business, subject to the
satisfaction or waiver of the conditions set forth in the agreement. The Company expects to close the transaction in the second
quarter of fiscal 2022, and upon consummation of this transaction the Company will be organized into two reportable segments.
The Reinforcement Materials segment combines the reinforcing carbons and engineered elastomer composites product lines.
The Performance Chemicals segment combines the specialty carbons, fumed metal oxides and aerogel product lines into the
Performance Additives business, and combines the specialty compounds and inkjet colorants product lines into the Formulated
Solutions business. 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 Purification Solutions segment represents the Company’s activated carbon business.
Income (loss) from continuing operations before income taxes (“Segment EBIT”) is presented for each reportable segment in
the financial information by the reportable segment table below on the line entitled Income (loss) from continuing operations
before taxes. Segment EBIT excludes 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 (loss) 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.
Segment assets exclude cash, short-term investments, cost investments, income taxes receivable, deferred taxes and headquarters’
assets, which are included in unallocated and other. Expenditures for additions to long-lived assets include total equity and other
investments (including available-for-sale securities) and property, plant and equipment.
Reinforcement Materials
Carbon black is a form of elemental carbon that is manufactured in a highly controlled process to produce particles and
aggregates of varied structure and surface chemistry, resulting in many different performance characteristics for a wide variety of
applications. Reinforcing carbons (a class of carbon blacks manufactured by Cabot) are used to enhance the physical properties of
the systems and applications in which they are incorporated.
The Company’s reinforcing carbons products are used in tires and industrial products. Reinforcing carbons have traditionally
been used in the tire industry as a rubber reinforcing agent to increase tread durability and are also used as a performance additive
to reduce rolling resistance and improve traction. In industrial products such as hoses, belts, extruded profiles and molded goods,
reinforcing carbons are used to improve the physical performance of the product, including the product’s physical strength, fluid
resistance, conductivity and resistivity.
In addition to its reinforcing carbons products, the Company manufactures engineered elastomer composites (“E2C™”)
solutions that are composites of reinforcing carbons and rubber made using the Company’s patented elastomer composites
manufacturing process. These composites improve abrasion/wear resistance, reduce fatigue of rubber parts and reduce rolling
resistance compared to reinforcing carbons/rubber compounds made entirely by conventional rubber mix methods enabling rubber
product manufacturers to reduce the need to make performance trade-offs.
Performance Chemicals
Performance Chemicals is organized into two businesses: the Company’s Performance Additives business and its Formulated
Solutions business. The Company’s Performance Additives business combines its specialty carbons, including battery materials,
fumed metal oxides and aerogel product lines, and its Formulated Solutions business combines its specialty compounds and inkjet
80
product lines. In Performance Chemicals, the Company designs, manufactures and sells materials that deliver performance in a
broad range of customer applications across the automotive, construction, infrastructure, inkjet printing, electronics, and consumer
products sectors, and applications related to generation, transmission and storage of energy. The Company’s focus areas for growth
include carbon additives and other materials for battery applications, inkjet dispersions for post print corrugated packaging
applications, and conductive compounds and concentrates for various plastics applications.
The net sales from each of these businesses for fiscal 2021, 2020 and 2019 are as follows:
Performance Additives
Formulated Solutions
Total Performance Chemicals
Performance Additives Business
2021
Years Ended September 30
2020
(In millions)
2019
$
$
796 $
352
1,148 $
645 $
288
933 $
694
301
995
The Company’s specialty carbons are used to impart color, provide rheology control, enhance conductivity and static charge
control, provide UV protection, enhance mechanical properties, and provide formulation flexibility through surface treatment. These
specialty carbon products are used in a wide variety of applications, such as inks, coatings, cables, plastics, adhesives, toners,
batteries and displays.
Fumed silica is an ultra-fine, high-purity particle used as a reinforcing, thickening, abrasive, thixotropic, suspending or anti-
caking agent in a wide variety of products for the automotive, construction, microelectronics, batteries, and consumer products
industries. These products include adhesives, sealants, cosmetics, batteries, inks, toners, silicone elastomers, coatings, polishing
slurries and pharmaceuticals. Fumed alumina, also an ultra-fine, high-purity particle, is used as an abrasive, absorbent or barrier
agent in a variety of products, such as inkjet media, lighting, coatings, cosmetics and polishing slurries.
Aerogel is a hydrophobic, silica-based particle with a high surface area that is used in a variety of thermal insulation and
specialty chemical applications. In the building and construction industry, the product is used in insulative sprayable plasters and
composite building products, as well as translucent skylight, window, wall and roof systems for insulating eco-daylighting
applications. In the specialty chemicals industry, the product is used to provide matte finishing, insulating and thickening properties
for use in a variety of applications.
