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    CABOT CORPORATION 2019 ANNUAL REPORT


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    STRENGTHENING THE CORE 2 CABOT CORPORATION


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    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. We strive to be the most innovative, respected and responsible leader in our markets — delivering performance that makes a difference. As a market leader, we collaborate with customers to find innovative solutions that will help them advance their own products for a wide range of industries, from transportation and infrastructure to environment and consumer goods. Our customers worldwide trust our solutions to help them address their needs and accelerate innovation in key applications — creating value and delivering an advantage over the competition. Our global network consists of 42 manufacturing facilities throughout 20 countries. All are joined by our commitment and continued dedication to safety, health and environmental leadership and progress. OUR BUSINESS SEGMENTS REINFORCEMENT MATERIALS Rubber Blacks; Elastomer Composites Carbon black to reinforce and optimize the performance of rubber products including: tires, hoses, belts, molded goods PERFORMANCE CHEMICALS Specialty Carbons and Formulations; Metal Oxides Specialty additives that enable performance in: plastics, wire and cable, toners, coatings, adhesives and sealants, electronics, batteries, inks, inkjet printing, composites, silicones, building construction materials, industrial insulation PURIFICATION SOLUTIONS Activated Carbon Activated carbon for purification in various applications including: air and water, food and beverages, pharmaceuticals, catalysts 2019 ANNUAL REPORT 3


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    A MESSAGE TO OUR SHAREHOLDERS As we welcome a new year, it is important to reflect on what our team has achieved over the past year and exciting to look ahead to the opportunities in front of us. In fiscal 2019, we strengthened our leadership and competitive position in our core markets while advancing our commitment to sustainability. Advancing Our Strategy We are committed to long-term value creation for our shareholders and this requires a consistency of strategic action. I am pleased that we advanced a number of key strategic investments in the fiscal year and have achieved important milestones. With the divestiture of the Specialty Fluids business, we further focused our portfolio and used the proceeds to repurchase shares above our stated capital allocation framework and to invest in advantaged opportunities in our core businesses. We commenced operations at our new fumed silica plant in Wuhai, China, extending our market leading position. Given that China produces nearly 50% of the world’s silicones, it is a critical geography for the long-term growth of fumed silica. In the year, we also began the upgrade of our new carbon black site in Pizhou, China to produce specialty carbons. We believe this investment will prove to be a very capital efficient platform to further expand our specialty carbons business in Asia Pacific over time. While these important investments will enable growth in our core businesses, our strategy is also built around application innovation in attractive high growth markets. On this front, we are particularly excited about our investments in our Energy Materials and Cabot Elastomer Composites product lines. Lithium-ion batteries are central to the growth of vehicle electrification and energy storage, and conductive carbon additives play an important role in the battery chemistry. Over the last few years, we have been investing in our assets, product portfolio and customer qualifications to build a long-term position in this valuable high growth application. While still relatively small, we believe this business will become a material contributor to the Performance Chemicals segment in the next five years. Cabot Elastomer Composites (CEC) has the potential to transform key applications in the tire industry over time, by driving greater wear performance. After achieving commercial validation a few years ago with a major global tire producer, our efforts are focused on driving broader adoption and continued penetration into a range of tire applications. We achieved key development milestones in fiscal 2019 and remain excited by the long-term growth potential of CEC. Driving Financial Performance Fiscal year 2019 was certainly more challenging than anticipated for the chemical and materials sector. Demand in several of our important end markets declined, including automotive production, which was down more than 5%, with particular weakness in China and Europe. Furthermore, the US/China trade friction contributed to a slowdown in the Chinese economy, with the industrial and manufacturing sectors in China experiencing their lowest growth rates in recent years. Despite these challenges, our team navigated well and delivered solid performance in the year, driven by a countermeasure mentality and a strong focus on execution. We delivered diluted earnings per share (EPS) of $2.63 and adjusted EPS* of $3.91 in the fiscal year and strong cash generation performance, with operating cash flow of $363 million and free cash flow* of $137 million. Our focus on cash generation allowed us to remain committed to our capital allocation framework, which seeks to balance investments for growth in our core businesses with strong cash return to our shareholders. I am pleased with our performance on this front. 4 CABOT CORPORATION


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    Focusing on Sustainability In uncertain times like this, it is important to stay true to our vision. At Cabot, we strive to be the most innovative, respected and responsible leader in our markets, delivering performance that makes a difference. We believe that corporations have an obligation to serve a broad set of stakeholders and long-term success requires a commitment to sustainability in its broadest form and a balanced approach to managing stakeholder expectations. I am proud of our continued leadership in this area, led by our strong and diverse board and executive management team. We are committed to operating responsibly and these commitments are best captured in our annual Sustainability Report. Based on our outstanding environmental, social and governance transparency and performance, we were recognized by Corporate Responsibility Magazine in 2019 as one of the 100 best companies. I am also pleased to share that Cabot received a Gold rating from EcoVadis for our sustainability program for the fourth year in a row. Validation from independent organizations like EcoVadis demonstrates to all stakeholders our level of commitment and transparency. I am immensely proud of these achievements and I know each of our 4,500 employees worldwide take great pride in our performance and are committed to a spirit of continuous improvement. Innovation is a critical dimension of our sustainability agenda and it is essential to our ability to win in the marketplace and grow. This is why we are committed to further embedding sustainability into our product development engagements with customers. A great example of this is the work we are doing to help plastics converters address sustainability challenges from their customers. We recently launched a new black masterbatch series that utilizes postindustrial carbon black and recycled polymers. These formulations are specifically designed to help the value chain lower its carbon footprint and increase the amount of recycled and secondary content in end products. In line with our sustainability objectives, we became a signatory of the Ellen MacArthur Foundation’s New Plastics Economy Global Commitment. We have also pledged to take actions to reduce plastic waste as part of the Operation Clean Sweep® program. At Cabot, we recognize that a diverse and inclusive workforce is vital for our sustained success and we strive to build a workplace where everyone can contribute, grow and thrive. I am honored to have joined more than 800 CEOs in taking the CEO Action for Diversity & Inclusion™ pledge. With this pledge, we commit to continue working to foster an environment of inclusion, where the richness of ideas, backgrounds and perspectives is accepted, respected and valued. Looking Ahead As we look ahead, we will continue to focus on the long-term and make decisions that strengthen our company. Our aim is to build leadership by executing flawlessly and investing for advantaged growth. Cash generation will remain a focus and we will continue our commitment to capital allocation, with a balance of growth investments in our core businesses and cash return. In closing, I would like to express my deep gratitude and appreciation to our employees for their commitment to Cabot. It is their hard work and dedication that enables us to excel. I also want to thank you, our shareholders, for your ongoing support, confidence and trust. Thank you, S Sean D. Keohane D K h President and Chief Executive Officer * Non-GAAP financial measure. Refer to non-GAAP reconciliations on page 10. 2019 ANNUAL REPORT 5


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    Received EcoVadis Gold Level Rating for Fourth Consecutive Year Celebrated 50 Years on the We received a gold level rating from EcoVadis for New York Stock Exchange the fourth consecutive year. We achieved our We celebrated our 50th anniversary of being listed highest score ever and ranked in the top 1% of all on the New York Stock Exchange (NYSE) by ringing companies assessed, highlighting our leadership The Closing Bell. position and commitment to best practices. CABOT 2019 MILESTONES Divested Specialty Fluids Segment Signed the CEO Action for Diversity and Inclusion™ Pledge We completed the sale of our Specialty Fluids business to Sinomine (Hong Kong) Rare Metals We joined more than 800 CEOs in signing the Resources Co. Limited for approximately CEO Action for Diversity & Inclusion™ pledge – $135 million. underscoring our commitment to advancing diversity and inclusion while creating a workplace where all employees can Increased Carbon Black Capacity contribute, thrive and grow. We continued to increase global carbon black capacity through plant expansions, operational improvements and debottlenecking projects. Following the completion of the purchase of our new carbon black plant in Pizhou, China we began upgrading the facility to serve our specialty carbons customers. 6 CABOT CORPORATION


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    Completed Responsible Care® 14001 Certification for all China Manufacturing Operations We completed RC14001® certification at all of our operating carbon black and fumed silica Celebrated Grand Opening of manufacturing sites in China. The Cabot China New Wuhai Fumed Silica Facility certifications are the first independent third party We commissioned a new, state-of-the-art fumed RC14001 Certifications to be recognized by the silica manufacturing site in Wuhai, China. The Certification and Accreditation Administration of additional capacity extended our global leadership the People’s Republic of China (CNCA) as well as position and made us the largest provider of the American Chemistry Council (ACC). fumed silica in China. Achieved First FSSC 22000 Named to CR Magazine 100 Best Food Safety System Certification Corporate Citizens of 2019 Our activated carbon plant in Klazienaveen, We were recognized for our outstanding the Netherlands received FSSC 22000 Food environmental, social and governance (ESG) Safety System Certification, the highest level of transparency and performance by ranking #47 food safety assurance, adding an extra layer on CR Magazine’s 100 Best Corporate Citizens of assurance for food manufacturers seeking of 2019 list. st. the safest, highest quality ingredients and purification products. Celebrated First Ever Global Sustainability Day Since 2008, we have celebrated Global Safety Day each year during which our employees around the world took time to recognize our accomplishments and reaffirm our ‘Drive to Zero’ and safety commitments. In 2019, we expanded our focus by celebrating our first ever Global Sustainability Day to further engage our team in our overall sustainability efforts. 2019 ANNUAL REPORT 7


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    CABOT CORPORATION FINANCIAL HIGHLIGHTS (dollars in USD millions, except per share amounts) Fiscal Year 2015(1) 2016(1) 2017(1) 2018 2019 Operating Results Operating revenues $2,871 $2,411 $2,717 $3,242 $3,337 Net income (loss) attributable to Cabot Corporation(2) $(334) $147 $248 $(113) $157 Per diluted common share(2) $(5.27) $2.32 $3.91 $(1.85) $2.63 Adjusted earnings per share(3) $2.71 $3.10 $3.54 $4.03 $3.91 Financial Positions Total assets $3,063 $3,052 $3,338 $3,244 $3,004 Net property, plant and equipment $1,383 $1,290 $1,305 $1,296 $1,348 Stockholders’ equity $1,338 $1,389 $1,625 $1,279 $1,134 Adjusted EBIT ($M) (3) Adjusted Earnings Per Share ($) (3) $M/fiscal year $ per share/fiscal year $450 $4.50 $400 $4.00 $350 $3.50 $300 $3.00 $250 $2.50 $200 $2.00 $150 $1.50 $100 $1.00 $50 $.50 $0 $0 2015(1) 2016(1) 2017(1) 2018 2019 2015(1) 2016(1) 2017(1) 2018 2019 (1)In fiscal 2018, the Company elected to change its inventory valuation method of accounting for its U.S. carbon black inventories from the last-in, first-out (“LIFO”) method to the first-in, first-out (“FIFO”) method. The Company applied this change retrospectively and fiscal 2017 and 2016 balances have been updated accordingly. Fiscal 2015 has not been updated to reflect this change and may not be comparable to the other years presented. (2) Fiscal 2018 results include after-tax certain items totaling a charge of $365 million, or $5.88 per share. The certain items charge is primarily due to the Purification Solutions impairment and the impact from the recent U.S. tax reform. Fiscal 2015 results include after-tax certain items totaling a charge of $510 million, or $7.98 per share. The certain items charge is primarily due to the Purification Solutions impairment. (3) Non-GAAP financial measure, excludes financial results of divested businesses and certain items. Refer to non-GAAP reconciliations on page 10 for a reconciliation of these measures to their most directly comparable GAAP financial measure. 8 CABOT CORPORATION


