News Column

CABOT CORP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 6, 2014

Critical Accounting Policies

The preparation of our consolidated 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 policies and estimates. 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 under different assumptions or conditions. The estimates that we believe are critical to the preparation of the consolidated financial statements are presented below.



Revenue Recognition and Accounts Receivable

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. We generally are able to ensure that products meet customer specifications prior to shipment. If we are unable to determine that the product has met the specified objective criteria prior to shipment or if title has not transferred because of sales terms, the revenue is considered "unearned" and is deferred until the revenue recognition criteria are met. Shipping and handling charges related to sales transactions are recorded as sales revenue when billed to customers or included in the sales price. The following table shows the relative size of the revenue recognized in each of our reportable segments for the periods presented. The revenue of the Advanced Technologies reportable segment excludes the Security Materials business from all periods as we began reporting the business under discontinued operations. Three Months Ended Nine Months Ended June 30 June 30 2014 2013 2014 2013 Reinforcement Materials 59 % 56 % 58 % 57 % Performance Materials 27 % 27 % 27 % 27 % Purification Solutions 9 % 9 % 9 % 10 % Advanced Technologies 5 % 8 % 6 % 6 % We derive the substantial majority of revenues from the sale of products in Reinforcement Materials and Performance Materials. Revenue from these products is typically recognized when the product is shipped and title and risk of loss have passed to the customer. We offer certain customers cash discounts and volume rebates as sales incentives. The discounts and volume rebates are recorded as a reduction in sales at the time revenue is recognized and are estimated based on historical experience and contractual obligations. We periodically review the assumptions underlying estimates of discounts and volume rebates and adjust revenues accordingly. Revenue in Purification Solutions is typically recognized when the product is shipped and title and risk of loss have passed to the customer. For major activated carbon injection systems projects, revenue is recognized using the percentage-of-completion method. Revenue in Advanced Technologies, excluding the Specialty Fluids business, is typically recognized when the product is shipped and title and risk of loss have passed to the customer. Depending on the nature of the contract with the customer, a portion of the segment's revenue may be recognized using proportional performance. We have technology and licensing agreements with one customer that are accounted for as multiple element arrangements. Revenue is recognized ratably over the term of the agreements, limited by the cumulative amounts that become due, some of which are through 2022. A significant portion of the revenue in the Specialty Fluids business, included in Advanced Technologies, arises from the rental of cesium formate. This revenue is recognized throughout the rental period based on the contracted rental terms. Customers are also billed and revenue is recognized, typically at the end of the job, for cesium formate product that is not returned. We also generate revenues from cesium formate sold outside of a rental process and revenue is recognized upon delivery of the fluid. 34



--------------------------------------------------------------------------------

Table of Contents

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



Intangible Assets and Goodwill

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. Goodwill is comprised of the purchase price of business acquisitions in excess of the fair value assigned to the net tangible and identifiable intangible assets acquired. Goodwill is not amortized but is reviewed for impairment annually as of May 31, or when events or changes in the business environment indicate that the carrying value of the reporting unit may exceed its fair value. A reporting unit, for the purpose of the impairment test, is at or below the operating segment level, and constitutes a business for which discrete financial information is available and regularly reviewed by segment management. The separate businesses included within Performance Materials are considered separate reporting units. The goodwill balance relative to this segment is recorded in the Fumed Metal Oxides reporting unit within Performance Materials. 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 value amount and as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. Alternatively, we may elect to proceed directly to the two-step goodwill impairment test. 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 under the two-step impairment test. If based on the quantitative evaluation the fair value of the reporting unit is less than its carrying amount, we perform an analysis of the fair value of all assets and liabilities of the reporting unit. If the implied fair value of the reporting unit's goodwill is determined to be less than its carrying amount, an impairment is recognized for the difference. The fair value of a reporting unit is based on discounted estimated future cash flows. The fair value is also benchmarked against a market approach using the guideline public companies method. The assumptions used to estimate fair value include management's best estimates of future growth rates, operating cash flows, capital expenditures and discount rates over an estimate of the remaining operating period at the reporting unit level. Should the fair value of any of our reporting units decline because of reduced operating performance, market declines, as a result of changes in the discount rate, or other indicators of impairment, charges for impairment may be necessary. Based on our most recent annual goodwill impairment test performed as of May 31, 2014, the fair values of the Reinforcement Materials and Fumed Metal Oxides reporting units were substantially in excess of their carrying values. The fair value of the Purification Solutions reporting unit exceeded its carrying value by approximately 9%. At June 30, 2014, the Purification Solutions reporting unit had the most significant goodwill balance, in the amount of $468 million. The future growth in the Purification Solutions business is highly dependent on achieving the expected volumes and margins in the activated carbon based mercury removal business. These volumes and margins are highly dependent on the overall size of the mercury removal market and our successful realization of our anticipated market share over the next 3 years. The size of the mercury removal market significantly depends on, among other factors, the adoption and enforcement of environmental laws and regulations, particularly those that would require U.S. based coal fired electrical utilities to reduce the quantity of air pollutants they release, including mercury, to comply with the Mercury and Air Toxics Standards that become effective in April 2015. 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 (i) assumptions used in the valuation model; and (ii) determination of the intangible assets' useful lives. 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. Our intangible assets are primarily comprised of trademarks that are considered indefinite-lived, customer relationships, patented and unpatented technology and other intellectual property, all of which are considered definite-lived intangible assets. 35



--------------------------------------------------------------------------------

Table of Contents

We review definite-lived intangible assets, which are comprised of the trademarks of Purification Solutions, for impairment when indication of potential impairment exists, such as a significant reduction in cash flows associated with the assets. Actual cash flows arising from a particular intangible asset could vary from projected cash flows which could imply different carrying values from those established at the dates of acquisition and which could result in impairment of such asset. We evaluate indefinite-lived intangible assets for impairment annually or when events occur or circumstances change that may reduce the fair value of the asset below its carrying amount. The annual review is performed as of May 31. We may first perform a qualitative assessment to determine whether it is necessary to perform the quantitative impairment test or bypass the qualitative assessment and proceed directly to performing the quantitative impairment test. The quantitative impairment test is based on discounted estimated future cash flows. The assumptions used to estimate fair value include management's best estimates of future growth rates and discount rates over an estimate of the remaining operating period at the unit of accounting level. These future growth rates depend on achieving the expected volumes and pricing levels of the products of Purification Solutions. Finite lived intangible assets are amortized over their estimated useful lives.