Formulated Solutions Business
Cabot’s masterbatch and conductive compound products, which Cabot refers to as “specialty compounds”, are formulations
derived from specialty carbons mixed with polymers and other additives. These products are generally used by plastic resin
producers and converters in applications for the automotive, industrial, packaging, infrastructure, agricultural, consumer products,
and electronics industries. As an alternative to directly mixing specialty carbon blacks, these formulations offer greater ease of
handling and help customers achieve their desired levels of dispersion and color and manage the addition of small doses of
additives. In addition, Cabot’s electrically conductive compound products generally are used to help ensure uniform conductive
performance and reduce risks associated with electrostatic discharge in plastics applications.
The Company’s inkjet colorants are high-quality pigment-based black and color dispersions and inks. The Company’s
dispersions are based on patented pigment surface modification technology and polymer encapsulation technology. The dispersions
are used in aqueous inkjet inks to impart color, sharp print characteristics and durability, while maintaining high printhead reliability.
These products are used in various inkjet printing applications, including traditional work-from-home and corporate office settings,
and, increasingly, in commercial and corrugated packaging printing, that all require a high level of dispersibility and colloidal stability.
Our inkjet inks, which utilize our pigment-based colorant dispersions, are used in the commercial printing segment for digital print.
Purification Solutions
The Company’s activated carbon products are used for the purification of water, air, food and beverages, pharmaceuticals and
other liquids and gases, as either a colorant or a decolorizing agent in the production of products for food and beverage applications
and as a chemical carrier in slow release applications. In gas and air applications, one of the uses of activated carbon is for the
removal of mercury in flue gas streams. In certain applications, used activated carbon can be reactivated for further use by removing
the contaminants from the pores of the activated carbon product. The most common applications for the Company’s reactivated
carbon are water treatment and food and beverage purification. In addition to activated carbon production and reactivation, the
Company also provides activated carbon solutions through on-site equipment and services, including delivery systems for activated
carbon injection in coal-fired utilities, mobile water filter units and carbon reactivation services.
81
Specialty Fluids
Cabot divested its Specialty Fluids business on June 28, 2019. Refer to Note D for the terms of this transaction. The Specialty
Fluids segment produced and marketed a range of cesium products that included cesium formate brines and other fine cesium
chemicals.
Financial information by reportable segment is as follows:
Years Ended September 30
Reinforcement
Materials
Performance
Chemicals
Purification
Solutions
Specialty
Fluids
Segment
Total(1)
(In millions)
Unallocated
and
Other(2), (4)
Consolidated
Total
2021
Revenues from external customers(3)
Depreciation and amortization
Equity in earnings of affiliated companies
Income (loss) from continuing operations
before income taxes(4)
Assets(5)
Total expenditures for additions to long-lived
assets(6)
2020
Revenues from external customers(3)
Depreciation and amortization
Equity in earnings of affiliated companies
Income (loss) from continuing operations
before income taxes(4)
Assets(5)
Total expenditures for additions to long-lived
assets(6)
2019
Revenues from external customers(3)
Depreciation and amortization
Equity in earnings of affiliated companies
Income (loss) from continuing operations
before income taxes(4)
Assets(5)
Total expenditures for additions to long-lived
assets(6)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,781 $
70 $
— $
1,148 $
73 $
2 $
329 $
1,421 $
211 $
1,325 $
257 $
16 $
2 $
10 $
283 $
— $ 3,186 $
— $
159 $
— $
4 $
223 $
1 $
(1) $
3,409
160
3
— $
550 $
— $ 3,029 $
(144) $
277 $
406
3,306
104 $
80 $
9 $
— $
193 $
5 $
198
1,256 $
68 $
— $
933 $
64 $
1 $
162 $
1,077 $
118 $
1,145 $
253 $
24 $
3 $
3 $
296 $
— $ 2,442 $
— $
156 $
— $
4 $
172 $
2 $
(1) $
2,614
158
3
— $
283 $
— $ 2,518 $
(316) $
263 $
(33)
2,781
66 $
92 $
8 $
— $
166 $
3 $
169
1,815 $
69 $
(1) $
995 $
51 $
1 $
266 $
1,177 $
152 $
1,024 $
278 $
26 $
3 $
2 $
436 $
56 $ 3,144 $
147 $
3 $
1 $
— $
193 $
1 $
(2) $
3,337
148
1
24 $
444 $
— $ 2,637 $
(189) $
367 $
255
3,004
82 $
148 $
11 $
1 $
242 $
5 $
247
(1)
(2)
(3)
Cabot divested its Specialty Fluids business on June 28, 2019. Refer to Note D for the terms of this transaction.
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.
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, the removal of 100% of the sales of
an equity method affiliate, discounting charges for certain Notes receivable, and indirect tax settlement credits. Details are
provided in the table below.
Shipping and handling fees
By-product sales
Other
Total
2021
Years Ended September 30
2020
(In millions)
2019
$
$
153 $
73
(3)
223 $
113 $
62
(3)
172 $
130
76
(13)
193
82
(4)
Consolidated Total Income (loss) from continuing operations before income taxes reconciles to Income (loss) from continuing
operations before income taxes and equity in earnings of affiliated companies on the Consolidated Statements of Operations.