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    FINANCIAL PERFORMANCE PERFORMANCE GRAPH The graph compares the cumulative total stockholder return on Cabot common stock for the five-year period ending September 30, 2019 with the S&P 500 Chemicals Index and the S&P Midcap 400 Index. The comparisons assume the investment of $100 on October 1, 2014 in Cabot’s common stock and in each of the indices and the reinvestment of all dividends. $170 $150 $155.19 $138.86 $130 $110 $103.33 $90 $70 $50 2014 2015 2016 2017 2018 2019 Cabot Corporation S&P 500 Chemicals Index S&P Midcap 400 Index RETURNED $253 MILLION TO SHAREHOLDERS DILUTED EPS OF $2.63 AND ADJUSTED EPS* OF $3.91 FREE CASH FLOW* $139 MILLION AND OPERATING CASH FLOW OF $363 MILLION * Non-GAAP financial measure. Refer to non-GAAP reconciliations on page 10. 2019 ANNUAL REPORT 9


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    FINANCIAL PERFORMANCE NON-GAAP RECONCILIATIONS Adjusted EPS, adjusted EBIT and free cash flow are not measures of financial performance under U.S. generally accepted accounting principles (GAAP) and should not be considered in isolation from, or as replacements for, earnings per share from continuing operations or income from continuing operations before taxes determined in accordance with GAAP, nor as substitutes for measures of profitability or performance reported in accordance with GAAP. Adjusted EPS and adjusted EBIT exclude certain items of expense or income that management does not consider representative of our ongoing performance. The following tables reconcile non-GAAP measures used in this report to the closest GAAP measure. Reconciliation of Adjusted Earnings Per Share (EPS) Per Share / Fiscal Year 2015 2016 2017 2018(1) 2019 (1) Net income (loss) per share attributable to Cabot Corporation $(5.27) $2.32 $3.91 $(1.85) $2.63 Less: Net income (loss) per share from discontinued operations $0.02 $0.02 $- $- $- Net income (loss) per share from continuing operations(1) $(5.29) $2.30 $3.91 $(1.85) $2.63 Less: Certain items per share and dilutive impact of shares(1) $(8.00) $(0.80) $0.37 $(5.88) $(1.28) Adjusted earnings per share $2.71 $3.10 $3.54 $4.03 $3.91 Reconciliation of Adjusted Earnings Before Interest and Taxes (EBIT) Dollars in Millions / Fiscal Year 2015 2016 2017 2018(1) 2019 Income (loss) from continuing operations before $(377) $191 $299 $117 $255 income taxes and equity in earnings of affiliated companies(1) Interest expense $53 $54 $53 $54 $59 (1) Certain items $617 $81 $3 $248 $87 General unallocated expense $(11) $(4) $(3) $(2) $(8) Equity in earnings of affiliated companies $4 $3 $7 $2 $1 Adjusted EBIT $286 $325 $359 $419 $394 Reconciliation of Free Cash Flow Dollars in Millions / Fiscal Year 2015(4) 2016(4) 2017(4) 2018 2019 (2) Cash flow from operating activities $499 $392 $348 $298 $363 Less: Additions to property, plant and equipment $141 $112 $147 $229 $224 Free Cash Flow $358 $280 $201 $69 $139 (1)Fiscal 2018 results include after-tax certain items totaling a charge of $365 million, or $5.88 per share. The certain items charge is primarily due to the Purification Solutions impairment and the impact of tax reform in the U.S. Fiscal 2015 results include after-tax certain items totaling a charge of $510 million, or $8.00 per share. The certain items charge is primarily due to the Purification Solutions impairment. In both fiscal 2018 and fiscal 2015, the certain items per share amount also includes the dilutive impact of shares, which was $0.02 in both periods. Due to the Company’s Net Loss position in fiscal 2018 and fiscal 2015 primarily driven by the certain items described above, GAAP EPS was calculated using basic weighted average shares to avoid anti-dilution. However, in order to provide an Adjusted Non-GAAP EPS with a weighted average share figure that is consistent with all other periods presented, the Company included this reconciling item to quantify the difference between basic and diluted weighted average shares. (2) As provided in the Consolidated Statement of Cash Flows for the presented period. (3) In fiscal 2018, the Company elected to change its inventory valuation method of accounting for its U.S. carbon black inventories from the last-in, first-out (“LIFO”) method to the first-in, first-out (“FIFO”) method. Additionally, in fiscal 2018 the Company adopted a new standard issued by the Financial Accounting Standards Board (“FASB”) that amends the accounting standard for stock compensation by simplifying several aspects of the accounting for employee share-based payment transactions, which includes classification in the Statements of Cash Flows. The Company applied these changes retrospectively and fiscal 2017 and 2016 balances have been updated accordingly. Fiscal 2015 balance have not been updated to reflect these changes and may not be comparable to the other years presented. 10 CABOT CORPORATION


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    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, 2019 or  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-5667 Cabot Corporation (Exact name of Registrant as specified in its Charter) Delaware 04-2271897 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Two Seaport Lane, Suite 1300 Boston, Massachusetts 02210 (Address of Principal Executive Offices) (Zip Code) Registrant’s telephone number, including area code: (617) 345-0100 Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934: Title of each class Trading symbol(s) Name of each exchange on which registered Common Stock, $1 par value per share CBT The New York Stock Exchange 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  Accelerated filer  Non-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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No  As of the last business day of the Registrant’s most recently completed second fiscal quarter (March 31, 2019), the aggregate market value of the Registrant’s common stock held by non-affiliates was $2,411,701,500. As of November 18, 2019, there were 56,977,900 shares of the Registrant’s common stock outstanding. Portions of the Registrant’s definitive proxy statement for its 2020 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.


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    TABLE OF CONTENTS PART I ITEM 1. Business........................................................................................................................................................................... 3 ITEM 1A. Risk Factors ..................................................................................................................................................................... 10 ITEM 1B. Unresolved Staff Comments ........................................................................................................................................... 16 ITEM 2. Properties........................................................................................................................................................................ 17 ITEM 3. Legal Proceedings............................................................................................................................................................ 19 ITEM 4. Mine Safety Disclosures .................................................................................................................................................. 20 PART II ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ..... 22 ITEM 6. Selected Financial Data ................................................................................................................................................... 23 ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ........................................... 27 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk......................................................................................... 43 ITEM 8. Financial Statements and Supplementary Data.............................................................................................................. 45 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .......................................... 94 ITEM 9A. Controls and Procedures................................................................................................................................................. 94 ITEM 9B. Other Information........................................................................................................................................................... 94 PART III ITEM 10. Directors, Executive Officers and Corporate Governance ............................................................................................... 95 ITEM 11. Executive Compensation ................................................................................................................................................. 95 ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ............................ 95 ITEM 13. Certain Relationships and Related Transactions, and Director Independence ............................................................... 95 ITEM 14. Principal Accounting Fees and Services ........................................................................................................................... 95 PART IV ITEM 15. Exhibits, Financial Statement Schedules.......................................................................................................................... 96 ITEM 16. Form 10-K Summary ....................................................................................................................................................... 99 Signatures........................................................................................................................................................................................... 100 2


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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 construction of our new fumed silica plant in Carrollton, Kentucky to be completed; when we expect to begin delivering product from the expansion of our plant in Cilegon, Indonesia; when we expect production of specialty carbons to begin at our new facility in Jiangsu Province, China; the sufficiency of our cash on hand, cash provided from operations and cash available under our credit and commercial paper facilities to fund our cash requirements; anticipated capital spending, including environmental-related capital expenditures; 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; exposure to interest rate and foreign exchange risk; future benefit plan payments we expect to make; future amortization expenses; the amount and timing of the loss we expect to recognize upon the settlement of liabilities under our U.S. pension plan; the impact we expect tax reform legislation in the U.S. to have on our future after-tax earnings and tax rate; our ability to recover deferred tax assets; and the possible outcome of legal and environmental proceedings. From time to time, we also provide forward-looking statements in other materials we release to the public and in oral statements made by authorized officers. Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, potentially inaccurate assumptions, and other factors, some of which are beyond our control or difficult to predict. If known or unknown risks materialize, our actual results could differ materially from 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”). PART I Item 1. Business General Cabot is a global specialty chemicals and performance materials company headquartered in Boston, Massachusetts. Our principal products are rubber and specialty grade carbon blacks, 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 vision is to be the most innovative, respected and responsible leader in our markets – delivering performance that makes a difference. 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. Through June 28, 2019, our business was organized into four reportable segments: Reinforcement Materials; Performance Chemicals; Purification Solutions; and Specialty Fluids. We divested our Specialty Fluids business as of June 28, 2019 and since that time have been organized into the three remaining segments. We routinely evaluate our portfolio in light of our growth strategy and will continue to evaluate strategic options for our Purification Solutions segment. 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. 3


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    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. Rubber grade carbon blacks are used to enhance the physical properties of the systems and applications in which they are incorporated. Our rubber blacks products are used in tires and industrial products. Rubber blacks 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, rubber blacks 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 rubber blacks products, we manufacture compounds of carbon black and rubber using our patented elastomer composites manufacturing process. These compounds improve abrasion/wear resistance, reduce fatigue of rubber parts and reduce rolling resistance compared to carbon black/rubber compounds made by conventional dry mix methods. Sales and Customers Sales of rubber blacks products are made by Cabot employees and through distributors and sales representatives. Sales to six 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 some cases, changes in other relevant costs (such as the cost of natural gas). In fiscal 2019, approximately half of our rubber blacks 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 rubber blacks 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 carbon black with four companies that operate globally and numerous other companies that operate regionally, a number of which export product outside their country. 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 carbon black 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 carbon black. Raw materials are, in general, readily available and in adequate supply. Raw material costs generally are influenced by the availability of various types of carbon black feedstock 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 rubber blacks 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 carbon black plant in Venezuela. 4