Long-lived Assets

Our long-lived assets primarily include property, plant and equipment, 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. An asset impairment is recognized when the carrying value of the asset is not recoverable based on the probability-weighted undiscounted estimated future cash flows to be generated by the asset. Our estimates reflect management's assumptions about selling prices, production and sales volumes, costs and market conditions over an estimate of the remaining operating period. If an impairment is indicated, the asset is written down to fair value. If the asset does not have a readily determinable market value, a discounted cash flow model may be used to determine the fair value of the asset. The key inputs to the discounted cash flow would be the same as the undiscounted cash flow noted above, with the addition of the discount rate used. In circumstances when an asset does not have separate identifiable cash flows, an impairment charge is recorded when we no longer intend to use the asset.



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.

Property, Plant and Equipment

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



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. A portion of the reserve for environmental matters is recognized on a discounted basis, which requires the use of an estimated discount rate and estimates of future cash flows associated with the liability. 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. 36



--------------------------------------------------------------------------------

Table of Contents

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 and the amount accrued is recognized on a discounted basis. 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 silica and non-malignant asbestos claims, (iii) significant changes in the average cost of resolving claims, (iv) significant changes in the legal costs of defending these claims, (v) changes in the nature of claims received, (vi) changes in the law and procedure applicable to these claims, (vii) the financial viability of other parties which contribute to the settlement of respirator claims, (viii) a change in the availability of insurance coverage maintained by the entity from which we acquired the safety respiratory products business or the indemnity provided by its former owner, (ix) changes in the allocation of costs among the various parties paying legal and settlement costs and (x) 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. Further, if the timing of our actual payments made for respirator claims differs significantly from our estimated payment schedule, and we determine that we can no longer reasonably predict the timing of such payments, we could then be required to record the reserve amount on an undiscounted basis on our Consolidated Balance Sheets, causing an immediate impact to earnings.



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 on uncertain tax position 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 our tax provision or benefit on an interim basis using an estimated annual effective tax rate. This rate is applied to the current period ordinary income or loss to determine the income tax provision or benefit allocated to the interim period. Losses from jurisdictions for which no benefit can be recognized and the income tax effects of unusual or infrequent items are excluded from the estimated annual effective tax rate and are recognized in the impacted interim period. The estimated annual effective tax rate may be significantly impacted by nondeductible expenses and our projected earnings mix by tax jurisdiction. Adjustments to the estimated annual effective income tax rate are recognized in the period when such estimates are revised. We record benefits for uncertain tax positions based on an assessment of whether the position is more likely than not to be sustained by the taxing authorities. If this threshold is not met, no tax benefit of the uncertain tax position is recognized. If the threshold is met, the tax benefit that is recognized is the largest amount that is greater than 50% likely of being realized upon ultimate settlement. This analysis presumes the taxing authorities' full knowledge of the positions taken and all relevant facts, but does not consider the time value of money. We also accrue for interest and penalties on these uncertain tax positions and include such charges in the income tax provision in the Consolidated Statements of Operations. Additionally, we have established valuation allowances against a variety of deferred tax assets, including net operating loss carry forwards, 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. 37



--------------------------------------------------------------------------------

Table of Contents

Restructuring Activities

Our consolidated financial statements detail specific charges relating to restructuring activities as well as the actual spending that has occurred against the resulting accruals. Our restructuring charges are estimates based on our preliminary assessments of (i) severance and other employee benefits to be granted to employees, which are based on known benefit formulas and identified job grades, (ii) environmental remediation, and (iii) asset impairment and accelerated depreciation. Because these accruals are estimates, they are subject to change as a result of subsequent information that may come to our attention while executing the restructuring plans. These changes in estimates would then be reflected in our consolidated financial statements.



Inventory Valuation

Inventories are stated at the lower of cost or market. The cost of all carbon black inventories in the U.S. is determined using the last-in, first-out ("LIFO") method. Had we used the first-in, first-out ("FIFO") method instead of the LIFO method for such inventories, the value of those inventories would have been $53 million and $55 million higher as of June 30, 2014 and September 30, 2013, respectively. The cost of Specialty Fluids inventories is determined using the average cost method. The cost of other U.S. and non-U.S. inventories is determined using the FIFO method. In periods of rapidly rising or declining raw material costs, the inventory method we employ can have a significant impact on our profitability. Under our current LIFO method, when raw material costs are rising, our most recent higher priced purchases are the first to be charged to cost of sales. If, however, we were using a FIFO method, our purchases from earlier periods, which were at lower prices, would instead be the first charged to cost of sales. The opposite result could occur during a period of rapid decline in raw material costs. We review inventory for both potential obsolescence and potential loss of value periodically. In this review, we make assumptions about the future demand for and market value of our inventory and based on these assumptions estimate the amount of any obsolete, unmarketable or slow moving 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 market value. Historically, such write-downs have not been significant. 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. Results of Operations