Total Income (loss) from continuing operations before income taxes that are categorized as Unallocated and Other includes:
Interest expense
Certain items:(a)
2021
Years Ended September 30
2020
(In millions)
2019
$
(49) $
(53) $
(59)
$
Indirect tax settlement credits
Legal and environmental matters and reserves (Note T)
Global restructuring activities (Note O)
Acquisition and integration-related charges (Note C)
Employee benefit plan settlement and other charges (Note M)
Marshall Mine loss on sale and asset impairment charge (Note D)
Inventory reserve adjustment
Specialty Fluids loss on sale and asset impairment charge (Note D)
Equity affiliate investment impairment charge
Executive transition costs
Other certain items
Total certain items, pre-tax
Unallocated corporate costs(b)
General unallocated income (expense)(c)
Less: Equity in earnings of affiliated companies, net of tax(d)
Total
$
12 $
(25)
(11)
(5)
(4)
—
—
—
—
—
(1)
(34)
(58)
—
3
(144) $
3 $
(54)
(19)
(5)
(10)
(129)
(2)
(1)
—
—
(1)
(218)
(41)
(1)
3
(316) $
-
(21)
(16)
(6)
1
—
—
(29)
(11)
(1)
(4)
(87)
(50)
8
1
(189)
(a)
(b)
(c)
(d)
Certain items are items that management does not consider representative of operating segment results and they are,
therefore, excluded from Segment EBIT.
Unallocated corporate costs are not controlled by the segments and primarily benefit corporate interests.
General unallocated income (expense) consists of gains (losses) arising from foreign currency transactions, net of other
foreign currency risk management activities, interest income, dividend income, 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.
Equity in earnings of affiliated companies, net of tax is included in Segment EBIT and is removed from Unallocated and
other to reconcile to income (loss) from operations before taxes.
Unallocated and Other assets includes cash, marketable securities, cost investments, income taxes receivable, deferred taxes,
headquarters’ assets, and current and non-current assets held for sale.
Expenditures for additions to long-lived assets include total equity and other investments (including available-for-sale
securities) and property, plant and equipment.
(5)
(6)
Geographic Information
Revenues from external customers attributable to an individual country, other than the U.S. and China, were not material for
disclosure. Revenues from external customers by individual country are summarized as follows:
United States
China
Other countries
Total
2021
Years Ended September 30
2020
(In millions)
2019
$
$
668 $
858
1,883
3,409 $
581 $
598
1,435
2,614 $
702
738
1,897
3,337
83
Each of the Company’s segments operate globally. In addition to presenting Revenue from external customers by reportable
segment, the following tables further disaggregate Revenue from external customers by geographic region.
Americas
Asia Pacific
Europe, Middle East and Africa
Segment revenues from external customers
Unallocated and other
Net sales and other operating revenues
Reinforcement
Materials
Year Ended September 30, 2021
Purification
Performance
Solutions
Chemicals
Consolidated
Total
$
699 $
745
337
1,781
(In millions)
310 $
485
353
1,148
110 $
34
113
257
$
1,119
1,264
803
3,186
223
3,409
Reinforcement
Materials
Performance
Chemicals
Year Ended September 30, 2020
Purification
Solutions
(In millions)
Specialty
Fluids
Consolidated
Total
Americas
Asia Pacific
Europe, Middle East and Africa
Segment revenues from external customers
Unallocated and other
Net sales and other operating revenues
$
490 $
529
237
1,256
266 $
368
299
933
112 $
34
107
253
— $
—
—
—
$
868
931
643
2,442
172
2,614
Reinforcement
Materials
Performance
Chemicals
Year Ended September 30, 2019
Purification
Solutions
(In millions)
Specialty
Fluids
Consolidated
Total
Americas
Asia Pacific
Europe, Middle East and Africa
Segment revenues from external customers
Unallocated and other
Net sales and other operating revenues
$
688 $
769
358
1,815
294 $
353
348
995
126 $
35
117
278
6 $
1
49
56
$
1,114
1,158
872
3,144
193
3,337
Property, plant and equipment attributable to an individual country, other than the U.S. and China, were not material for
disclosure. Property, plant and equipment information by individual country is summarized as follows:
United States
China
Other countries
Total
Years Ended September 30
2021
2020
(In millions)
513 $
333
530
1,376 $
493
295
526
1,314
$
$
84
Note V. Subsequent Events
Acquisition of Tokai Manufacturing Facility
On November 15, 2021, Cabot entered into an agreement with Tokai Carbon Group to purchase its carbon black
manufacturing facility in Tianjin, China for approximately $9 million, which is subject to customary closing adjustments and is
expected to close in the second quarter of fiscal 2022.
Sale of Purification Solutions Business
On November 25, 2021 Cabot and an affiliate of funds advised by One Equity Partners (“OEP”) entered into a Share Purchase
Agreement (the “Agreement”) for the sale of Cabot’s Purification Solutions business (the “Business”), subject to the satisfaction or
waiver of the conditions set forth in the Agreement.