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    The following table shows our ownership interest as of September 30, 2019 in rubber blacks operations in which we own less than 100%: Location Percentage Interest Shanghai, China 70% (consolidated subsidiary) Tianjin, China 70% (consolidated subsidiary) Xingtai City, China 60% (consolidated subsidiary) Valasske Mezirici (Valmez), Czech Republic 52% (consolidated subsidiary) Cilegon, Indonesia 98% (consolidated subsidiary) Valencia, Venezuela 49% (equity affiliate) During fiscal 2019, we began engineering work on an expansion of our Cilegon, Indonesia plant, which will add approximately 90,000 metric tons of capacity to our network. We anticipate that product from this expansion will be available for sale starting in 2021. 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 grades of carbon black, 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, energy, inkjet printing, electronics, and consumer products sectors. Our focus areas for growth include carbon additives and other materials for battery applications, inks and dispersions for packaging applications, and conductive compounds for various plastics applications. 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 grades of carbon black 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, 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 Our masterbatch and conductive compound products, which we refer to as “specialty compounds”, are formulations derived from specialty grades of carbon black 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. 5


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    Our inkjet colorants are high-quality pigment-based black and color dispersions based on our patented carbon black surface modification 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 commercial printing, small office/home office and corporate office, 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. Sales and Customers 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 two customers have accounted for a substantial portion 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 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, competition is fragmented and 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 carbon black 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 carbon black. These raw material costs generally are influenced by the availability of various types of carbon black feedstock and natural gas, supply and demand of such raw materials and related transportation costs. 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, 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. 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 grades of carbon black 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, 2019 in these segment operations in which we own less than 100%: Location Percentage Interest Tianjin, China 90% (consolidated subsidiary) Jiangxi Province, China 90% (consolidated subsidiary) Wuhai, China 80% (consolidated subsidiary) Mettur Dam, India 50% (equity affiliate) 6


  • Page 17

    We are investing for growth in our core businesses with a number of capacity expansion projects. 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 plan to modify this facility to produce specialty carbons, and expect production to begin in 2021. 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 extends our global footprint in black masterbatch. 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 we expect construction of our facility in Carrollton, which is adjacent to DowDuPont’s existing silicone monomer plant, to be completed in 2020. 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. 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. Sales and Customers 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. We also own a lignite mine that is operated by Caddo Creek Resources Company, LLC, a subsidiary of the North American Coal Company, which supplies our Marshall, Texas facility. 7


  • Page 18

    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. 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, 2019 in activated carbon operations in which we own less than 100%: Location Percentage Interest Estevan, Saskatchewan, Canada 50% (contractual joint venture) Atitalaquia, Hidalgo, Mexico 49% (equity affiliate) Republic of Singapore 35% (equity affiliate) Specialty Fluids We divested our Specialty Fluids business on June 28, 2019. Refer to Note D of the Notes to our Consolidated Financial Statements for the terms of this transaction. Our Specialty Fluids segment produced and marketed a range of cesium products that included cesium formate brines and other fine cesium chemicals. Cesium formate brines are used as a drilling and completion fluid primarily in high pressure and high temperature oil and gas well construction. Fine cesium chemicals are used across a wide range of industries and applications that include catalysts, doping agents and brazing fluxes. We sold our cesium formate products to oil and gas operating companies directly by Cabot employees and sales representatives and indirectly through oil field service companies. We generally rented cesium formate to our customers for use in drilling operations on a short-term basis and on occasion made direct sales of cesium formate outside of the rental process. After completion of a job under our rental process, the customer returned the remaining fluid to Cabot and it was reprocessed for use in subsequent well operations. Any fluid that was not returned to Cabot was paid for by the customer. Formate fluids compete mainly with traditional drilling fluid technologies. Competition in the well fluids business is based on product performance, quality, reliability, service, technical innovation, price, and proximity of inventory to customers’ drilling operations. The principal raw material used in this business is pollucite (cesium ore). Prior to our sale of this business we owned a substantial portion of the world’s known reserves of cesium ore at our mine in Manitoba, Canada. Most oil and gas well construction jobs for which cesium formate is used require a large volume of the product. Accordingly, our Specialty Fluids business maintained a large supply of fluid. Our mine and cesium formate and fine cesium chemical manufacturing facility were located in Manitoba, Canada, and we had fluid blending and reclamation facilities in Aberdeen, Scotland and in Bergen, Norway. In addition, we warehoused fluid and fine cesium chemical products at various locations around the world to support existing and potential operations. Patents and Trademarks 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. 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. Backlog We do not consider backlog to be a significant indicator of the level of future sales activity. In general, we do not manufacture our products against a backlog of orders. Production and inventory levels are based on the level of incoming orders as well as projections of future demand. Therefore, we believe that backlog information is not material to understanding our overall business and is not a reliable indicator of our ability to achieve any particular level of revenue or financial performance. Employees As of September 30, 2019, we had approximately 4,500 employees. Some of our employees in the U.S. and abroad are covered by collective bargaining or similar agreements. We believe that our relations with our employees are generally satisfactory. 8


  • Page 19

    Safety, Health and Environment (“SH&E”) 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” below.) During the next several years, as remediation of various environmental sites is carried out, we expect to spend against our $13 million environmental reserve for costs associated with such remediation. 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. 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”). These SH&E Requirements 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 sums to construct, maintain, operate, and improve facilities for safety, health and environmental protection and to comply with SH&E Requirements. We spent approximately $26 million in environmental-related capital expenditures at existing facilities in fiscal 2019. We anticipate spending approximately $58 million for such matters in fiscal 2020, a significant portion of which will be for the installation of air pollution control equipment and wastewater infrastructure improvements at certain of our plants. In recognition of the importance of compliance with SH&E Requirements to Cabot, our Board of Directors has a Safety, Health, Environment, and Sustainability Committee. The Committee, which is comprised of a majority of independent directors, meets regularly and oversees aspects of our sustainability program, including 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. 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. REACH (Registration, Evaluation and Authorization of Chemicals), the European Union (“EU”) regulatory framework for chemicals developed by the European Commission (“EC”), applies to all chemical substances produced or imported into the EU in quantities of one metric ton a year or more. Manufacturers or importers of these chemical substances are required to submit specified health, safety, risk and use information about the substance to the European Chemical Agency (“ECHA”). We have completed all required registrations under REACH to date and will update registration dossiers as needed. Under the evaluation portion of REACH, ECHA and EU member states assess the information submitted in registration dossiers and testing proposals to determine whether the substances are safe for use. Silica is currently being evaluated and carbon black is scheduled for review in 2022. In addition, the EC is working on re-defining nanomaterial. ECHA is developing guidance on nanomaterials and additional requirements for nanomaterials that apply to many of our existing products, including carbon black, fumed silica, inkjet pigments and fumed alumina. Country-specific nanomaterial reporting programs have been implemented in some countries and are being developed by others. We will continue to monitor and address these requirements. 9


  • Page 20

    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, sulphur dioxide and particulate matter emissions. In addition, global efforts to reduce greenhouse gas emissions impact the carbon black and activated carbon industries as carbon dioxide is emitted from those manufacturing processes. In Europe, the EU Emission Trading Scheme applies to our four carbon black facilities and one activated carbon facility. In China, two of our carbon black facilities participate in regional pilot greenhouse gas emissions trading programs associated with the development of a national trading program. The national program was implemented on a limited scale in 2018 and 2019, with broader applicability expected in 2020. In Canada, our carbon black manufacturing facility was subject to the Province of Ontario’s emissions trading program, which was eliminated in 2018. That facility is now subject to the backstop Canadian carbon tax program. In Mexico, our carbon black facility is subject to the recently approved cap and trade pilot program. 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. We generally expect to pay any incurred taxes or purchase emission credits, as needed, to respond to any allocation shortfalls. In addition, air emission regulations may be adopted in the future in other regions and countries where we operate, which could have an impact on our operations. Increasing regulatory programs associated with greenhouse gas emissions and concerns regarding climate change could increase our operational costs in the future. 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. 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 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. 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 will further restrict 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. 10


  • Page 21

    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 margins. In addition, we obtain certain of our raw materials from selected key suppliers. Although we maintain raw material inventory, if any of these 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. 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 a majority of our revenues in fiscal 2019. 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; the effect of global health, safety and environmental matters on economic conditions and market opportunities; and changes in financial policy and availability of credit. 11


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    The Chinese government has, from time to time, curtailed manufacturing operations, without 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 may be subject to these curtailments. These events could negatively impact our results of operations and cash flows both during and after the period of any curtailment affecting our operations. Operational Risks Our operations and products are subject to extensive safety, health and environmental requirements, which could increase our costs and/or impair our ability to manufacture and sell certain products. Our ongoing operations are subject to extensive federal, state, local and foreign laws, regulations, rules and ordinances relating to safety, health and 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. Environmental regulatory changes and restrictions could impose constraints on our operations, and threaten our competitive position. In addition, 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. Costs of complying with regulations could increase as concerns related to greenhouse gases and climate change continue to emerge. The enactment of new environmental laws and regulations and/or the more aggressive interpretation of existing requirements could require us to incur significant costs for compliance or capital improvements or limit our current or planned operations, any of which could have a material adverse effect on our earnings or cash flow. (See “Legal Proceedings” in Item 3 below). We attempt to offset the effects of these compliance costs through price increases, productivity improvements and cost reduction efforts. Success in offsetting any such increased regulatory costs 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. 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. 12


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    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, 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. In addition, at our lignite mine, we have operational risks associated with the maintenance and operation of the heavy equipment required to dig and haul the lignite, and risks relating to lower than expected lignite quality or recovery rates. If operational risks materialize, they could result in injury or loss of life, damage to the environment, or damage to property, including mineral properties. In addition, the occurrence of material operating problems at our facilities 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. 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 facilities 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. Information technology systems failures, data security breaches or network disruptions could compromise our information, disrupt our operations and expose us to liability, which may adversely impact our operations. In the ordinary course of our business, we store sensitive data, including intellectual property, our proprietary business information and certain information of our customers, suppliers, business partners, and employees in our information technology systems. The secure processing, maintenance and transmission of this data is critical to our operations. Information technology systems failures, including risks associated with upgrading our systems or in successfully integrating information technology and other systems in connection with the integration of businesses we acquire, network disruptions or unauthorized access could disrupt our operations by impeding our processing of transactions and our financial reporting, and our ability to protect our customer or company information, which could have a material adverse effect on our business or results of operations. In addition, as with all enterprise information systems, our information technology systems could be penetrated by outside parties intent on extracting information, corrupting information, or disrupting business processes. Breaches of our security measures 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, could result in legal claims or proceedings and potential liability for us, and damage to our reputation, and could otherwise harm our business and our results of operations. Natural disasters 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. Extreme weather events present physical risks that may become more frequent 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. 13