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 various types and grades, or mix, of products sold in a particular business or segment during the period and the positive or negative impact of that mix on the revenue or profitability of the business or segment. The term "LIFO" includes two factors: (i) the impact of current inventory costs being recognized immediately in cost of sales under a last-in first-out method, compared to the older costs that would have been included in cost of sales under a first-in first-out method ("cost of sales impact"); and (ii) the impact of reductions in inventory quantities, causing historical inventory costs to flow through COGS ("liquidation impact"). The discussion under the heading "Provision 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 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. 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 which we do not believe are reflective of the underlying business results. Total segment EBIT is a non-GAAP performance measure, and should not be considered an alternative for Income from continuing operations before taxes, the most directly comparable GAAP financial measure. In calculating Total segment EBIT, we make certain adjustments such as excluding certain items, meaning items that management does not consider representative of our fundamental segment results, as well as items that are not allocated to our business segments, such as interest expense and other corporate costs. Our Chief Operating Decision Maker uses segment EBIT to evaluate the operating results of each segment and to allocate resources to the segments. We believe Total segment EBIT provides useful supplemental information for our investors as it is an important indicator of the Company's operational strength and performance. 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. A reconciliation of Total segment EBIT to Income (loss) from continuing operations before taxes is provided in Note P of our consolidated financial statements. 38



--------------------------------------------------------------------------------

Table of Contents

Cabot is organized into four reportable business segments: Reinforcement Materials, Performance Materials, Advanced Technologies and Purification Solutions. Cabot is also organized for operational purposes into three geographic regions: the Americas; Europe, Middle East and Africa; and Asia Pacific. Discussions of all periods reflect these structures.

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

Overview

During the third quarter of fiscal 2014, Income from continuing operations before income taxes and equity in (loss) earnings of affiliated companies increased compared to the third quarter of fiscal 2013 largely due to higher volumes as demand in our key end markets improved, the addition of new carbon black capacity in China, and from our acquisition of Grupo Kuo S.A.B. de C.V.'s common stock interest in our carbon black joint venture in Mexico ("NHUMO"). In addition, raw material purchasing savings and the benefits from energy efficiency investments in Reinforcement Materials contributed to the improvement in earnings. During the first nine months of fiscal 2014, Income from continuing operations before income taxes and equity in (loss) earnings of affiliated companies increased compared to the first nine months of fiscal 2013 largely due to higher volumes and the gain on our pre-existing equity investment in NHUMO we recognized upon our acquisition during the first quarter of fiscal 2014 of KUO's common stock interest in NHUMO. See Note C to our consolidated financial statements for details of the NHUMO transaction.



Third Quarter and First Nine Months Fiscal 2014 versus Third Quarter and First Nine Months Fiscal 2013-Consolidated

Net Sales and other operating revenues and Gross Profit

Three Months Ended Nine Months Ended June 30 June 30 2014 2013 2014 2013 (Dollars in millions) Net sales and other operating revenues $ 940$ 901$ 2,736$ 2,560 Gross profit $ 184$ 176$ 539$ 466 The $39 million increase in net sales from the third quarter of fiscal 2013 to the third quarter of fiscal 2014 was due primarily to higher volumes ($41 million). For the first nine months of fiscal 2014, net sales increased by $176 million when compared to the same period of fiscal 2013. The increase was driven primarily by higher volumes ($224 million) partially offset by a less favorable price and product mix (combined $45 million). Gross profit increased by $8 million in the third quarter of fiscal 2014 and by $73 million in the first nine months of fiscal 2014 when compared to the same periods of fiscal 2013 primarily due to higher volumes.



Selling and Administrative Expenses

Three Months Ended Nine Months Ended June 30 June 30 2014 2013 2014 2013 (Dollars in millions)



Selling and administrative expenses $ 76$ 72$ 245$ 222

Selling and administrative expenses increased by $4 million in the third quarter of fiscal 2014 and $23 million in the first nine months of fiscal 2014 when compared to the same periods of fiscal 2013. The increases in both periods were principally driven by higher expenses related to restructuring actions taken in our Europe, Middle East and Africa ("EMEA") shared service center, the addition of NHUMO, and higher costs associated with corporate projects. 39



--------------------------------------------------------------------------------

Table of Contents

Research and Technical Expenses

Three Months Ended Nine Months Ended June 30 June 30 2014 2013 2014 2013 (Dollars in millions) Research and technical expenses $ 15$ 17$ 46$ 50 Research and technical expenses decreased $2 million and $4 million in the third quarter and first nine months of fiscal 2014 as compared to the same period in fiscal 2013. The decrease in both periods was driven by lower costs from restructuring-related activities undertaken in the prior year.



Interest and Dividend Income, Interest Expense and Other Income

Three Months Ended Nine Months Ended June 30 June 30 2014 2013 2014 2013 (Dollars in millions) Interest and dividend income $ 1$ 2$ 3$ 4 Interest expense $ 14$ 15$ 41$ 47 Other income $ - $ - $ 27$ 3 Interest and dividend income decreased by $1 million in both the third quarter and first nine months of fiscal 2014 as compared to the same periods in fiscal 2013. Interest expense decreased by $1 million in the third quarter and by $6 million during the first nine months of fiscal 2014 when compared to the same periods in fiscal 2013 due to the maturity of long-term debt in the fourth quarter of fiscal 2013 that was refinanced with commercial paper carrying a lower interest rate. Other income was consistent in the third quarter of fiscal 2014 as compared to the same period in fiscal 2013. Other income during the first nine months of fiscal 2014 increased by $24 million as compared to the same period in fiscal 2013 due primarily to a gain recognized on our existing equity investment in NHUMO ($29 million) as a result of the NHUMO transaction. This gain was partially offset by an unfavorable comparison of foreign currency movements ($6 million). Provision for Income Taxes and Reconciliation of Effective Tax Rate to Operating Tax Rate Three Months Ended Nine Months Ended June 30 June 30 2014 2013 2014 2013 (Dollars in millions) Provision for income taxes $ 20$ 16$ 51$ 52 Effective tax rate 25 % 22 % 22 % 34 % Impact of discrete tax items: (1) Unusual or infrequent items (1 )% 4 % (1 )% (5 )% (2) Items related to uncertain tax positions - % - % 2 % 1 % (3) Other discrete tax items 1 % 2 % (1 )% 2 % Impact of certain items 2 % (1 )% 5 % (5 )% Operating tax rate 27 % 27 % 27 % 27 % 40