Under the terms of the Agreement, OEP will acquire the Business on a cash-free and debt-free basis in a transaction valued at
approximately $111 million, subject to certain debt-like and other closing adjustments, including a customary working capital
adjustment and costs related to the closure of the Business’s former lignite mine as disclosed in Note D. The net cash proceeds from
the transaction are expected to be approximately $80 million and are to be paid when the transaction is closed. The transaction is
expected to close in the second quarter of fiscal 2022.
The Company will begin to account for the assets and liabilities of the Business as held for sale for the quarter ending
December 31, 2021. Based on the carrying value of the Business as of September 30, 2021 and an estimate of the net cash proceeds
from the sale, Cabot estimates a pre-tax impairment charge in the range of $155 million to $165 million to be recorded in the first
quarter of fiscal 2022.
85
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Cabot Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Cabot Corporation and subsidiaries (the "Company") as of
September 30, 2021 and 2020, the related consolidated statements of operations, comprehensive income, stockholders' equity, and
cash flows, for each of the three years in the period ended September 30, 2021, and the related notes (collectively referred to as the
"financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as of September 30, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the
period ended September 30, 2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the Company's internal control over financial reporting as of September 30, 2021, based on criteria established in Internal Control —
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
November 29, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or
fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
Commitments and Contingencies — Respirator Liabilities — Refer to Note T to the consolidated financial statements
Critical Audit Matter Description
The Company has exposure in connection with a safety respiratory products business previously owned by one of its subsidiaries.
The Company has a $44 million reserve as of September 30, 2021 for respirator liabilities. The respirator liabilities are estimated
based on management’s assumptions, which include the number of future claims and the estimated cost to resolve pending and
future claims.
We identified respirator liabilities related to coal worker’s pneumoconiosis (“CWP”) as a critical audit matter because there is
significant uncertainty related to the number of future claims and the estimate of the cost to resolve pending and future claims. This
required a high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists,
when performing audit procedures to evaluate the reasonableness of the recorded CWP respirator liabilities as of September 30, 2021.
86
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to CWP respirator liabilities included the following, among others:
(cid:129) We tested the effectiveness of controls over management’s review of the work performed by the Company’s tort liability
consultants, the assumptions utilized, claims data, and the calculation of the respirator liabilities.
(cid:129) We evaluated the methods and assumptions used by management to estimate the CWP respirator liabilities by:
– Utilizing our actuarial specialists to assist with testing the assumptions regarding future claims and the cost to
resolve pending and future claims.
– Utilizing our actuarial specialists to assist with the calculation of an independent estimate of the CWP respirator
liabilities and comparing our estimate to the Company’s estimate.
(cid:129) We assessed the appropriateness of the disclosures in the financial statements.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
November 29, 2021
We have served as the Company's auditor since 2007.
87
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Cabot Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Cabot Corporation and subsidiaries (the “Company”) as of
September 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of September 30, 2021, based on criteria established in Internal Control —
Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the consolidated financial statements as of and for the year ended September 30, 2021, of the Company and our report dated
November 29, 2021, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
November 29, 2021
88
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART II
None.
Item 9A.
Controls and Procedures
Disclosure Controls and Procedures
Cabot carried out an evaluation, under the supervision and with the participation of its management, including its principal
executive officer and its principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures
pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 2021.
Based on that evaluation, Cabot’s principal executive officer and its principal financial officer concluded that the Company’s
disclosure controls and procedures are effective with respect to the recording, processing, summarizing and reporting, within the
time periods specified in the Securities and Exchange Commission’s rules and forms, of information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act and such information is accumulated and communicated to
management to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
Cabot’s management is responsible for establishing and maintaining adequate internal control over financial reporting for
Cabot. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as a process
designed by, or under the supervision of, a company’s principal executive and principal financial officers, and effected by the
company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures that:
•
•
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
Cabot’s management assessed the effectiveness of Cabot’s internal control over financial reporting as of September 30, 2021
based on the framework established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this assessment, Cabot’s management concluded that Cabot’s internal
control over financial reporting was effective as of September 30, 2021.
Cabot’s internal control over financial reporting as of September 30, 2021 has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their report above.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal
quarter ending September 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s
internal control over financial reporting. As a result of the COVID-19 pandemic, certain of our employees have been working
remotely and certain manufacturing sites have been operating with limited personnel on-site. We have not identified any material
changes in our internal control over financial reporting as a result of these changes to the working environment. We are continually
monitoring and assessing the COVID-19 situation to determine any potential impacts on the design and operating effectiveness of
our internal controls over financial reporting.
Item 9B.
Other Information
On November 25, 2021 Cabot and an affiliate of funds advised by One Equity Partners (“OEP”) entered into a Share Purchase
Agreement (the “Agreement”) for the sale of Cabot’s Purification Solutions business (the “Business”), subject to the satisfaction or
waiver of the conditions set forth in the Agreement.