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    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. 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 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 may incur asset impairment charges related to acquisitions or divestitures that reduce earnings. 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 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. 14


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    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, current tensions in the U.S.-China trade relationship have led to the implementation by both countries of higher tariffs on imported goods from the other. The uncertainty created by these trade tensions has negatively affected the buying behavior of our customers, lowering industry demand and creating a more competitive pricing environment for our products. If there is no satisfactory progress on trade negotiations between the countries, there could be 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, 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 “Legal Proceedings” in Item 3 below, 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. For example, we expect recent changes in tax rates in Switzerland will increase our tax rate going forward. 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. 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 2019, 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. 15


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    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. 16


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    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. Reinforcement Performance Purification Location by Region Materials Chemicals Solutions Americas Region Alpharetta, Georgia*(1) X X X Tuscola, Illinois X Canal, Louisiana X X Ville Platte, Louisiana X Billerica, Massachusetts X X X Haverhill, Massachusetts X Midland, Michigan X Pryor, Oklahoma X Marshall, Texas X Pampa, Texas X X Campana, Argentina X Maua, Brazil X X Sao Paulo, Brazil*(1) X X X Saint-Jean-sur-Richelieu, Québec, Canada X Sarnia, Ontario, Canada X X Cartagena, Colombia X Altamira, Mexico X Europe, Middle East and Africa Region Loncin, Belgium X Pepinster, Belgium X Valasske Mezirici (Valmez), Czech Republic** X Port Jerome, France** X Frankfurt, Germany* X Rheinfelden, Germany X Ravenna, Italy (2 plants) X X Riga, Latvia*(1) X X X Schaffhausen, Switzerland* X X X Botlek, Netherlands** X X Amersfoort, Netherlands* X Klazienaveen, Netherlands X Zaandam, Netherlands X Dubai, United Arab Emirates* X Purton, United Kingdom (England) X Glasgow, United Kingdom (Scotland) X Barry, United Kingdom (Wales)** X 17


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    Reinforcement Performance Purification Location by Region Materials Chemicals Solutions Asia Pacific Region Jiangsu Province, China** X Jiangxi Province, China** X Tianjin, China** X X Shanghai, China*(1) X X X Shanghai, China** (plant) X Xingtai City, China** X Wuhai, China** X Mumbai, India* X X X Cilegon, Indonesia** X Jakarta, Indonesia*(1) X X X Chiba, Japan X Shimonoseki, Japan** X Tokyo, Japan*(1) X X X Port Dickson, Malaysia** 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 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. 18


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    Item 3. Legal Proceedings Cabot is a party in various lawsuits and environmental proceedings wherein substantial amounts are claimed. The following is a description of the significant proceedings pending on September 30, 2019, unless otherwise specified. Environmental Proceedings In November 2013, Cabot entered into a Consent Decree 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 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 sulfur dioxide and nitrogen oxide. We expect that the total capital costs to install these controls will be between $175 million and $200 million and will be incurred through calendar year 2022. To date, we have spent approximately $74 million to install these controls. All carbon black manufacturers in the U.S. have settled with the EPA and will be installing similar technology controls. We continue to perform certain sampling and remediation activities at a former pine tar manufacturing site in Gainesville, Florida that we sold in the 1960s. Those activities are pursuant to a formal Record of Decision and 1991 Consent Decree with the EPA under which we installed a groundwater treatment system at the site in the early 1990s, which remains in operation. More recently, we have been requested by the EPA and other stakeholders to carry out various other additional work at the site. We continue to work cooperatively with the EPA, the Florida Department of Environmental Protection and the local authorities on this matter. As of September 30, 2019, we had a $13 million reserve for environmental remediation costs at various sites. The operation and maintenance component of this reserve was $4 million. The $13 million reserve represents our current best estimate of costs likely to be incurred for remediation based on our analysis of the extent of cleanup required, alternative cleanup methods available, the ability of other responsible parties to contribute and our interpretation of laws and regulations applicable to each of our sites. Other Proceedings Respirator Liabilities We have 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, allegedly resulting from the use of respirators that are alleged to have been negligently designed and/or labeled. Neither Cabot, nor its past or present subsidiaries, at any time manufactured asbestos or asbestos-containing products. At no time did this respiratory product line represent a significant portion of the respirator market. 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. We anticipate that we will continue to receive payment of the $400,000 fee from Aearo and thereby retain these liabilities for the foreseeable future. We have 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 Cabot’s subsidiary, the “Payor Group”). 19


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    As of both September 30, 2019 and 2018, there were approximately 35,000 claimants in pending cases asserting claims against AO in connection with respiratory products. The vast majority of these claims have been pending for more than 10 years with little or no activity and have therefore been excluded from our estimates of our liability for respirator claims. 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 our estimated share of liability for pending and future respirator liability claims, we have engaged, through counsel, the assistance of Nathan Associates, Inc. (“Nathan”), a leading consulting firm in the field of tort liability valuation. The methodology used to estimate the liability addresses the complexities surrounding our potential liability by making assumptions about our likely exposure related to claims pending for less than 10 years and the estimated number of future claimants with respect to periods of asbestos, silica and coal mine dust exposure and respirator use. Using those and other assumptions, we estimate the costs that would be incurred in defending and resolving both currently pending and future claims. During the year ended September 30, 2019, we updated this estimate with the assistance of Nathan. Based on the updated estimate, we increased our reserve as of September 30, 2019 for our estimated share of the liability for pending and future respirator claims by $20 million to $35 million. This increase, as well as the higher payments we made in fiscal 2019, reflect higher costs of defending and resolving these claims. We made payments related to our respirator liability of $10 million in fiscal 2019, and $3 million in each of fiscal 2018 and fiscal 2017. 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. 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, (vi) trial and appellate outcomes, (vii) changes in the law and procedure applicable to these claims, (viii) the financial viability of members of the Payor Group, (ix) a change in the availability of the insurance coverage of the members of the Payor Group or the indemnity provided by AO’s former owner, (x) changes in the allocation of costs among the Payor Group, 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. Accordingly, the actual amount of these liabilities for existing and future claims could be different than the reserved amount. Other Matters We have various other lawsuits, claims and contingent liabilities arising in the ordinary course of our business and with respect to our divested businesses. We do not believe that any of these matters will have a material adverse effect on our financial position; however, litigation is inherently unpredictable. We could incur judgments, enter into settlements or revise our expectations regarding the outcome of certain matters, and such developments could have a material impact on our results of operations in the period in which the amounts are accrued or our cash flows in the period in which the amounts are paid. 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 18, 2019. Sean D. Keohane, age 52, 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. 20


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    Erica McLaughlin, age 43, 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 40, 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 49, 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 51, 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. 21


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    PART II 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 18, 2019, there were 644 holders of record of Cabot’s common stock. Issuer Purchases of Equity Securities The table below sets forth information regarding Cabot’s purchases of its equity securities during the quarter ended September 30, 2019: Maximum Number (or Total Number of Approximate Dollar Total Shares Purchased Value) of Shares that Number Average as Part of Publicly May Yet Be Purchased of Shares Price Paid Announced Plans Under the Plans or Period Purchased(1)(2) per Share or Programs(1) Programs(1) July 1, 2019 — July 31, 2019 —$ — — 6,605,045 August 1, 2019 — August 31, 2019 525,000 $ 38.66 525,000 6,080,045 September 1, 2019 — September 30, 2019 193,358 $ 42.00 193,358 5,886,687 Total 718,358 718,358 (1) On July 13, 2018, Cabot publicly announced that the Board of Directors authorized the Company to repurchase up to ten million shares of its common stock on the open market or in privately negotiated transactions, increasing the current balance of shares available for repurchase at that time to approximately eleven million shares. The current authorization does not have a set expiration date. (2) Total number of shares purchased does not include 2,074 shares withheld to pay taxes on the vesting of equity awards made under the Company's equity incentive plans or to pay the exercise price of options exercised during the period. 22


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    Item 6. Selected Financial Data Years Ended September 30 2019 2018 2017 2016 2015 (In millions, except per share amounts and ratios) Consolidated Net Income (Loss) Net sales and other operating revenues $ 3,337 $ 3,242 $ 2,717 $ 2,411 $ 2,871 Gross profit(1)(2) 685 772 657 575 585 Selling and administrative expenses(2) 290 308 262 275 282 Research and technical expenses(2) 60 66 57 53 58 Specialty Fluids loss on sale and asset impairment 29 — — — — Purification Solutions long-lived assets impairment charge — 162 — — 210 Purification Solutions goodwill impairment charge — 92 — — 352 Income (loss) from operations 306 144 338 247 (317) Net interest expense and other charges(2)(3) (51) (27) (39) (56) (60) Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies(1)(4) 255 117 299 191 (377) (Provision) benefit for income taxes(1)(5) (70) (193) (33) (33) 45 Equity in earnings of affiliated companies 1 2 7 3 4 Income (loss) from discontinued operations, net of tax — — — 1 2 Net income (loss)(1) 186 (74) 273 162 (326) Net income attributable to noncontrolling interests, net of tax 29 39 25 15 8 Net income (loss) attributable to Cabot Corporation(1) $ 157 $ (113) $ 248 $ 147 $ (334) Common Share Data Diluted net income (loss) attributable to Cabot Corporation: Income (loss) from continuing operations(1) $ 2.63 $ (1.85) $ 3.91 $ 2.30 $ (5.29) Income (loss) from discontinued operations — — — 0.02 0.02 Net income (loss) attributable to Cabot Corporation $ 2.63 $ (1.85) $ 3.91 $ 2.32 $ (5.27) Dividends $ 1.36 $ 1.29 $ 1.23 $ 1.04 $ 0.88 Closing prices $ 45.32 $ 62.72 $ 55.80 $ 52.41 $ 31.56 Weighted-average diluted shares outstanding—millions 58.8 61.7 62.7 62.9 63.4 Shares outstanding at year end—millions 57.1 60.4 61.9 62.2 62.5 Consolidated Financial Position Current assets(1) $ 1,210 $ 1,386 $ 1,299 $ 1,073 $ 1,004 Net property, plant, and equipment 1,348 1,296 1,305 1,290 1,383 Other assets(1) 446 562 734 689 676 Total assets $ 3,004 $ 3,244 $ 3,338 $ 3,052 $ 3,063 Current liabilities $ 599 $ 952 $ 742 $ 397 $ 440 Long-term debt 1,024 719 661 914 967 Other long-term liabilities 247 294 310 352 318 Cabot Corporation stockholders’ equity(1) 998 1,154 1,504 1,291 1,234 Noncontrolling interests 136 125 121 98 104 Total liabilities and stockholders’ equity $ 3,004 $ 3,244 $ 3,338 $ 3,052 $ 3,063 Selected Financial Ratios Net debt to capitalization ratio(1)(6) 44% 39% 28% 34% 41% Adjusted return on net assets(7) 13% 14% 13% 11% 9% (1) In fiscal 2018, the Company elected to change its inventory valuation method of accounting for its U.S. carbon black inventories from the last-in, first-out (“LIFO”) method to the first-in, first-out (“FIFO”) method. The Company applied this change retrospectively and fiscal 2017 and 2016 balances have been updated accordingly. Fiscal 2015 has not been updated to reflect this change and may not be comparable to the other years presented. 23