--------------------------------------------------------------------------------

Table of Contents

During the third quarter of fiscal 2014, we recorded a tax provision of $20 million, resulting in an effective tax rate of 25%. This amount included a net discrete tax charge of less than $1 million. The operating rate for the third quarter of fiscal 2014 was 27%. During the third quarter of fiscal 2013, we recorded a tax provision of $16 million, resulting in an effective tax rate of 22%. This amount included a net discrete tax benefit of approximately $4 million. The operating tax rate for the third quarter of fiscal 2013 was 27%. For the first nine months of fiscal 2014, we recorded a tax provision of $51 million, resulting in an effective tax rate of 22%. This amount included a net discrete benefit of $4 million. For the first nine months of fiscal 2013, we recorded a net tax provision of $52 million, resulting in an effective tax rate of 34%. This amount included a net discrete tax charge of $3 million. The decrease in the effective tax rate in the first nine months of fiscal 2014 is primarily due to a non-taxable gain of $29 million recognized on the Company's pre-existing investment in NHUMO as a result of the NHUMO transaction. This gain is reported as a certain item. See Note C of the consolidated financial statements for details of the transaction. We are currently under audit in a number of jurisdictions outside of the U.S. It is possible that some of these audits will be resolved in fiscal 2014, which may impact our tax expense and effective tax rate going forward. We expect our operating tax rate for fiscal 2014 to be approximately 27%. Equity in (Loss) Earnings of Affiliated Companies and Net Income Attributable to Noncontrolling Interests Three Months Ended Nine Months Ended June 30 June 30 2014 2013 2014 2013 (Dollars in millions) Equity in (loss) earnings of affiliated companies, net of tax $ (2 )$ 3$ (2 )$ 9 Net income attributable to noncontrolling interests, net of tax $ 5$ 3$ 14$ 3 Equity in (loss) earnings of affiliated companies, net of tax, decreased $5 million in the third quarter and $11 million in the first nine months of fiscal 2014 when compared to the same periods of fiscal 2013. The declines in both periods were primarily due to the consolidation of the earnings of NHUMO following the NHUMO transaction and lower earnings from our Venezuelan equity affiliate, including the unfavorable impact from the devaluation of the Venezuelan bolivar. Net income attributable to noncontrolling interests, net of tax, increased $2 million in the third quarter of fiscal 2014 and $11 million in the first nine months of fiscal 2014 as compared to the same periods of fiscal 2013. The increases in both comparative periods were due to higher profitability of our joint ventures and charges associated with our 2013 restructuring in Malaysia that did not repeat in fiscal 2014.



Net Income Attributable to Cabot Corporation

In the third quarter and first nine months of fiscal 2014, we reported net income attributable to Cabot Corporation of $52 million and $168 million, respectively ($0.78 and $2.55 per diluted common share, respectively). This is compared to $59 million and $106 million, respectively ($0.90 and $1.63 per diluted common share, respectively) in the third quarter and first nine months of fiscal 2013.



Third Quarter Fiscal 2014 versus Third Quarter Fiscal 2013-By Business Segment

Total segment EBIT, certain items, other unallocated items and Income from continuing operations before income taxes and equity in earnings of affiliated companies for the three and nine months ended June 30, 2014 and 2013 are set forth in the table below. The details of certain items and other unallocated items are shown below and in Note P of our consolidated financial statements. Three Months Ended Nine Months Ended June 30 June 30 2014 2013 2014 2013 (Dollars in millions) Total segment EBIT $ 109$ 111$ 339$ 288 Certain items (7 ) (4 ) (19 ) (43 ) Other unallocated items (22 ) (33 ) (83 ) (91 ) Income from continuing operations before income taxes and equity in (loss) earnings of affiliated companies $ 80$ 74$ 237$ 154 41



--------------------------------------------------------------------------------

Table of Contents

In the third quarter of fiscal 2014, total segment EBIT decreased by $2 million when compared to the same period of fiscal 2013. The decrease was principally driven by higher fixed costs ($22 million) driven in part by new capacity in the Reinforcement Materials segment partially offset by higher volumes ($6 million), higher unit margins ($8 million) and a favorable impact of foreign currency translation ($8 million). Equity in (loss) earnings of affiliated companies decreased ($5 million) due to the consolidation of earnings following the NHUMO transaction and lower earnings from our Venezuelan equity affiliate. In the first nine months of fiscal 2014, total segment EBIT increased by $51 million when compared to the same period of fiscal 2013. The increase was principally driven by higher volumes ($80 million), higher unit margins ($15 million) and higher royalties and technology payments in Elastomer Composites ($12 million). These improvements were partially offset by higher fixed costs ($57 million) driven by costs from new capacity in the Reinforcement Materials segment and higher maintenance costs in the Purification Solutions segment. Equity in (loss) earnings of affiliated companies decreased ($11 million) due to the consolidation of earnings following the NHUMO transaction and lower earnings from our Venezuelan equity affiliate.