89
Under the terms of the Agreement, OEP will acquire the Business on a cash-free and debt-free basis in a transaction valued at
approximately $111 million, subject to certain debt-like and other closing adjustments, including a customary working capital
adjustment and costs related to the closure of the Business’s former lignite mine as disclosed in Note D. The net cash proceeds from
the transaction are expected to be approximately $80 million and are to be paid when the transaction is closed. The transaction is
expected to close in the second quarter of fiscal 2022.
The Company will begin to account for the assets and liabilities of the Business as held for sale for the quarter ending
December 31, 2021. Based on the carrying value of the Business as of September 30, 2021 and an estimate of the net cash proceeds
from the sale, Cabot estimates a pre-tax impairment charge in the range of $155 million to $165 million to be recorded in the first
quarter of fiscal 2022.
90
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
Certain information regarding our executive officers is included at the end of Part I of this annual report under the heading
“Information about our Executive Officers.”
Cabot has adopted a Code of Business Ethics that applies to all of the Company’s employees and directors, including the Chief
Executive Officer, the Chief Financial Officer, the Controller and other senior financial officers. The Code of Business Ethics is posted
on our website, www.cabotcorp.com (under the “About Cabot” caption under “Company”). We intend to satisfy the disclosure
requirement regarding any amendment to, or waiver of, a provision of the Code of Business Ethics applicable to the Chief Executive
Officer, the Chief Financial Officer, the Controller or other senior financial officers by posting such information on our website.
The other information required by this item will be included in our Proxy Statement for the 2022 Annual Meeting of
Stockholders (“Proxy Statement”) and is herein incorporated by reference.
Item 11.
Executive Compensation
The information required by this item will be included in our Proxy Statement and is incorporated herein by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information relating to security ownership of certain beneficial owners of our common stock and information relating to
the security ownership of our management required by this item will be included in our Proxy Statement and is incorporated herein
by reference.
The following table provides information as of September 30, 2021 about: (i) the number of shares of common stock that may
be issued upon exercise of outstanding options and vesting of restricted stock units; (ii) the weighted-average exercise price of
outstanding options; and (iii) the number of shares of common stock available for future issuance under our active plans: the
Amended and Restated 2017 Long-Term Incentive Plan and the 2015 Directors’ Stock Compensation Plan. All of our equity
compensation plans have been approved by our stockholders.
Plan category
Equity compensation plans approved by
security holders
Equity compensation plans not approved by
security holders
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)(1)
Weighted-average
exercise price of
outstanding option,
warrants and rights
(b)(2)
Number of securities remaining
available for future issuance under
equity compensation plans
(excluding securities reflected in
column (a))
(c)(3)
2,479,206 $
N/A
48.36
N/A
5,529,715
N/A
(1)
(2)
(3)
Includes (i) 1,476,408 shares issuable upon exercise of outstanding stock options, (ii) 474,450 shares issuable upon vesting of
time-based restricted stock units, (iii) 241,848 shares issuable upon vesting of performance-based restricted stock units based
upon the achievement of the annual financial performance metrics for the three years within the three-year performance
period of the fiscal 2019 awards, the first two years within the three-year performance period of the fiscal 2020 awards, and
the first year within the three-year performance period of the fiscal 2021 awards; and (iv) 286,500 shares issuable upon
vesting of the performance-based stock units attributable to year three of the 2020 awards and years two and three of the
2021 awards, assuming Cabot performs at the maximum performance level in each of those years. If, instead, Cabot performs
at the target level of performance in those years, a total of 143,250 shares would be issuable for year three of the 2020
awards and years two and three of the 2021 awards.
The weighted-average exercise price includes all outstanding stock options but does not include restricted stock units which
do not have an exercise price.
Of these shares, (i) 5,315,424 shares remain available for future issuance under the Amended and Restated 2017 Long-Term
Incentive Plan, and (ii) 214,291 remain available for future issuance under the 2015 Directors’ Stock Compensation Plan.
The other information required by this item will be included in our Proxy Statement and is incorporated herein by reference.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be included in our Proxy Statement and is incorporated herein by reference.
Item 14.
Principal Accounting Fees and Services
The information required by this item will be included in our Proxy Statement and is incorporated herein by reference.
91
Item 15. Exhibits, Financial Statement Schedules
(a)
Financial Statements.
See “Index to Financial Statements” under Item 8 of this Form 10-K.
(b)
Schedules.
PART IV
The Schedules have been omitted since the required information is not applicable or is not present in amounts sufficient to
require submission of the schedule, or because the information required is included in the consolidated financial statements and
notes thereto included in this Form 10-K.
(c)
Exhibits. (Certain exhibits not included in copies of the Form 10-K sent to stockholders.)
The exhibit numbers in the Exhibit Index correspond to the numbers assigned to such exhibits in the Exhibit Table of Item 601
of Regulation S-K. Cabot will furnish to any stockholder, upon written request, any exhibit listed in the Exhibit Index, upon payment
by such stockholder of the Company’s reasonable expenses in furnishing such exhibit.