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    (2) In fiscal 2019, the Company adopted a new accounting standard that amends the requirements on the presentation of net periodic pension and postretirement benefit costs. The Company applied this change retrospectively and fiscal 2018 and 2017 balances have been updated as discussed in Note B of our Notes to the Consolidated Financial Statements. Fiscal 2016 and 2015 have not been updated to reflect this change and may not be comparable to the other years presented. (3) Net interest expense and other charges includes foreign currency activity as follows: a gain of less than $1 million for fiscal 2019, a loss of $4 million for both fiscal 2018 and fiscal 2017, a gain of $5 million for fiscal 2016, and a loss of $8 million for fiscal 2015. (4) Income (loss) from continuing operations includes certain items as presented in the table below. A discussion of certain items is included in Definition of Terms and Non-GAAP Financial Measures in Results of Operations. Years Ended September 30 2019 2018 2017 2016 2015 (In millions) Specialty Fluids loss on sale and asset impairment charge (Note D) $ (29) $ — $ — $ — $ — Legal and environmental matters and reserves (21) (16) 1 (17) — Global restructuring activities (Note P) (16) 30 (3) (47) (21) Equity affiliate investment impairment charge (Note M) (11) — — — — Acquisition and integration-related charges (6) (2) — — (5) Executive transition costs (1) (2) — (6) — Purification Solutions goodwill and long-lived assets impairment charge (Note G) — (254) — — (562) Inventory reserve adjustment — (13) — — (6) Gains (losses) on sale of investments — 10 — — — Non-recurring gain (loss) on foreign exchange — — — (11) (2) Employee benefit plan settlement and other charges — — — — (21) Other certain items (3) (1) (1) — — Total certain items, pre-tax (87) (248) (3) (81) (617) Tax-related certain items: Tax impact of certain items(a) 7 31 1 31 94 Discrete tax items 5 (148) 25 — 13 Total tax-related certain items 12 (117) 26 31 107 Total certain items, net of tax $ (75) $ (365) $ 23 $ (50) $ (510) (a) The tax impact of certain items is determined by (1) starting with the current and deferred income tax expense or benefit, included in Net income attributable to Cabot Corporation, net of discrete tax items, and (2) subtracting the tax expense or benefit on “adjusted earnings”. Adjusted earnings is defined as the pre-tax income attributable to Cabot Corporation excluding certain items. The tax expense or benefit on adjusted earnings is calculated by applying the operating tax rate, as defined under the section Definition of Terms and Non-GAAP Financial Measures in Results of Operations, to adjusted earnings. 24


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    (5) The Company’s effective tax rate for fiscal 2019 was 28% which included a net discrete tax benefit of $7 million, composed of tax benefits of $4 million related to uncertain tax positions, $2 million related to a pension settlement, $2 million related to changes in valuation allowance on beginning of year tax balances, $2 million related to the Specialty Fluids sale, $1 million related to result of changes in non-US tax laws and $1 million related to other miscellaneous tax items, partially offset by net tax charges of $5 million related to various return to provision adjustments related to tax return filings and audit settlements. The Company’s effective tax rate for fiscal 2018 was a provision of 165% which included net discrete tax expense of $120 million, composed of $159 million net tax impact of the Tax Cuts and Jobs Act of 2017 (the “Act”), and $3 million tax expense upon the sale of assets, offset by net tax benefits of $29 million related to impairment and $15 million from a change in valuation allowance on a beginning of year tax balance, and net tax charge of $2 million related to other miscellaneous tax items. The Company’s effective tax rate for fiscal 2017 was a provision of 10% which included net discrete tax benefits of $25 million, composed of net tax benefits of $16 million associated with the generation of excess foreign tax credits upon repatriation of previously taxed foreign earnings and the accrual of U.S. tax on certain foreign earnings, a net tax benefit off $6 million from a change in valuation allowance on a beginning of year tax balance, net tax benefits of $4 million for various return to provision adjustments related to tax return filings and net tax charges of $1 million related to other miscellaneous tax items. The Company’s effective tax rate for fiscal 2016 was a provision of 18%, which included less than $1 million of discrete tax charges, composed of charges of $5 million for valuation allowances on beginning of the year tax balances, partially offset by benefits of $3 million for a currency loss and $1 million each for the renewal of the U.S. research and experimentation credit and net tax settlements. The Company’s effective tax rate for fiscal 2015 was a benefit of 12%, which included $13 million of discrete tax benefits composed of $7 million for tax settlements, $4 million for repatriation, and $2 million for the renewal of the U.S. research and experimentation credit. (6) Net debt to capitalization ratio is calculated by dividing total debt (the sum of short-term and long-term debt less cash and cash equivalents) by total capitalization (the sum of Total stockholders’ equity plus total debt). 25


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    (7) Adjusted return on net assets (“adjusted RONA”) measures how effectively and efficiently the Company uses its operating assets to generate earnings. Return on net assets (“RONA”) and adjusted RONA are not measures of financial performance under accounting principles generally accepted (“GAAP”) in the United States and should not be considered substitutes for measures of performance reported under GAAP. We believe adjusted RONA provides useful supplemental information to our investors because it allows investors to understand the basis on which management evaluates the Company’s operational effectiveness and because it is a performance metric used in our equity incentive compensation program. We calculate adjusted RONA by dividing the most recent twelve months’ adjusted net income (loss) (a non-GAAP numerator) by adjusted net assets (a non-GAAP denominator). In the numerator, we exclude “certain items” net of tax from income (loss) from continuing operations as calculated under GAAP. The items of expense and income we consider “certain items” are described in the discussion of Definition of Terms and Non-GAAP Financial Measures in Results of Operations. The denominator consists of our operating assets, which are: net property, plant and equipment; adjusted net working capital; assets held for rent; and investments in equity affiliates. We calculate the items in adjusted net assets using the most recent five quarters’ average to normalize the impact of large inter-period movements (e.g. working capital movements caused by feedstock price volatility). Our calculation of adjusted RONA is as follows: Years Ended September 30 2019 2018 2017 2016 2015 (In millions, except ratios) Return on Net Assets Income (loss) from continuing operations(a) (b) $ 186 $ (74) $ 273 $ 161 $ (328) Net assets(b) (c) $ 1,134 $ 1,279 $ 1,625 $ 1,389 $ 1,338 Return on net assets 16% (6)% 17% 12% (25)% Adjusted Return on Net Assets Adjusted net income (loss)(a): Income (loss) from continuing operations(b) $ 186 $ (74) $ 273 $ 161 $ (328) Less: Total certain items, net of tax(d) (75) (365) 23 (50) (510) Adjusted net income (loss) $ 261 $ 291 $ 250 $ 211 $ 182 Adjusted net assets(e): Adjusted net working capital(b) (f) $ 570 $ 568 $ 474 $ 443 $ 607 Net property, plant and equipment 1,318 1,290 1,267 1,322 1,416 Assets held for rent 75 110 101 92 67 Equity affiliates 45 56 55 55 63 Adjusted net assets $ 2,008 $ 2,024 $ 1,897 $ 1,912 $ 2,153 Adjusted return on net assets 13% 14% 13% 11% 9% (a) Income (loss) from continuing operations and Adjusted net income (loss) are aggregated four quarter rolling amounts. (b) In fiscal 2018, the Company elected to change its inventory valuation method of accounting for its U.S. carbon black inventories from the LIFO method to the FIFO method. The Company applied this change retrospectively and fiscal 2017 and 2016 balances have been updated accordingly. Fiscal 2015 has not been updated to reflect this change and may not be comparable to the other years presented. (c) Net assets represents Total stockholders' equity. (d) Total certain items, net of tax is detailed in the table in note (4) above. (e) Each component of adjusted net assets is calculated by averaging previous five quarter ending balances. (f) Adjusted net working capital is the average of the previous five quarter ending balances of Accounts receivable plus Inventory less Accounts payable and accruals. 26


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    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 accounting principles generally accepted in the United States (“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 Statement 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. Revenue in the Specialty Fluids segment arose primarily from the rental of cesium formate. This revenue was recognized throughout the rental period based on the contracted rental terms. Customers were also billed and revenue was recognized, typically at the end of the rental period, for cesium formate product that was not returned. We also generated revenues from cesium formate sold outside of the rental process and from the sale of fine cesium chemicals. This revenue was recognized when control of the product transferred to the customer, which was typically upon delivery of the product. We do not have contract assets or liabilities that are material. As permitted by the revenue recognition standard, Revenue from Contracts with Customers, issued by the Financial Accounting Standards Board (“FASB”), 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 Specialty Fluids inventories that were classified as assets held for rent was determined using the average cost method. The cost of all other inventories is determined using the FIFO method. 27


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    We periodically review inventory for both potential obsolescence and potential declines in anticipated selling prices. In this review, we make assumptions about the future demand for and market value of the inventory, and based on these assumptions estimate the amount of any obsolete, unmarketable, slow moving or overvalued inventory. We write down the value of our inventories by an amount equal to the difference between the cost of the inventory and its estimated net realizable value. Historically, such write-downs have not been material. If actual market conditions are less favorable than those projected by management at the time of the assessment, however, additional inventory write-downs may be required, which could reduce our gross profit and our earnings. Intangible Assets and Goodwill Impairment We record tangible and intangible assets acquired and liabilities assumed in business combinations under the acquisition method of accounting. Amounts paid for an acquisition are allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition. We use assumptions and estimates in determining the fair value of assets acquired and liabilities assumed in a business combination. The determination of the fair value of intangible assets requires the use of significant judgment with regard to assumptions used in the valuation model. We estimate the fair value of identifiable acquisition-related intangible assets principally based on projections of cash flows that will arise from these assets. The projected cash flows are discounted to determine the fair value of the assets at the dates of acquisition. Definite-lived intangible assets, which are comprised of trademarks, customer relationships and developed technologies, are amortized over their estimated useful lives and are reviewed for impairment when indication of potential impairment exists, such as a significant reduction in cash flows associated with the assets. 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. Historically, the annual goodwill impairment test was performed as of May 31. During the fourth quarter of fiscal 2019, we changed the date of our impairment test to August 31. This date is preferred as it better aligns with our planning process, which produces a significant input to the testing, and it did not result in a material change to our consolidated financial statements. 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 and specialty compounds product lines within Performance Chemicals, which are considered separate reporting units, carried our goodwill balances as of September 30, 2019. For the purpose of the goodwill impairment test, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an initial qualitative assessment identifies that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, an additional quantitative evaluation is performed. Alternatively, we may elect to proceed directly to the quantitative goodwill impairment test. If based on the quantitative evaluation the fair value of the reporting unit is less than its carrying amount, a goodwill impairment loss would result. The goodwill impairment loss would be the amount by which the carrying value of the reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit. The fair value of a reporting unit is based on discounted estimated future cash flows. The fair value is also benchmarked against the value calculated from a market approach using the guideline public companies method. The assumptions used to estimate fair value include management’s best estimates of future growth rates, operating cash flows, capital expenditures and discount rates over an estimate of the remaining operating period at the reporting unit level. Based on our most recent annual goodwill impairment test performed as of August 31, 2019, the fair values of the Reinforcement Materials, Fumed Metal Oxides and Specialty Compounds reporting units were substantially in excess of their carrying values. Refer to Note G of our Notes to the Consolidated Financial Statements (“Note G”) for details on the Purification Solutions goodwill impairment test and the resulting impairment charge recorded in the second quarter of fiscal 2018. Long-lived Assets Impairment Our long-lived assets primarily include property, plant and equipment, intangible assets, long-term investments and assets held for rent. The carrying values of long-lived assets are reviewed for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be recoverable. To test for impairment of assets, 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. 28