Certain Items

Details of the certain items for the third quarter and first nine months of fiscal 2014 and 2013 are as follows:

Three Months Ended Nine Months Ended June 30 June 30 2014 2013 2014 2013 (Dollars in millions) Global restructuring activities $ (3 )$ (5 )$ (24 )$ (29 ) Acquisition and integration-related charges - (2 ) (5 ) (18 ) Foreign currency (loss) gain on revaluations (3 ) 3 (3 ) 4 Gain on existing investment in NHUMO - - 29 - Legal and environmental matters and reserves (1 ) - (16 ) - Total certain items, pre-tax (7 ) (4 ) (19 ) (43 ) Tax-related certain items Tax impact of certain items 2 - 16 5 Tax impact of certain foreign exchange losses (1 ) - (1 ) (12 ) Discrete tax items - 4 3 9 Total tax-related certain items 1 4 18 2 Total certain items after tax $ (6 ) $ -



$ (1 )$ (41 )

Certain items for the third quarter and first nine months of fiscal 2014 include charges related to restructuring activities, acquisition and integration-related charges, foreign currency impacts on revaluations, a gain recognized on our existing equity investment in NHUMO, legal and environmental matters and reserves and tax certain items. Details of restructuring activities are included in Note L of the consolidated financial statements. Acquisition and integration-related charges include legal and professional fees, the incremental value of inventory as a result of purchase accounting adjustments and other expenses related to the completion of the acquisitions and the integrations of Purification Solutions and NHUMO. Details of the gain recognized on our existing equity investment in NHUMO are included in Note C of the consolidated financial statements. A discussion of legal and environmental matters and reserves is included in Note I of the consolidated financial statements. Tax-related certain items include discrete tax items, which are unusual and infrequent, and the tax impact of certain foreign exchange losses. 42



--------------------------------------------------------------------------------

Table of Contents Other Unallocated Items Three Months Ended Nine Months Ended June 30 June 30 2014 2013 2014 2013 (Dollars in millions) Interest expense $ (14 )$ (15 )$ (41 )$ (47 ) Less: Equity in loss (earnings) of affiliated companies 2 (3 ) 2 (9 ) Unallocated corporate costs (14 ) (12 ) (43 ) (37 ) General unallocated income (expense) 4 (3 ) (1 ) 2 Total other unallocated items $ (22 )$ (33 )$ (83 )$ (91 ) Costs from total other unallocated items decreased by $11 million in the third quarter of fiscal 2014 as compared to the same period in fiscal 2013. The decrease was driven by a $7 million decrease in General unallocated income (expense) primarily due to the COGS impact of LIFO accounting from changes in carbon black raw material costs that resulted in a favorable comparison ($4 million) and a favorable comparison of foreign currency transactions ($2 million). Equity in earnings (loss) of affiliated companies, net of tax, decreased by $5 million due to the consolidation of the earnings of NHUMO following the NHUMO transaction and lower earnings from our Venezuelan equity affiliate. Interest expense also decreased by $1 million due to the maturity of long-term debt in the fourth quarter of fiscal 2013 that was refinanced with commercial paper carrying a lower interest rate. These decreases were partially offset by $2 million of higher Unallocated corporate costs primarily associated with corporate projects. In the first nine months of fiscal 2014, costs from total other unallocated items decreased by $8 million when compared to the same period of fiscal 2013. The decrease was driven by $11 million of lower equity in loss (earnings) of affiliated companies, net of tax, due to the consolidation of the earnings of NHUMO following the NHUMO transaction and lower earnings from our Venezuelan equity affiliate. Interest expense also decreased by $6 million due to the maturity of long-term debt in the fourth quarter of fiscal 2013 that was refinanced with commercial paper carrying a lower interest rate. These decreases were partially offset by a $6 million increase in Unallocated corporate costs primarily associated with corporate projects. 43



--------------------------------------------------------------------------------

Table of Contents

Reinforcement Materials

Sales and EBIT for Reinforcement Materials for the third quarter and first nine months of fiscal 2014 and fiscal 2013 are as follows:

Three Months Ended Nine Months Ended June 30 June 30 2014 2013 2014 2013 (Dollars in millions)



Reinforcement Materials Sales $ 534$ 486$ 1,555$ 1,420

Reinforcement Materials EBIT $ 61$ 49$ 186$ 141

In the third quarter of fiscal 2014, sales in Reinforcement Materials increased by $48 million when compared to the third quarter of fiscal 2013. The increase was principally driven by the impact of higher volumes ($62 million) and a favorable impact from foreign currency translation ($1 million) partially offset by a less favorable price and product mix (combined $15 million). In the first nine months of fiscal 2014, sales in Reinforcement Materials increased by $135 million when compared to the first nine months of fiscal 2013. The increase was principally driven by higher volumes ($200 million) partially offset by a less favorable price and product mix (combined $50 million) and an unfavorable impact from foreign currency translation ($15 million). Higher volumes in both comparative periods were due to improved carbon black demand, the addition of new capacity in China, and the acquisition of NHUMO. The less favorable price and product mix in both comparative periods were primarily due to price adjustments to customers for decreases in raw material costs. EBIT in Reinforcement Materials increased by $12 million in the third quarter of fiscal 2014 when compared to the same period of fiscal 2013. The increase was principally driven by 13% higher volumes ($21 million), favorable unit margins ($7 million), and the favorable impact from foreign currency translation ($5 million) partially offset by higher fixed costs ($21 million). For the first nine months of fiscal 2014 when compared to the same period of fiscal 2013, Reinforcement Materials EBIT increased by $45 million driven principally by higher volumes ($66 million), favorable unit margins ($13 million), and the favorable impact from foreign currency translation ($7 million) partially offset by higher fixed costs ($41 million). Higher volumes in both comparative periods were due to improved carbon black demand, the addition of new capacity in China, and the acquisition of NHUMO. Favorable unit margins in both comparative periods were most notably due to raw material purchasing savings and the benefits from energy efficiency investments. Higher fixed costs for both comparative periods were primarily associated with new carbon black capacity in China, and the acquisition of NHUMO.