Exhibit
Number
3(a)
3(b)
4(a)
4(a)(i)
4(a)(ii)
Description
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).
The By-laws of Cabot Corporation as amended January 7, 2021 (incorporated herein by reference to Exhibit 3.1 of Cabot’s
Corporation’s Current Report on Form 8-K, file reference 1-5667, filed with the SEC on January 12, 2021).
Indenture, dated as of December 1, 1987, between Cabot Corporation and The First National Bank of Boston, Trustee
(the “Indenture”). (incorporated herein by reference to Exhibit 4(a)(i) of Cabot’s Annual Report on Form 10-K for its fiscal
year ended September 30, 2017, file reference 1-5667, filed with the SEC on November 22, 2017).
First Supplemental Indenture, dated as of June 17, 1992, to the Indenture. (incorporated herein by reference to Exhibit
4(a)(ii) of Cabot’s Annual Report on Form 10-K for its fiscal year ended September 30, 2017, file reference 1-5667, filed
with the SEC on November 22, 2017).
Second Supplemental Indenture, dated as of January 31, 1997, between Cabot Corporation and State Street Bank and
Trust Company, Trustee (incorporated herein by reference to Exhibit 4 of Cabot’s Quarterly Report on Form 10-Q for the
quarterly period ended December 31, 1996, file reference 1-5667, filed with the SEC on February 14, 1997).
4(a)(iii)
Third Supplemental Indenture, dated as of November 20, 1998, between Cabot Corporation and State Street Bank and
Trust Company, Trustee (incorporated herein by reference to Exhibit 4.1 of Cabot’s Current Report on Form 8-K, dated
November 20, 1998, file reference 1-5667, filed with the SEC on November 20, 1998).
4(a)(iv)
Indenture, dated as of September 21, 2009, between Cabot Corporation and U.S. Bank National Association, as Trustee
(incorporated herein by reference to Exhibit 4.1 of Cabot’s Registration Statement on Form S-3 ASR, Registration
Statement No. 333-162021, filed with the SEC on September 21, 2009).
4(a)(v)
Second Supplemental Indenture, dated as of July 12, 2012 between Cabot Corporation, as Issuer, and U.S. Bank National
Association, as Trustee, including the form of Global Note attached as Annex A thereto, supplementing the Indenture
dated as of September 21, 2009 (incorporated herein by reference to Exhibit 4.1 of Cabot’s Current Report on Form 8-K
dated July 9, 2012, file reference 1-5667, filed with the SEC on July 12, 2012).
4(a)(vi)
Indenture, dated as of September 15, 2016, between Cabot Corporation and U.S. Bank National Association, as Trustee
(incorporated herein by reference to Exhibit 4.1 of Cabot Corporation’s Current Report on Form 8-K dated September
15, 2016, file reference 1-5667, filed with the SEC on September 15, 2016).
92
Exhibit
Number
4(a)(vii)
Description
First Supplemental Indenture, dated as of September 15, 2016, between Cabot Corporation and U.S. Bank National
Association, as Trustee, including the form of Global Note attached as Annex A thereto, supplementing the Indenture
dated as of September 15, 2016 (incorporated herein by reference to Exhibit 4.2 of Cabot Corporation’s Current Report
on Form 8-K dated September 15, 2016, file reference 1-5667, filed with the SEC on September 15, 2016).
4(a)(viii)
Second Supplemental Indenture, dated June 20, 2019, between Cabot Corporation and U.S. Bank National Association,
including the form of Global Note attached as Annex A thereto (incorporated by reference to Exhibit 4.1 of Cabot
Corporation’s Current Report on Form 8-K dated June 20, 2019, file reference 1-5667, filed with the SEC on June 20,
2019).
4(b)
Description of Cabot Securities (incorporated by reference to Exhibit 4(b) of Cabot Corporation’s Annual Report on Form
10-K for its fiscal year ended September 30, 2019, file reference 1-5667, filed with the SEC on November 22, 2019).
10(a)
Credit Agreement, dated August 6, 2021, among Cabot Corporation, JPMorgan Chase Bank, N.A., J.P. Morgan Securities
LLC, Citibank, N.A., Bank of America, N.A., Mizuho Bank, Ltd., TD Bank, N.A., and Wells Fargo Bank, National Association,
and the other lenders party thereto (incorporated herein by reference to Exhibit 10.1 of Cabot’s Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 2021, file reference 1-5667, filed with the SEC on August 9, 2021).
10(b) †
Amended and Restated Credit Agreement, dated as of October 19, 2021, among certain subsidiaries of Cabot
Corporation, guaranteed by Cabot Corporation, Wells Fargo Bank, National Association, PNC Bank, National Association,
U.S. Bank National Association, Mizuho Bank, Ltd., and the other lenders party thereto.
10(c)*
2009 Long-Term Incentive Plan (incorporated herein by reference to Appendix B of Cabot’s Proxy Statement on Schedule
14A relating to the 2012 Annual Meeting of Stockholders, file reference 1-5667, filed with the SEC on January 30, 2012).