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    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. Refer to Note G regarding the results of the recoverability test performed on the long-lived assets of the Purification Solutions segment and the resulting impairment charge recorded in the second quarter of fiscal 2018. We continue to consider strategic options for our Purification Solutions business. Depending on the actions taken, there could be a negative impact on the fair value of the Purification Solutions reporting unit, which may lead to further impairment. Purification Solutions Goodwill and Long-Lived Assets Impairment Charges During the second quarter of fiscal 2018 as a result of the impairment tests performed on goodwill and long-lived assets of the Purification Solutions reporting unit, we recorded impairment charges and an associated tax benefit in the Consolidated Statements of Operations as follows: Three Months Ended March 31, 2018 (In millions) Goodwill impairment charge $ 92 Long-lived assets impairment charge 162 Benefit for income taxes (30) Impairment charges, net of tax $ 224 In the second quarter of fiscal 2018, the Purification Solutions reporting unit had experienced market share losses, lower customer demand and declining prices in the mercury removal and North America powdered activated carbon applications, which led us to reassess our previous estimates for expected growth in volumes, prices and margins in the reporting unit. Due to revised forecasts at the time, we performed the quantitative goodwill impairment test and determined that the estimated fair value of the Purification Solutions reporting unit was lower than the reporting unit's carrying value, resulting in a goodwill impairment charge of $92 million. Prior to determining the goodwill impairment charge, we considered whether the assets of the reporting unit, which is also considered the asset group, were recoverable. As a result of this assessment, we recorded an inventory reserve adjustment of $13 million and impairments to long lived assets of $162 million. The adjustment to inventory carrying value was determined based on reassessments of volumes, pricing, and margins for the reporting unit at the time and was recorded in Cost of sales in the Consolidated Statements of Operations. The impairment analysis to assess if definite-lived intangible assets and property, plant and equipment were recoverable was based on the estimated undiscounted cash flows of the reporting unit, and these cash flows were not sufficient to recover the carrying value of the long-lived assets over their remaining useful lives. Accordingly, we recorded impairment charges of $64 million and $98 million, to our definite-lived intangible assets and property, plant and equipment, respectively, in the second quarter of fiscal 2018 based on the lower of the carrying amount or fair value of the long-lived assets. We will continue to monitor for events or changes in business circumstances that may indicate that the remaining carrying value of the asset group may not be recoverable. We recorded a tax benefit related to the impairment charges of $30 million in the second quarter of fiscal 2018 which was subsequently reduced by $1 million after the impairment charges by tax jurisdiction were finalized in the fourth quarter of fiscal 2018. Pensions and Other Postretirement Benefits We maintain both defined benefit and defined contribution plans for our employees. In addition, we provide certain postretirement health care and life insurance benefits for our retired employees. Plan obligations and annual expense calculations are based on a number of key assumptions. The assumptions, which are specific for each of our U.S. and foreign plans, are related to both the assets we hold to fund our plans (where applicable) and the characteristics of the benefits that will ultimately be provided to our employees. The most significant assumptions relative to our plan assets include the anticipated rates of return on these assets. Assumptions relative to our pension obligations are more varied; they include estimated discount rates, rates of compensation increases for employees, and mortality, employee turnover and other related demographic data. Projected health care and life insurance obligations also rely on the above mentioned demographic assumptions and assumptions surrounding health care cost trends. Actual results that differ from the assumptions are generally accumulated and amortized over future periods and could therefore affect the recognized expense and recorded obligation in such future periods. However, cash flow requirements may be different from the amounts of expense that are recorded in the consolidated financial statements. 29


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    Litigation and Contingencies We are involved in litigation in the ordinary course of business, including personal injury and environmental litigation. After consultation with counsel, as appropriate, we accrue a liability for litigation when it is probable that a liability has been incurred and the amount can be reasonably estimated. The estimated reserves are recorded based on our best estimate of the liability associated with such matters or the low end of the estimated range of liability if we are unable to identify a better estimate within that range. Our best estimate is determined through the evaluation of various information, including 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. 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. The most significant reserves that we have established are for environmental remediation and respirator litigation claims. The amount accrued for environmental matters reflects our assumptions about remediation requirements at the contaminated sites, the nature of the remedies, the outcome of discussions with regulatory agencies and other potentially responsible parties at multi-party sites, and the number and financial viability of other potentially responsible parties. These liabilities can be affected by the availability of new information, changes in the assumptions on which the accruals are based, unanticipated government enforcement action or changes in applicable government laws and regulations, which could result in higher or lower costs. 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. 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, (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 settlement of respirator claims, (ix) a change in the availability of insurance coverage maintained by certain of the parties that contribute to the settlement of respirator claims, or 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. Accordingly, the actual amount of these liabilities for existing and future claims could be different than the reserved amount. 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 that may become payable in future years as a result of audits by tax authorities. 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. 30


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    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 dependent on achieving our forecast of future taxable operating income over an extended period of time. We review our forecast in relation to actual results and expected trends 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 a 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 was organized into four reportable business segments through June 28, 2019: Reinforcement Materials, Performance Chemicals, Purification Solutions and Specialty Fluids. The Specialty Fluids business was divested as of June 28, 2019 and since that time Cabot has been organized into the three remaining reportable business segments. 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 2019 and fiscal 2018 results of operations and year-to-year comparisons between fiscal 2019 and fiscal 2018. For the discussions of our fiscal 2017 results and year-to-year comparisons between fiscal 2018 and fiscal 2017, 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, 2018, which was filed with the United States Securities and Exchange Commission on November 21, 2018. 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 of our “effective tax rate” and our “operating tax rate” and includes a reconciliation of the two rates. Our operating tax rate is a non-GAAP financial measure and should not be considered as an alternative to our effective tax rate, the most comparable GAAP financial measure. In calculating our operating tax rate, we exclude discrete tax items, which include: (i) unusual or infrequent items such as a significant release or establishment of a valuation allowance, (ii) items related to uncertain tax positions such as the tax impact of audit settlements, interest on tax reserves, and the release of tax reserves from the expiration of statutes of limitations, and (iii) other discrete tax items, such as the tax impact of legislative changes and, on a quarterly basis, the timing of losses in certain jurisdictions and the cumulative rate adjustment, if applicable. We also exclude the tax impact of certain items, as defined below in the discussion of Total segment EBIT, on both operating income and the tax provision. When the tax impact of a certain item is also a discrete tax item, it is classified as a certain item for our definition of operating tax rate. Our definition of the operating tax rate may not be comparable to the definition used by other companies. Management believes that the 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 understand what our tax rate on current operations would be without the impact of these items. 31


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    Our discussion under the heading “Fiscal 2019 compared to Fiscal 2018—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 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 2019 compared to Fiscal 2018—By Business Segment”. Investors should consider the limitations associated with this non-GAAP measure, including the potential lack of comparability of this measure from one company to another. In calculating Total segment EBIT, we exclude from our Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies (i) items of expense and income that management does not consider representative of our fundamental on-going segment results, which we refer to as “certain items”, and (ii) items that, because they are not controlled by the business segments and primarily benefit corporate objectives, are not allocated to our business segments, such as interest expense and other corporate costs, which include unallocated corporate overhead expenses such as certain corporate salaries and headquarter expenses, plus costs related to special projects and initiatives, which we refer to as “other unallocated items”. Management believes excluding the items identified as certain items facilitates operating performance comparisons from period to period by eliminating differences caused by the existence and timing of certain expense and income items that would not otherwise be apparent on a GAAP basis and also facilitates an evaluation of our operating performance without the impact of these costs or benefits. The items of income and expense that we have excluded from Total segment EBIT, as applicable, but that are included in our GAAP Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies, as applicable, are described below. • Asset impairment charges, which primarily include charges associated with an impairment of goodwill or other long- lived assets. • Global restructuring activities include costs or benefits associated with cost reduction initiatives or plant closures, which primarily relate 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. • Inventory reserve adjustment, which resulted from an evaluation performed as part of an impairment analysis. • 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. • Legal and environmental reserves and matters, which consist of costs or benefits for matters typically related to former businesses or that are otherwise incurred outside of the ordinary course of business. • Gains (losses) on sale of investments, which primarily relate to the sale of investments accounted for using the cost method. • Gains (losses) on sale of businesses. • 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. • 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. • Employee benefit plan settlement charges, which consist of the costs associated with transferring the obligations and assets held by one of our defined benefit plans to a multi-employer plan. 32


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    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 2019 During fiscal 2019, Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies increased compared to fiscal 2018 primarily due to a charge for the Purification Solutions goodwill and long-lived asset impairment in fiscal 2018 that did not reoccur in fiscal 2019, partially offset by weaker results in the Reinforcement Materials and Performance Chemicals segments in fiscal 2019 due to automotive production weakness, particularly in Asia and Europe, and lower pricing in Asia. Fiscal 2019 compared to Fiscal 2018—Consolidated Net Sales and Other Operating Revenues and Gross Profit Years Ended September 30 2019 2018 2017 (In millions) Net sales and other operating revenues $ 3,337 $ 3,242 $ 2,717 Gross profit $ 685 $ 772 $ 657 The $95 million increase in net sales from fiscal 2018 to fiscal 2019 was due primarily to more favorable pricing and product mix as we passed through higher raw material costs in our pricing (combined $125 million) and the impact of presenting revenue from by-products produced in manufacturing operations in Net sales and other operating revenues ($76 million), which in fiscal 2018 was recorded within Cost of sales, partially offset by the unfavorable impact of currency translation ($87 million) and lower volumes ($24 million). Gross profit decreased by $87 million in fiscal 2019 when compared to fiscal 2018 driven by lower unit margins in Reinforcement Materials and Performance Chemicals and lower volumes in Performance Chemicals, driven primarily by the continued competitive pricing environment in Asia and lower automotive production. 33