Performance Materials

Sales and EBIT for Performance Materials for the third quarter and first nine months of fiscal 2014 and fiscal 2013 are as follows:

Three Months Ended Nine Months Ended June 30 June 30 2014 2013 2014 2013 (Dollars in millions)



Specialty Carbons and Compounds Sales $ 165$ 159 $

485 $ 464 Fumed Metal Oxides Sales 78 74 224 208 Performance Materials Sales $ 243$ 233$ 709$ 672 Performance Materials EBIT $ 41$ 35$ 122$ 99 44



--------------------------------------------------------------------------------

Table of Contents

In the third quarter of fiscal 2014, sales for Performance Materials increased by $10 million when compared to the third quarter of fiscal 2013. The increase was due to higher volumes ($11 million) and the favorable impact of foreign currency translation ($5 million) partially offset by a less favorable price and product mix (combined $7 million). Volumes in Specialty Carbons and Compounds and Fumed Metal Oxides both increased by 5%. During the first nine months of fiscal 2014, sales in Performance Materials increased by $37 million primarily due to the higher volumes ($43 million) and a favorable impact of foreign currency translation ($9 million) partially offset by a less favorable price and product mix (combined $15 million). Higher volumes in both comparative periods were due to improved demand in our key end markets. The less favorable price and product mix in both comparative periods were primarily due to price adjustments to customers that coincided with decreases in raw material costs in our Specialty Carbons and Compounds business. EBIT in Performance Materials increased by $6 million in the third quarter of fiscal 2014 when compared to the same quarter of fiscal 2013 principally due to higher volumes ($5 million) and the favorable impact of foreign currency translation ($3 million). For the first nine months of fiscal 2014, EBIT was $23 million higher when compared to the first nine months of fiscal 2013 principally driven by higher volumes ($22 million) and the favorable impact of foreign currency translation ($3 million). Higher volumes in both comparative periods were due to improved demand in our key end markets.



Advanced Technologies

Sales and EBIT for Advanced Technologies for the third quarter and first nine months of fiscal 2014 and 2013 are as follows:

Three Months Ended Nine Months Ended June 30 June 30 2014 2013 2014 2013 (Dollars in millions) Inkjet Colorants $ 17$ 18$ 46$ 46 Aerogel 2 9 8 17 Elastomer Composites 4 5 28 17 Specialty Fluids 24 35 77 63 Advanced Technologies Sales $ 47$ 67$ 159$ 143 Advanced Technologies EBIT $ 14$ 28$ 51$ 44 Sales in Advanced Technologies decreased by $20 million in the third quarter of fiscal 2014 when compared to the same period of fiscal 2013 primarily due to lower volumes ($23 million), most notably in Specialty Fluids, and lower Aerogel royalties ($5 million), partially offset by a more favorable price and product mix ($6 million) and higher royalties in Elastomer Composites ($2 million). In the first nine months of fiscal 2014, sales in Advanced Technologies increased by $16 million when compared to the first nine months of fiscal 2013 due to higher volumes ($7 million), a more favorable price and product mix (combined $7 million) and higher royalties and technology payments in Elastomer Composites ($12 million) partially offset by lower Aerogel royalties ($8 million) and an unfavorable impact of foreign currency translation ($2 million). EBIT in Advanced Technologies decreased by $14 million in the third quarter of fiscal 2014 when compared to the same period of fiscal 2013 primarily due to lower volumes ($15 million), most notably in Specialty Fluids, and lower Aerogel royalties ($5 million). These items were partially offset by a more favorable price and product mix ($4 million) and higher royalties in Elastomer Composites ($2 million). For the first nine months of fiscal 2014 when compared to the same period of fiscal 2013, Advanced Technologies EBIT increased by $7 million driven principally by higher volumes ($7 million), most notably in Specialty Fluids, a more favorable price and product mix ($2 million), and higher royalties and technology payments in Elastomer Composites ($12 million). These items were partially offset by higher costs ($5 million), an unfavorable impact of foreign currency translation ($1 million), and lower Aerogel royalties ($8 million). As previously disclosed, the main raw material source for our Specialty Fluids business is our cesium mine in Canada. In light of the technical challenges and economic feasibility of proceeding with a major development project at our mine, our cesium reserves available for mining will likely be lower than previously disclosed in our 2013 10-K. As a result, we intend to be more selective in our projects to minimize our annual consumption of cesium and we will continue to assess options to access additional reserves. These actions will likely impact the Specialty Fluids business's costs, pricing and volumes, and we anticipate the business's annual profitability being approximately 10-20% lower than what we have experienced over the last few years. 45



--------------------------------------------------------------------------------

Table of Contents

Purification Solutions

Sales and EBIT for Purification Solutions for the third quarter and first nine months of fiscal 2014 and fiscal 2013 are as follows:

Three Months Ended Nine Months Ended June 30 June 30 2014 2013 2014 2013 (Dollars in millions) Purification Solutions Sales $ 78$ 81$ 230$ 244 Purification Solutions EBIT $ (7 )$ (1 )$ (20 )$ 4 Sales in Purification Solutions decreased by $3 million in the third quarter of fiscal 2014 when compared to the same period of fiscal 2013 due to lower volumes ($9 million) partially offset by a more favorable price and product mix (combined $5 million). During the first nine months of fiscal 2014, sales in Purification Solutions decreased by $14 million primarily due to lower volumes ($26 million) partially offset by a more favorable price and product mix (combined $12 million). The more favorable price and product mix in both comparative periods were primarily due to the implementation of price increases. Lower volumes in both comparative periods were driven by a decline in demand in the air and gas sector. EBIT in Purification Solutions decreased by $6 million in the third quarter of fiscal 2014 when compared to the same quarter of fiscal 2013 primarily due to lower volumes ($5 million). For the first nine months of fiscal 2014, EBIT was $24 million lower when compared to the first nine months of fiscal 2013 driven by lower volumes ($14 million) and higher fixed costs ($11 million). Lower volumes in both comparative periods were driven by a decline in demand in the air and gas sector. Higher fixed costs in both comparative periods were primarily related to higher maintenance costs and a higher allocation of certain functional and indirect costs.