10(c)(i)*
2017 Long-Term Incentive Plan (incorporated herein by reference to Exhibit 10.1 of Cabot’s Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2017, file reference 1-5667, filed with the SEC on May 8, 2017).
10(c)(ii)*
Amended and Restated 2017 Long-Term Incentive Plan (incorporated herein by reference to Exhibit 10.1 of Cabot’s
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021, file reference 1-5667, filed with the SEC
on May 5, 2021).
10(c)(iii)*
2015 Directors’ Stock Compensation Plan (incorporated herein by reference to Appendix B of Cabot’s Proxy Statement
on Schedule 14A relating to the 2015 Annual Meeting of Stockholders, file reference 1-5667, filed with the SEC on January
28, 2015).
10(c)(iivi)*
Cabot Corporation 2018 Short-Term Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.1 of
Cabot’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2018 file reference 1-5667, filed
with the SEC on February 8, 2019).
10(d)*
Summary of Compensation for Non-Employee Directors (incorporated herein by reference to Exhibit 10.2 of Cabot’s
Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2018, file reference 1-5667, filed with the
SEC on February 8, 2019).
10(e)*
10(f)*
Cabot Corporation Amended and Restated Senior Management Severance Protection Plan, dated March 9, 2012
(incorporated herein by reference to Exhibit 10.5 of Cabot’s Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 2012, file reference 1-5667, filed with the SEC on May 7, 2012).
Form of Performance-Based Restricted Stock Unit Award Certificate under the Cabot Corporation 2017 Long-Term
Incentive Plan (incorporated herein by reference to Exhibit 10(e) of Cabot’s Annual Report on Form 10-K for its fiscal
year ended September 30, 2019, file reference 1-5667, filed with the SEC on November 21, 2018).
93
Exhibit
Number
10(g)*
Description
Form of Time-Based Restricted Stock Unit Award Certificate under the Cabot Corporation 2017 Long-Term Incentive Plan
(incorporated herein by reference to Exhibit 10(f) of Cabot’s Annual Report on Form 10-K for its fiscal year ended
September 30, 2019, file reference 1-5667, filed with the SEC on November 21, 2018).
10(h)*
Form of Stock Option Award Certificate under the Cabot Corporation 2017 Long-Term Incentive Plan (incorporated
herein by reference to Exhibit 10(g) of Cabot’s Annual Report on Form 10-K for its fiscal year ended September 30, 2019
file reference 1-5667, filed with the SEC on November 21, 2018).
10(i)*
10(j)*
Cabot Corporation Deferred Compensation and Supplemental Retirement Plan, amended and restated January 1, 2014
(incorporated herein by reference to Exhibit 10.1 of Cabot’s Quarterly Report on Form 10-Q for the quarterly period
ended December 31, 2013, file reference 1-5667, filed with the SEC on February 6, 2014).
Cabot Corporation Non-Employee Directors’ Deferral Plan, amended and restated January 1, 2014 (incorporated herein
by reference to Exhibit 10.2 of Cabot’s Quarterly Report on Form 10-Q for the quarterly period ended December 31,
2013, file reference 1-5667, filed with the SEC on February 6, 2014).
10(k) *
Offer Letter dated February 12, 2021 between Cabot Corporation and Jeff Zhu, as amended by letter agreement dated
February 4, 2021 (incorporated by reference to Exhibit 10.1 of Cabot’s Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 2020, file reference 1-5667, filed with the SEC on February 5, 2021).
21†
Subsidiaries of Cabot Corporation.
23†
Consent of Deloitte & Touche LLP.
31(i)†
Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.
31(ii)†
Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.
32††
Certifications of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350.
101.INS†
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags
are embedded within the Inline XBRL document.
101.SCH† Inline XBRL Taxonomy Extension Schema Document.
101.CAL† Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF† Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB† Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE† Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*
Cover Page Interactive Data File (embedded within the Inline XBRL document).
*
†
Management contract or compensatory plan or arrangement.
Filed herewith.
††
Furnished herewith.
Item 16. Form 10-K Summary
None.