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    Selling and Administrative Expenses Years Ended September 30 2019 2018 2017 (In millions) Selling and administrative expenses $ 290 $ 308 $ 262 Selling and administrative expenses decreased by $18 million in fiscal 2019 when compared to fiscal 2018. The decrease was principally driven by lower discretionary spending and incentive compensation, partially offset by a higher charge in connection with our respirator liability and higher restructuring charges. Research and Technical Expenses Years Ended September 30 2019 2018 2017 (In millions) Research and technical expenses $ 60 $ 66 $ 57 Research and technical expenses decreased by $6 million in fiscal 2019 when compared to fiscal 2018 primarily due to lower research and technical spending for certain new product technologies that have moved into commercialization phase and from lower spending in the Purification Solutions segment related to the transformation plan. Impairment Charges and Loss on Sale Years Ended September 30 2019 2018 2017 (In millions) Specialty Fluids loss on sale and asset impairment $ 29 $ — $ — Purification Solutions long-lived assets impairment charge $ — $ 162 $ — Purification Solutions goodwill impairment charge $ — $ 92 $ — The Specialty Fluids loss on sale and asset impairment charges recorded during fiscal 2019 are described in Note D of our Notes to the Consolidated Financial Statements (“Note D”). The Purification Solutions long-lived assets and goodwill impairment charges recorded during fiscal 2018 are described in Note G. Interest and Dividend Income Years Ended September 30 2019 2018 2017 (In millions) Interest and dividend income $ 9 $ 10 $ 9 Interest and dividend income decreased by $1 million in fiscal 2019 when compared to fiscal 2018 due to lower cash balances. Interest Expense Years Ended September 30 2019 2018 2017 (In millions) Interest expense $ 59 $ 54 $ 53 Interest expense increased by $5 million in fiscal 2019 as compared to fiscal 2018. The increase was primarily due to interest on $300 million in registered notes issued during fiscal 2019 as well as higher rates on commercial paper borrowings. Other Income (Expense) Years Ended September 30 2019 2018 2017 (In millions) Other income (expense) $ (1) $ 17 $ 5 Other income (expense) changed during fiscal 2019 by $18 million as compared to fiscal 2018 primarily due to the impairment charge related to our investment in our Venezuelan equity affiliate in the second quarter of fiscal 2019 and a gain on the sale of cost method investments in fiscal 2018 that did not reoccur in fiscal 2019, partially offset by the favorable impact of foreign currency translation. 34


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    Provision (Benefit) for Income Taxes and Reconciliation of Effective Tax Rate to Operating Tax Rate Years Ended September 30 2019 2018 2017 (Dollars in millions) Provision (benefit) for income taxes $ 70 $ 193 $ 33 Effective tax rate(1) 28% 165% 10% Impact of discrete tax items(2): Unusual or infrequent items: 2% (137)% 6% Items related to uncertain tax positions 2% (2)% (1)% Other discrete tax items (2)% 12% 4% Impact of certain items (6)% (17)% —% Operating tax rate 24% 21% 19% (1) Refer to the reconciliation of computed tax expense at the federal statutory rate to the Provision (benefit) for income taxes in Note S of our Notes to the Consolidated Financial Statements. (2) For fiscal 2019 and fiscal 2018, Impact of discrete tax items included a net discrete tax benefit of $5 million and a net discrete tax expense of $148 million, respectively. The nature of the discrete tax items fiscal 2019 and 2018 were as follows: (i) Unusual or infrequent items during fiscal 2019 and 2018 consisted of excludible foreign exchange gains and losses in certain jurisdictions and impacts related to stock compensation deductions. Additionally, fiscal 2019 included the impact of changes in valuation allowances on beginning of year tax balances and the tax impacts of a pension settlement, and fiscal 2018 included the net tax impacts of the Tax Cuts and Jobs Act of 2017 (net tax expense of $159 million), cash management activities as well as impacts related to foreign exchange gain/loss on the remeasurement of a deferred tax liability; (ii) Items related to uncertain tax positions during fiscal 2019 and 2018 included net tax impacts from the reversal of accruals for uncertain tax positions due to the expiration of statutes of limitations and the settlement of tax audits, the accrual of interest on uncertain tax positions, and the accrual of prior year uncertain tax positions (fiscal 2018 only), and; (iii) Other discrete tax items during fiscal 2019 and 2018 included net tax impacts as a result of changes in non-US tax laws, various return to provision adjustments related to tax return filings and audit settlements as well as changes in valuation allowances on beginning of year tax balances (fiscal 2018 only). We file U.S. federal and state and non-U.S. income tax returns in jurisdictions with varying statutes of limitations. Cabot and certain subsidiaries are under audit in a number of jurisdictions. It is possible that some of these audits will be resolved in fiscal 2020 and could impact our anticipated effective tax rate. We have filed our tax returns in accordance with the tax laws in each jurisdiction and maintain tax reserves for uncertain tax positions. Tax Reform On December 22, 2017, the U.S. enacted significant changes to federal income tax law affecting us, including a permanent reduction of the U.S. corporate income tax rate from 35% to 21%, effective January 1, 2018, as well as a 100% dividend received deduction for foreign dividends. Although the passage of the Act reduced the U.S. tax rate and effectively created a participation exemption regime for foreign earnings, there are certain other aspects of the new legislation that affect us, including in particular, immediate U.S. taxation of global intangible low-taxed income (“GILTI”) earned by foreign subsidiaries. GILTI earned by Controlled Foreign Corporations (“CFCs”) must be included currently in the gross income of the CFCs’ U.S. shareholder. GILTI is the excess of the shareholder’s “net CFC-tested income” over the net deemed tangible income return, which is currently defined as the excess of (1) 10% of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (2) the amount of certain interest expense taken into account in the determination of net CFC- tested income. GILTI had a negative impact on earnings and this is the primary driver of the increase in our operating tax rate. In transitioning to this participation exemption regime, we were also subject, during fiscal 2018, to a one-time tax on the deemed repatriation of certain foreign earnings. We did not incur a Base Erosion Anti-Abuse Tax (“BEAT”) liability in fiscal 2019 since we did not exceed the base erosion percentage of 3% for the taxable year. A significant portion of our intercompany payments were exempted from BEAT. We will continue to analyze the applicability of the BEAT provisions on a quarterly basis. 35


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    Equity in Earnings of Affiliated Companies and Net Income (Loss) Attributable to Noncontrolling Interest, Net of Tax Years Ended September 30 2019 2018 2017 (In millions) Equity in earnings of affiliated companies, net of tax $ 1 $ 2 $ 7 Net income (loss) attributable to noncontrolling interests, net of tax $ 29 $ 39 $ 25 Equity in earnings of affiliated companies, net of tax, decreased by $1 million in fiscal 2019 compared to fiscal 2018 primarily due to lower earnings from our Venezuelan equity affiliate, which has not been operational in recent periods due to a lack of available raw materials. Net income (loss) attributable to noncontrolling interests, net of tax, decreased by $10 million in fiscal 2019 compared to fiscal 2018 primarily due to lower profitability of our joint ventures in China. Net Income (Loss) Attributable to Cabot Corporation In fiscal 2019, we reported net income (loss) attributable to Cabot Corporation of $157 million ($2.63 earnings per diluted common share). In fiscal 2018, we reported a net loss of $113 million ($1.85 loss per diluted common share). The loss in fiscal 2018 was driven by the Purification Solutions long-lived asset and goodwill impairment charges more fully discussed in Note G and the impact of tax reform in the U.S. as more fully discussed in Note S. Fiscal 2019 compared to Fiscal 2018—By Business Segment Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies, certain items, other unallocated items and Total segment EBIT for fiscal 2019, 2018 and 2017 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. Years Ended September 30 2019 2018 2017 (In millions) Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies $ 255 $ 117 $ 299 Less: Certain items, pre-tax (87) (248) (3) Less: Other unallocated items (102) (115) (107) Total segment EBIT $ 444 $ 480 $ 409 In fiscal 2019, Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies increased by $138 million and Total Segment EBIT decreased by $36 million. The change in both Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies and Total segment EBIT was due to lower unit margins ($66 million), primarily in Reinforcement Materials and Performance Chemicals, lower volumes ($3 million) driven by Performance Chemicals and the unfavorable impact of foreign currency translation ($6 million), partially offset by lower fixed costs ($35 million). The lower unit margins were primarily driven by weaker Asia pricing due to softening automotive production. The remainder of the increase in Income (loss) from continuing operations before income taxes and equity in earnings of affiliated companies reflects the Purification Solutions asset impairment charges recorded in the second quarter of fiscal 2018 ($254 million) that did not reoccur in fiscal 2019 and the decrease in expense related to Other unallocated items ($13 million), partially offset by the Specialty Fluids loss on sale and asset impairment charge ($29 million), an impairment charge related to our Venezuelan equity affiliate ($11 million) recorded in the second quarter of fiscal 2019 and higher restructuring charges ($46 million). 36


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    Certain Items: Details of the certain items for fiscal 2019, 2018, and 2017 are as follows: Years Ended September 30 2019 2018 2017 (In millions) Specialty Fluids loss on sale and asset impairment charge (Note D) $ (29) $ — $ — Legal and environmental matters and reserves (21) (16) 1 Global restructuring activities (Note P) (16) 30 (3) Equity affiliate investment impairment charge (Note M) (11) — — Acquisition and integration-related charges (6) (2) — Executive transition costs (1) (2) — Purification Solutions goodwill and long-lived assets impairment charge (Note G) — (254) — Inventory reserve adjustment — (13) — Gains (losses) on sale of investments — 10 — Other certain items (3) (1) (1) Total certain items, pre-tax (87) (248) (3) Tax-related certain items: Tax impact of certain items 7 31 1 Discrete tax items 5 (148) 25 Total tax-related certain items 12 (117) 26 Total certain items, net of tax $ (75) $ (365) $ 23 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”. Additional information concerning several of these items is included in our Notes to the Consolidated Financial Statements as follows: Specialty Fluids loss on sale and asset impairment charges (Note D), Global restructuring activities (Note P), Equity affiliate investment impairment charge (Note M), and Purification Solutions goodwill and long-lived assets impairment charge (Note G). Tax-related certain items include discrete tax items, the nature of which are discussed under the heading “Provision (Benefit) for Income Taxes and Reconciliation of Effective Tax Rate to Operating Tax Rate”. The tax impact of certain items is determined by (1) starting with the current and deferred income tax expense or benefit, included in Net income (loss) attributable to Cabot Corporation, net of discrete tax items, and (2) subtracting the tax expense or benefit on “adjusted earnings”. Adjusted earnings is defined as the pre-tax income attributable to Cabot Corporation excluding certain items. The tax expense or benefit on adjusted earnings is calculated by applying the operating tax rate, as defined under the heading Definition of Terms and Non-GAAP Financial Measures, to adjusted earnings. Other Unallocated Items: Years Ended September 30 2019 2018 2017 (In millions) Interest expense $ (59) $ (54) $ (53) Unallocated corporate costs (50) (61) (50) General unallocated income (expense) 8 2 3 Less: Equity in earnings of affiliated companies, net of tax 1 2 7 Total other unallocated items $ (102) $ (115) $ (107) 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) 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. 37


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    In fiscal 2019, Total other unallocated items changed by $13 million when compared to fiscal 2018 due to the decrease in Unallocated corporate costs for corporate projects and lower incentive compensation and the change in General Unallocated income (expense) from the favorable impact of foreign currency translation. Reinforcement Materials Sales and EBIT for Reinforcement Materials for fiscal 2019, 2018 and 2017 are as follows: Years Ended September 30 2019 2018 2017 (In millions) Reinforcement Materials Sales $ 1,815 $ 1,774 $ 1,381 Reinforcement Materials EBIT $ 266 $ 279 $ 193 In fiscal 2019, sales in Reinforcement Materials increased by $41 million when compared to fiscal 2018. The increase was principally driven by more favorable pricing and product mix (combined $87 million), partially offset by the unfavorable impact from foreign currency translation ($52 million). The more favorable price and product mix was primarily due to higher pricing from 2019 tire customer agreements. The unfavorable impact for foreign currency translation was from the weakening of the Euro, British pound, Canadian dollar and Chinese renminbi against the U.S. dollar. In fiscal 2019, Reinforcement Materials EBIT decreased by $13 million when compared to fiscal 2018 driven principally by lower unit margins ($41 million) and the unfavorable impact from the change in inventory levels ($3 million), partially offset by lower fixed costs ($27 million) and higher volumes ($1 million). Lower unit margins were driven primarily by the continued competitive pricing environment in Asia and higher raw material costs, partially offset by higher pricing from 2019 calendar year contract gains. Lower fixed costs were primarily due to lower maintenance costs and lower incentive compensation. Performance Chemicals Sales and EBIT for Performance Chemicals for fiscal 2019, 2018 and 2017 are as follows: Years Ended September 30 2019 2018 2017 (In millions) Performance Additives Sales $ 694 $ 707 $ 650 Formulated Solutions Sales 301 321 258 Performance Chemicals Sales $ 995 $ 1,028 $ 908 Performance Chemicals EBIT $ 152 $ 200 $ 201 In fiscal 2019, sales in Performance Chemicals decreased by $33 million when compared to fiscal 2018 primarily due to lower volumes ($22 million) and the unfavorable impact from foreign currency translation ($28 million), partially offset by more favorable pricing ($21 million) as we passed through higher raw material costs to our customers. The lower volumes were driven by lower automotive production that impacted demand for our products. The unfavorable impact from foreign currency translation was from the weakening of the Euro, British pound, Canadian dollar and Chinese renminbi against the U.S. dollar. In fiscal 2019, EBIT in Performance Chemicals decreased $48 million compared to fiscal 2018 primarily due to lower unit margins ($23 million), lower volumes ($13 million), higher fixed costs ($5 million) and the unfavorable impact from foreign currency translation ($6 million). Lower unit margins were due to weaker product mix in Specialty Carbons and Specialty Compounds as a result of the lower volumes of higher margin products sold into the automotive and fiber end markets, partially offset by higher pricing as we passed through higher raw material costs to our customers. Purification Solutions Sales and EBIT for Purification Solutions for fiscal 2019, 2018 and 2017 are as follows: Years Ended September 30 2019 2018 2017 (In millions) Purification Solutions Sales $ 278 $ 279 $ 281 Purification Solutions EBIT $ 2 $ (7) $ 6 38


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    Sales in Purification Solutions decreased by $1 million in fiscal 2019 when compared to fiscal 2018 primarily due to lower volumes ($4 million) and the unfavorable impact from foreign currency translation ($7 million), partially offset by the impact of a more favorable price and product mix (combined $11 million). The lower volumes were due to increased competition and reduced usage in the mercury removal and other flue gas applications. The favorable price and product mix was due to broad based price increases and volume growth in our higher margin specialty applications. EBIT in Purification Solutions increased by $9 million in fiscal 2019 when compared to fiscal 2018 driven by lower fixed costs ($12 million) and the favorable impact from the sell through of lower cost inventories ($4 million), partially offset by the absence of royalty payments under a technology settlement agreement which did not reoccur in 2019 ($5 million), and lower volumes ($2 million). Lower fixed costs were driven by savings associated with an organizational re-alignment and restructuring which were put into effect throughout the course of fiscal 2019. Specialty Fluids Sales and EBIT for Specialty Fluids for fiscal 2019, 2018 and 2017 are as follows: Years Ended September 30 (1) 2019 2018 2017 (In millions) Specialty Fluids Sales $ 56 $ 45 $ 41 Specialty Fluids EBIT $ 24 $ 8 $ 9 (1) We divested our Specialty Fluids business on June 28, 2019. Refer to Note D for the terms of this transaction. Sales in Specialty Fluids increased by $11 million in fiscal 2019 when compared to fiscal 2018. The increase was primarily due to a higher level of project activity that resulted in higher rental and sales volumes for our drilling fluids. EBIT in Specialty Fluids increased by $16 million in fiscal 2019 when compared to fiscal 2018. The increase is primarily due to a higher level of project activity. Outlook Looking forward to fiscal 2020, we expect the current challenging macroeconomic conditions affecting our business will continue. Those conditions include disputes related to trade tariffs between the U.S. and China, volatile commodity prices and soft global automotive production. These challenges are driving certain customers to be cautious in their short-term purchasing behavior, which could impact our fiscal 2020 results. We do not expect this short-term behavior to have a long-term impact on the business as the conditions subside, however, and we expect EBIT growth across all segments in fiscal 2020. Reinforcement Materials is expected to benefit from favorable calendar 2020 customer agreements. We anticipate that Performance Chemicals EBIT will improve as we move through the year from the benefits of a full year of production at the new China fumed silica plant. We expect that Purification Solutions results will improve from the full year benefit of transformation actions and as we continue to grow our specialty applications. With the sale of the Specialty Fluids business in fiscal 2019, we will not have any EBIT contribution from this business in fiscal 2020. Cash Flows and Liquidity Overview Our liquidity position, as measured by cash and cash equivalents plus borrowing availability, increased by $530 million during fiscal 2019, which was largely attributable to the repayment of commercial paper through the proceeds from the sale of the Specialty Fluids business, the issuance of long-term debt, increased borrowing availability under a new revolving credit agreement and lower net working capital, partially offset by share repurchases and cash dividends, and the redemption of the preferred stock issued in the NHUMO, S.A. de C.V. (“NHUMO”) transaction. As of September 30, 2019, we had cash and cash equivalents of $169 million and borrowing availability under our revolving credit agreements of $1,297 million. Our U.S. revolving credit agreement supports our commercial paper program. Our non-U.S. revolving credit agreements may be used for repatriation of earnings of our foreign subsidiaries to the U.S., the repayment of indebtedness of our foreign subsidiaries owing to us or any of our subsidiaries, and for working capital and general corporate purposes. At September 30, 2019, we were in compliance with all applicable covenants under our revolving credit facilities including the total consolidated debt to consolidated EBITDA (earnings before interest, taxes, depreciation and amortization) covenant. 39


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    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 use commercial paper throughout the year to manage short-term U.S. cash needs. The commercial paper balance is generally reduced at quarter-end using cash derived from customer collections, settlement of intercompany balances and short-term intercompany loans. The balance of commercial paper outstanding as of September 30, 2019 was $33 million. If additional funds are needed in the U.S., we have the ability to repatriate offshore earnings. We generally manage our cash and debt on a global basis to provide for working capital requirements as needed by region or site. Cash and debt are generally denominated in the local currency of the subsidiary holding the assets or liabilities, except where there are operational cash flow reasons to hold non-functional currency or debt. We anticipate sufficient liquidity from (i) cash on hand; (ii) cash flows from operating activities; and (iii) cash available from our revolving credit agreement 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. In May 2019, several subsidiaries entered into a revolving credit agreement with a loan commitment not to exceed 300 million Euros. The revolving credit agreement may be used for repatriation of earnings of Cabot’s foreign subsidiaries to the U.S., the repayment of indebtedness of our 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. In June 2019, we issued $300 million in registered notes with a coupon of 4.0% that mature on July 1, 2029. These notes are unsecured and pay interest 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. We issued $30 million of 7.42% medium term notes in fiscal 1999 that matured on December 11, 2018. We repaid these notes at maturity with a combination of cash on hand and commercial paper borrowings. In November 2013, we purchased all of our joint venture partner’s common stock in the former NHUMO, S.A. de C.V. (“NHUMO”) joint venture. At the close of the transaction, NHUMO issued redeemable preferred stock to the joint venture partner with a repurchase value of $25 million and a fixed dividend rate of 6% per annum. In November 2018, we repurchased the preferred stock for $25 million and paid a final dividend payment of approximately $1.4 million. 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 $363 million in fiscal 2019. Operating activities provided $298 million and $348 million of cash in fiscal 2018 and in fiscal 2017, respectively. Cash provided by operating activities in fiscal 2019 was driven primarily by our net income of $186 million, the non-cash impacts of depreciation and amortization of $148 million, a decrease in Accounts and notes receivable of $73 million, the loss on the sale and asset impairment of the Specialty Fluids business of $29 million, a decrease in Inventory of $27 million, and the impairment of our investment in our Venezuelan equity affiliate of $11 million. Partially offsetting these factors were a decrease in Accounts payable and accrued liabilities of $75 million, a decrease in Other liabilities of $37 million, and the non-cash impact of a decrease in our deferred tax provision of $27 million. Cash provided by operating activities in fiscal 2018 was driven primarily by net income, which, before non-cash depreciation, amortization and impairment charges, totaled $329 million from strong business performance and an increase in accounts payable and accrued liabilities, partially offset by increases in Accounts and notes receivable and Inventories largely driven by higher raw material costs. 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, 2019, we had $7 million of total restructuring costs in accrued expenses in the Consolidated Balance Sheets related to our global restructuring activities. We made cash payments of $12 million during fiscal 2019. In fiscal 2020 and thereafter, we expect to make cash payments totaling approximately $8 million related to these restructuring plans. 40

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