Cash Flows and Liquidity

Overview

Our liquidity position, as measured by cash and cash equivalents plus borrowing availability increased by $145 million during the first nine months of fiscal 2014. The increase was largely attributable to the receipt of the final cash payment for the sale of the Supermetals business during the third quarter of fiscal 2014, partially offset by the NHUMO acquisition. At June 30, 2014, we had cash and cash equivalents of $101 million, and current availability under our revolving credit agreement of approximately $647 million. Our revolving credit agreement, which has a $750 million limit, supports our commercial paper program. The aggregate borrowings under both our commercial paper program and revolving credit agreement cannot exceed the $750 million limit. The outstanding balance of commercial paper as of June 30, 2014 was $103 million and is included within the Notes payable caption on our Consolidated Balance Sheets. Our revolving credit agreement contains affirmative, negative and financial covenants and events of default customary for financings of this type. The financial covenants in the revolving credit agreement include interest coverage, debt-to-EBITDA and subsidiary debt to total capitalization ratios. As of June 30, 2014, we were in compliance with all applicable covenants. 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. As of June 30, 2014, our U.S. dollar equivalent cash and cash equivalent holdings by region were: Asia Pacific$53 million, Europe$20 million, and the Americas$28 million, which included $4 million in the U.S. We received $215 million of cash during the third quarter of fiscal 2014 on notes receivable related to the fiscal 2012 sale of our former Supermetals business. 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. Our liquidity derived from cash flows from operations is, to a large degree, predicated on our ability to collect our receivables in a timely manner, the cost of our raw materials, and our ability to manage inventory levels.



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

46



--------------------------------------------------------------------------------

Table of Contents

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 $185 million in the first nine months of fiscal 2014, compared to $142 million during the same period of fiscal 2013. Cash provided by operating activities in the first nine months of fiscal 2014 was driven primarily by net income of $182 million plus $150 million of depreciation and amortization and $22 million of dividends from equity affiliates. These sources of cash were partially offset by a net increase in working capital (inventories plus accounts and notes receivable, less accounts payable and accrued liabilities). Our working capital increase during the first nine months of fiscal 2014 was driven primarily by higher accounts receivable and inventories. Cash generated from operating activities in the first nine months of fiscal 2013 was driven primarily by net income of $109 million plus $144 million of depreciation and amortization. These sources of cash were partially offset by a net increase in working capital (inventories plus accounts and notes receivable, less accounts payable and accrued liabilities) and a decrease in income taxes payable of $36 million. Our working capital increase during the first nine months of fiscal 2013 was driven primarily by higher accounts receivable and lower accounts payable and accrued liabilities due to the timing and payout of certain corporate accruals.



Cash Flows from Investing Activities

In the nine months ended June 30, 2014, investing activities provided $22 million of cash and were primarily driven by the receipt of the final cash payment for the sale of the Supermetals business of $215 million, partially offset by capital expenditures of $115 million and cash paid for the NHUMO acquisition of $73 million (net of cash acquired of $7 million). For the nine months ended June 30, 2013, investing activities consumed $160 million of cash and were primarily driven by capital expenditures of $195 million partially offset by cash received from notes receivable from the sale of the Supermetals business of $39 million. During the nine months ended June 30, 2014, capital expenditures were primarily related to sustaining and compliance capital projects at our operating facilities, site development at our mine in Marshall, Texas, to support the future raw materials supply for the Purification Solutions segment, investments in energy recovery technology, and capital spending required for process technology and product differentiation projects. Capital expenditures for the remainder of fiscal 2014 are expected to be between $60 million to $85 million. Our planned capital spending program for the remainder of fiscal 2014 is primarily for sustaining and compliance capital projects at our operating facilities, investments in energy related projects, and site-development initiatives.



Cash Flows from Financing Activities

In the nine months ended June 30, 2014, financing activities consumed $188 million primarily related to net outflows of $138 million on our commercial paper program. In the first nine months of fiscal 2014, our overall debt balance decreased by $136 million. The decrease was driven primarily by our repayment of commercial paper in the third quarter of fiscal 2014 using the cash received from the sale of the Supermetals business. During the first nine months of fiscal 2013, financing activities consumed $12 million of cash. We received net inflows of $202 million from our commercial paper program, and used the majority of the proceeds to repay $189 million on our revolving credit facility. In the first nine months of fiscal 2013, our overall debt balance increased by $31 million to fund capital expenditures and working capital requirements.



Venezuela

We own 49% of an operating Carbon Black affiliate in Venezuela, which is accounted for as an equity affiliate, through wholly owned subsidiaries that carry the investment and receive its dividends. As of June 30, 2014, these subsidiaries carried the operating affiliate investment of $17 million and held 20 million bolivars (less than $1 million) in cash. During the nine months ended June 30, 2014 and 2013, the operating affiliate declared dividends in the amount of $4 million and $2 million, respectively, which were paid in U.S. dollars and repatriated to our wholly owned subsidiaries. 47