94
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
CABOT CORPORATION
BY:
/S/ SEAN D. KEOHANE
Sean D. Keohane
President and Chief Executive Officer
Date: November 29, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signatures
/s/ SEAN D. KEOHANE
Sean D. Keohane
/s/ ERICA MCLAUGHLIN
Erica McLaughlin
/s/ LISA M. DUMONT
Lisa M. Dumont
/s/ SUE H. RATAJ
Sue H. Rataj
/s/ CYNTHIA A. ARNOLD
Cynthia A. Arnold
/s/ DOUGLAS DEL GRASSO
Douglas Del Grasso
/s/ JUAN ENRIQUEZ
Juan Enriquez
/s/ WILLIAM C. KIRBY
William C. Kirby
/s/ MICHAEL M. MORROW
Michael M. Morrow
/s/ FRANK A. WILSON
Frank A. Wilson
/s/ MATTHIAS L. WOLFGRUBER
Matthias L. Wolfgruber
/s/ CHRISTINE Y. YAN
Christine Y. Yan
Title
Date
Director, President and
Chief Executive Officer
Senior Vice President and
Chief Financial Officer
(principal financial officer)
Vice President and Controller
(principal accounting officer)
Director, Non-Executive
Chair of the Board
Director
Director
Director
Director
Director
Director
Director
Director
November 29, 2021
November 29, 2021
November 29, 2021
November 29, 2021
November 29, 2021
November 29, 2021
November 29, 2021
November 29, 2021
November 29, 2021
November 29, 2021
November 29, 2021
November 29, 2021
95
Exhibit 31(i)
I, Sean D. Keohane, certify that:
1. I have reviewed this annual report on Form 10-K of Cabot Corporation;
Principal Executive Officer Certification
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: November 29, 2021
/S/ SEAN D. KEOHANE
Sean D. Keohane
President and
Chief Executive Officer
Exhibit 31(ii)
I, Erica McLaughlin, certify that:
1. I have reviewed this annual report on Form 10-K of Cabot Corporation;
Principal Financial Officer Certification
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: November 29, 2021
/s/ ERICA MCLAUGHLIN
Erica McLaughlin
Senior Vice President and
Chief Financial Officer
Certifications Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Exhibit 32
In connection with the filing of the Annual Report on Form 10-K for the year ended September 30, 2021 (the “Report”) by
Cabot Corporation (the “Company”), each of the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:
1.
2.
The Report fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934, as
amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
November 29, 2021
November 29, 2021
/s/ SEAN D. KEOHANE
Sean D. Keohane
President and
Chief Executive Officer
/s/ ERICA MCLAUGHLIN
Erica McLaughlin
Senior Vice President and
Chief Financial Officer
(cid:896)(cid:100)(cid:44)(cid:47)(cid:94)(cid:3)(cid:87)(cid:4)(cid:39)(cid:28)(cid:3)(cid:47)(cid:69)(cid:100)(cid:28)(cid:69)(cid:100)(cid:47)(cid:75)(cid:69)(cid:4)(cid:62)(cid:62)(cid:122)(cid:3)(cid:62)(cid:28)(cid:38)(cid:100)(cid:3)(cid:17)(cid:62)(cid:4)(cid:69)(cid:60)(cid:897)
(cid:896)(cid:100)(cid:44)(cid:47)(cid:94)(cid:3)(cid:87)(cid:4)(cid:39)(cid:28)(cid:3)(cid:47)(cid:69)(cid:100)(cid:28)(cid:69)(cid:100)(cid:47)(cid:75)(cid:69)(cid:4)(cid:62)(cid:62)(cid:122)(cid:3)(cid:62)(cid:28)(cid:38)(cid:100)(cid:3)(cid:17)(cid:62)(cid:4)(cid:69)(cid:60)(cid:897)
Corporate Headquarters
Cabot Corporation
Two Seaport Lane, Suite 1400
Boston, Massachusetts 02210-2019
617 345 0100
Investor Relations
Investor inquiries are welcome and individuals are invited to contact us through our investor website at
cabotcorp.com/investors or by telephone at 617 342 6255.
Stock Listing
Cabot Corporation common stock is listed on the New York Stock Exchange under the symbol CBT.
Annual Meeting
The Annual Meeting of Stockholders will be held on March 10, 2022, at 4:00 p.m. ET in a virtual meeting format
via live webcast at meetnow.global/MLNW2AY. All stockholders are invited to attend.
Stock Transfer Agent and Registrar
Registered shareholders may contact the transfer agent by Internet or by phone for information or assistance
with receiving proxy materials electronically by internet, transfers of stock ownership, direct deposit of dividend
payments, dividend check replacements, account history, lost stock certificates, taxable income or to report
address changes. The transfer agent provides telephone assistance Monday through Friday, 9:00 a.m. to 5:00
p.m. ET. Extended service is available 24 hours a day, seven days a week to callers with touch-tone telephones
through the transfer agent’s Interactive Voice Response System.
When using the IVR system, mention Cabot Corporation as your stock holding and be prepared to provide
your name, Social Security number, if applicable, or your Computershare account number. Please include your
address and telephone number in all correspondence with the transfer agent.
Computershare Trust Company, N.A.
c/o Computershare
P.O. Box 505000
Louisville, KY 40233
Overnight correspondence should be sent to:
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
Stockholder Inquiries: 781 575 3170 or 800 730 4001
For the hearing impaired: 800 952 9245 (TTY/TDD)
As an alternative to calling Computershare, you can easily manage your account anytime, anywhere with no
waiting by visiting their Quick Access Hub at http://cshare.us/qahub to view statements, stock value, share
balance, replace checks, add or change account beneficiaries, update an address, and enroll in direct deposit
or to receive text message notifications.
Stockholder Website: computershare.com/investor
Click on “Contact Us” link at the top or bottom of the webpage for online stockholder inquiries.
For more information about Cabot Corporation and our businesses, please visit our website at: cabotcorp.com
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