--------------------------------------------------------------------------------

Table of Contents

During the second quarter of fiscal 2014, the Venezuelan government enacted several changes to Venezuela's foreign exchange regime, introducing a multi-tier foreign exchange system whereby there are now three exchange rate mechanisms available to convert Venezuelan Bolivars to U.S. dollars. In March 2014, the Venezuelan government created a currency exchange mechanism referred to as SICAD 2 (Supplementary System for the Administration of Foreign Currency) and allowed its use by all entities for all transactions. The exchange rate on March 31, 2014 under SICAD 2 was 50.8 bolivars to the U.S. dollar (B/$) compared to the previously used official exchange rate of 6.3 B/$. A significant portion of our operating affiliate's sales are exports denominated in U.S. dollars. The Venezuelan government mandates that a certain percentage of the dollars collected from these sales be converted into Bolivars. Since the exchange rate that was made available to us when converting these dollars into Bolivars was the SICAD 2 exchange rate, the operating affiliate remeasured its bolivar denominated monetary accounts at that rate. From a segment reporting perspective, the negative impact of the exchange rate devaluation on the operating affiliate's results was $8 million, of which our share was $4 million for the nine months ended June 30, 2014. The SICAD 2 rate at June 30, 2014 was 50.0 B/$. In addition, in the second quarter of fiscal 2014 we remeasured the bolivar denominated monetary accounts in our wholly owned subsidiaries at the SICAD 2 rate as it was determined that this exchange mechanism is applicable to these subsidiaries. This resulted in the recognition of a $2 million loss which was recorded within Other income within the Consolidated Statements of Operations. We also recognized a tax benefit of $2 million from a reduction in its bolivar denominated deferred tax liability due to the impact of the devaluation of the bolivar on unremitted earnings. The operating entity has been profitable historically and has significant export operations from which it is entitled to retain a certain percentage of the foreign currency that it collects, which is principally the U.S. dollar. We continue to closely monitor developments in Venezuela and their potential impact on the recoverability of our equity affiliate investment. We closely monitor our ability to convert our bolivar holdings into U.S. dollars, as we intend to convert substantially all bolivars held by our wholly owned subsidiaries in Venezuela to U.S. dollars as soon as practical. Any future change in the SICAD 2 rate or opening of additional parallel markets could cause us to change the exchange rate we use and result in gains or losses on the bolivar denominated assets held by our wholly owned subsidiaries.



Purchase Commitments

We have entered into long-term purchase agreements primarily for the purchase of raw materials. Under certain of these agreements the quantity of material being purchased is fixed, but the price paid changes as market prices change. For those commitments, the amounts included in the table below are based on market prices at June 30, 2014. Payments Due by Fiscal Year Remainder of Fiscal 2014 2015 2016 2017 2018 Thereafter Total (Dollars in millions) Reinforcement Materials $ 102 $ 318$ 280$ 189$ 181$ 2,628$ 3,698 Performance Materials 12 39 33 29 30 236 379 Advanced Technologies 1 2 1 1 1 - 6 Purification Solutions 12 20 11 10 9 17 79 Total $ 127 $ 379$ 325$ 229$ 221$ 2,881$ 4,162



Off-balance sheet arrangements

We have no material transactions that meet the definition of an off-balance sheet arrangement.

Forward-Looking Information

This report on Form 10-Q contains "forward-looking statements" under the Federal securities laws. These forward-looking statements address expectations or projections about the future, including the profitability of our Specialty Fluids business, the amount and timing of the charge to earnings we will record and the cash outlays we will make in connection with the closing of certain manufacturing facilities and restructuring initiatives; our estimated future amortization expenses for our intangible assets; the sufficiency of our cash on hand, cash provided from operations and cash available under our credit facilities to fund our cash requirements; uses of available cash including anticipated capital spending and future cash outlays associated with long-term contractual obligations; our expected tax rate for fiscal 2014; the recoverability of our equity affiliate investment in Venezuela; 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. 48



--------------------------------------------------------------------------------

Table of Contents

Forward-looking statements are based on our current expectations, assumptions, estimates and projections about Cabot's businesses and strategies, market trends and conditions, economic conditions and other factors. These 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, or should underlying assumptions prove inaccurate, our actual results could differ materially from those expressed in the forward-looking statements. In addition to factors described elsewhere in this report, the following are some of the factors that could cause our actual results to differ materially from those expressed in the forward-looking statements: changes in raw material costs; lower than expected demand for our products; the loss of one or more of our important customers; our inability to complete capacity expansions or other development projects, including at our mine in Manitoba, as planned; the timing of implementation of environmental regulations; the availability of raw materials; our failure to develop new products or to keep pace with technological developments; fluctuations in currency exchange rates; patent rights of others; stock and credit market conditions; the timely commercialization of products under development (which may be disrupted or delayed by technical difficulties, market acceptance, competitors' new products, as well as difficulties in moving from the experimental stage to the production stage); demand for our customers' products; competitors' reactions to market conditions; delays in the successful integration of structural changes, including acquisitions or joint ventures; severe weather events that cause business interruptions, including plant and power outages or disruptions in supplier or customer operations; the accuracy of the assumptions we used in establishing reserves for environmental matters and for our share of liability for respirator claims; and the outcome of pending litigation. Other factors and risks are discussed in our 2013 10-K.



Recently Issued Accounting Pronouncements - Not Yet Adopted

In July 2013, the Financial Accounting Standards Board (FASB) issued a new standard related to the "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists". The standard requires, unless certain conditions exist, an unrecognized tax benefit or a portion of an unrecognized tax benefit be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, similar to a tax loss or a tax credit carryforward. This standard is applicable for fiscal years beginning after December 15, 2013, and for interim periods within those years. We will adopt this standard on October 1, 2014. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements and we do not expect the impact to be material. In April 2014, the FASB issued a new standard related to the "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity". The standard requires discontinued operations treatment for disposals of a component or group of components that represents a strategic shift that has or will have a major impact on an entity's operations or financial results and requires additional disclosures for discontinued operations and new disclosures for individually material disposal transactions that do not meet the definition of a discontinued operation. This standard is applicable for fiscal years beginning after December 15, 2014 and for interim periods within those years with early adoption permitted but only for disposals that have not been reported in financial statements previously issued. We expect to adopt this standard on October 1, 2015. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements. In May 2014, the FASB issued a new standard related to the "Revenue from Contracts with Customers" which amends the existing accounting standards for revenue recognition. The standard requires entities to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services. This standard is applicable for fiscal years beginning after December 15, 2016 and for interim periods within those years and early adoption is not permitted. We expect to adopt this standard on October 1, 2017. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements. 49



--------------------------------------------------------------------------------

Table of Contents


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Edgar Glimpses


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters